http://www.rejent.com.pl/app/appStowarzyszenieS/publikacje/2...

(a) Trust and contract
Let us consider the advantages and disadvantages of the trust and the contract in the ‘secret ownership’ situation illustrated in example 1 (p 6). If the arrangement is set up by contract alone – whether it be a contract between the brokers and Wisegirl, or the brokers and Whizz-kid, or all three – the major disadvantage from the point of view of Wisegirl and Whizz-kid is that, if the brokers were to sell or give the shares to a third party in breach of the contract, Whizz-kid’s claim to the dividends, etc, would be overridden even though the third party knew all along about the contractual arrangement. One could evade this by dressing it up as a contract of agency between Whizz-kid (as principal) and the brokers (as agents), because if the brokers then gave the shares away or sold them to a third party who was on notice, Whizz-kid would have so-called rights of ‘tracing’ against the third party
entitling him to claim the benefit of the shares. But, as we shall see, these rights only arise from a form of ‘imputed’ trust: in other words, agency smuggles the trust in by the back door. And there is the practical disadvantage that as Whizz-kid has to be made a party to the contract the simplicity of Wisegirl’s transfer on trust is lost. The only possible advantage of using a contract is that Wisegirl herself (assuming she is a party) can easily sue the brokers if they play false, whereas the trust, it will be recalled, prima facie confers rights of action for breach of trust on the beneficiaries only. There are ways of combining the contract and the trust to achieve this result (eg the brokers could agree formally with Wisegirl to observe the trust in Whizz-kid’sfavour), but again the objective of simplicity has been lost.

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In Chapter 11 we briefly summarised why in certain circumstances a personal
claim against a trustee may not always produce an adequate remedy for
a beneficiary. This would most obviously be the case where the trust fund
has been misappropriated and the trustee is insolvent. Then, we suggested
(see p 603), a beneficiary might seek to follow or trace the misappropriated
trust property itself so as to establish a proprietary claim over it or its
exchange product or indeed a personal claim of the type described above.
‘Following’ and ‘tracing’ tend nowadays to be interpreted not as synonyms
but rather as representing distinct steps in the process of identifying what
has happened to the claimant’s property. Lord Millett in Foskett v McKeown
[2001] AC 102, adopting the distinction formulated by Smith in The Law
of Tracing (1997) pp 6–15, defined the two concepts in the following way
(at p 127): The process of ascertaining what happened to the plaintiffs’ money involves both tracing and following. These are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The processes of following and tracing are, however, distinct. Following is the process of following the same
asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner. In practice his choice is often dictated by the circumstances.