Foskett v McKeown [2001] 1 AC 102

Investors paid money into a Portuguese property development scheme, but the proposed development did not proceed and their funds were misapplied. Some of the trust money was used to pay premiums on a life insurance policy. When the insured died, a substantial policy payment became due to his children. The investors claimed a proportionate share of that payment corresponding to the premiums financed with their money. The children argued that the policy would have paid out in any event and that recovery should, at most, be limited to repayment of the misapplied premiums and interest.

Could beneficiaries trace misapplied trust money into a proportionate share of life-insurance proceeds, rather than recover only the premiums paid with that money?

A majority of the House of Lords upheld the investors' proprietary claim to 40% of the policy proceeds. The trust money was traceable into the rights acquired through the premium payments and into the resulting insurance fund. Lord Millett stressed that the court was vindicating property rights, not awarding a discretionary remedy based on general fairness. Nor was the claim confined to reversing the amount of the expenditure or proving the conventional causal loss required by a damages action. The innocent recipients' position required careful treatment, but did not give them the whole substitute asset. The majority and dissent differed over the analysis of the policy and contributions; the reported outcome remained a proportionate proprietary recovery.

Where trust money contributes to acquiring an asset, beneficiaries may trace into the substitute and claim the appropriate proportionate interest. This vindicates property rights rather than compensating loss through a general fairness discretion. The precise asset and contribution analysis remain essential.

Foskett separates tracing, the process of identifying value, from the proprietary claim which it supports. It also distinguishes ownership-based recovery from unjust enrichment and compensation. Students should explain why the insurance rights and proceeds were substitute property, rather than assuming that every payment causally associated with a later receipt creates a share of that receipt. The position of innocent recipients makes the analysis especially valuable: sympathy alone neither establishes nor defeats an existing property right.