The charity in question is not a bona fide purchaser hence it is not automatic that the money will not be traceable against them. If the property is traceable it is worth noting that in any case the claimants would not receive their money back but the books that the charity had bought. The important thing to note in this situation is that the charities used the money to buy books for an old peoples' home which they owned. I think it is arguable that they would not have done so unless they had received the money in the first place.
This raises the possibility of the defence of change of position. However it is important to notice that this defence has only been recognized in Lipkin Gorman which was, as I have mentioned above, a personal claim at common law and not an equitable proprietary claim. Lord Goff in the case agreed that it was a good defence but failed to specify any of the requirements maintaining that these should evolve in a piecemeal fashion on a case by case basis.
Lord Millett on the other hand has stated that he is not sure whether the defence of change of position can be utilized in an equitable claim. If this were not possible I do not know if it is possible to stretch one of the defences discussed in Re Diplock, namely that of money used as improvement to land. The books certainly do ameliorate the lifestyle of the residents of the old peoples' home but to classify it as a land improvement does not seem entirely justifiable.
However there is another defence raised in Re Diplock which states that the property will not be traceable if the court believes that it is grossly unconscionable for the claim to go ahead. Again this does not seem to apply straight to the facts but if it could be shown that some new residents had relied on the improved library when choosing a home, it is possible although I admit, a bit remote that the court would decide not to allow the books to be recovered.
Alternatively it is arguable that neither Q nor R are interested in recovering the books and that hence it would be unconscionable for the courts to rid the charity of them as they had bought them in good faith and they were of great use to the residents of the home. Remedies: how much and to whom? Since Q and R have brought an equitable proprietary claim the whole of the identifiable property is subject to an equitable charge and gives them priority over other general creditors of P, as secured creditors.
Since the account into which P deposited the money he had fraudulently obtained was already in credit in order to determine apportionment when the money of two trusts is mixed, the first rule to follow is that of Re Hallett's Estate17 which states that P is deemed to have spent his money first. Once this has been established in order to determine of that residual amount how much goes to the claimants, in the case of current account, the rule to follow is that in Clayton's Case18: the court held that "it is the first sum payed in that is first drawn out".
The method is slightly different for deposit accounts where, according to Sinclair v Brougham which is still good law on this point, the identifiable money or property is apportioned equally. I mention this because recently as in the case of Barlow Clowes v Vaughan19, the courts have shown a tendency to move in favour of the rule in Sinclair over that of Clayton's Case even where current accounts are concerned.
It is important to note that the reason for this is probably that in Clowes the number of claimants was enormous and if the rule in Clayton's were followed then only very few of the last persons defrauded would have been able to recover their money hence making it less inequitable for the courts to apportion loss equally between all the claimants. This is to say that the automatic application of Clayton's is no longer certain where the number of claimants exceeds a certain number, however for our situation I think the courts would still be likely to apply Clayton's as the number of claimants is only two.