The loss of the right to trace

The clearest expression of this tangible property theory in the law of tracing comes from the loss

the bank lost its right to trace the deep discount amount transferred to the local authority

because the account into which that money had been paid had run overdrawn, and it was

impossible to identify any substitute property into which the tracing claim could then pass. This

is the loss of the right to trace rule in the banking context: when money passes into an account

and that account is run overdrawn before the commencement of the action, the claimant loses its

The rationale for this rule is that money in a bank account is analogous to tangible property. An

overdrawn account means that that specific property is said to have ceased to exist in the same way

that a table which is burnt to cinders is said to cease to exist as a table. What the rule does not

account for is the fact that the property at issue is not tangible property at all, but rather that it

is an amount of value represented by the bank account debt. English law understands payment

flows as being made up of movements of tangible property which informs the treatment of

restitution of payments, taking security rights over payment flows, and tracing payments generally

in financial markets. The courts have tended to see financial transactions not as being made up of

choses in action in this way but rather as being mere conduits for transfers of tangible property in

the form of money.