Equity and Trusts
Lecture and Textbook Notes
Concept of Equity
General Principles of Equity
Fairness – underlying principle of equity and the reason we have equity is to ensure
that we have fairness in our legal judgements and decisions
Equitable remedies are not a right, but a discretion – claimants are not entitled to
equitable remedy, they are only entitled to them if the common law isn’t going to
provide a fair outcome
Equity came not to destroy common law, but to fulfil it – law is there to provide a
remedy for someone who was wronged, but if the common law isn’t going to do
that, equity will step in
S.25(11) Judicature Act 1873 – “… in which there is any conflict or variance between
the rules of equity and the rules of common law with reference to the same matter,
the rules of equity shall prevail”
Historical Development of Equity
Prior to the 12th century there were local laws (laws in Birmingham were different to the
laws in London, therefore the outcomes of cases were different).
Henry I wanted to create a common law among all of the land so that all cases ended up
with the same outcome whether it happened in Birmingham or London.
Henry I would travel along the country dispensing justice along with the King’s Chancellor
and the courts would apply the common law in all of the cases.
By 14th century, the King’s common law had become rigid and inflexible.
Dissatisfaction of this rigidity grew strong. People would petition the Chancellor as ‘the
keeper of the King’s conscious’ for relief. Due to the number of petitions being lodged, the
Court of Chancery and the common law became two distinct legal bodies (common law
courts and the courts of equity).
The dual court structure caused great inconvenience and injustice as it meant that
claimant had to choose the right court in which to pursue their claim. If the wrong
court were chosen, claimant would then have to start al over again in the other
court. This resulted in lengthy delays and very high costs in pursuing litigation.
This distinction posed issues – The Earl of Oxford’s Case [1615] 1 Ch Rep 1, this case
highlighted that where there was a conflict between common law and equity, equity will
prevail.
In this case, Lord Chancellor Ellesmere recognised that equity’s function was “to
soften and mollify the extremity of the law”.
Lord Chancellor Cowper summarised the relationship between common law and
equity when he said “equity is in no part of the law, but a moral virtue which
qualifies, moderates and reforms the rigour, hardness and edge of the law.” 1
However, there were still issues with the way we dispensed of equity because it depended
on who was Lord Chancellor at that time. Measure of justice depended on the Lord
Chancellor – measure of justice might as well be the Chancellor’s foot.
E.g. if we had a lenient and caring Lord Chancellor, they would dispense of more equitable
decisions
1
Lord Dudley v Lady Dudley [1705] Prec Ch 241, 244
,Historical Development – Modern Equity
By 19th century, Courts of Chancery were becoming back logged with all of these
petitions being lodged with the Lord Chancellor and people seeking reform from
the common law
Judicature Act 1873-75 came into force and allowed all courts to administer law
and equity, so the common law courts could now dispense of equitable judgement
rather than just the Courts of Chancery.
Complexity of litigation was to some extent resolved by the enactment of these
Acts. These Acts abolished the Common Law and Chancery Courts and replaced
them with a single High Court which was divided into what is now known as the
Queen’s Bench Division and the Family Division
Judicature Act 1873 states that equity, as a body of law, can be applied in any
division of the High Court. This meant that remedies that were derived from
common law or equity could be awarded, regardless of the court in which the
claim was heard.2
Effect of this legislation was to fuse the administration of common law and equity,
but the statutes did not fuse the two bodies of law.3
Effects of the Judicature acts 1973-75
The Judicature Acts created a Supreme Court consisting of a Court of Appeal and High
Court with 5 divisions. S.24 JA 1973 gave all judges jurisdiction in matters of both equity
and law. Today, this principle is preserved in S.49(1) Senior Courts Act 1981 (formerly
known as the Supreme Courts Act 1981), which states that “…every court exercising
jurisdiction in England and Wales in any civil cause or matter shall continue to administer
law and equity…”
Walsh v Lonsdale In this case there was a landlord and tenant and a 7-year lease
[1882] 21 Ch D 9 created. T went in possession, but both failed to execute necessary
legal formalities e.g. deed. L claimed rent in advance (as in the
contract) but T argued that due to a lack of legal deed L had no
legal right for the advance – rent should be paid in arrears.
Held – L successful. Court granted an equitable lease (relating to
the maxim ‘equity treats as done that which ought to be done’
The maxim ‘where equity and law conflict, equity shall
prevail’ applies
Separation of Title
A trust can only exist when ownership of property separates into legal and equitable
title
The owner of the property that is not subject to a trust holds absolute legal title to
that property – they have both legal and equitable title
When a trust is created, legal and equitable title are owned by different people. The
person trustee will own the legal title and the beneficiary will own the beneficial title
The trustee is entitled to do anything with the property which a legal owner might,
but they have to do so for the benefit of the beneficiary
2
Senior Courts Act 1981, s.49(2)
3
Evershed, ‘Reflections on the fusion of Law and Equity after seventy-five years’ [1954] 70 LQR 326, 341
, In the eyes of the law, the owner of the property has full ownership of the property
and can do anything they like with it e.g. sell the house, however, this is where
equity steps in and ensures the trustee can only do things to benefit the beneficiary
and therefore if the trustee did sell the property, they don’t get any of the benefit,
the money goes to the beneficiary
Equitable Maxims
They are not rules but rather the guiding principles which we have for equity – they
are employed rather than followed. If a particular maxim isn’t going to give a fair
outcome, you don’t have to employ that maxim as it is not a rule that we have to
follow but rather a guiding principle
As they are guiding principles, they allow for flexibility as we do not have to follow
them
Some maxims may even conflict
Equity follows the law – equity will follow the law if the law is going to provide a fair
outcome
Equity looks to substance, not form – looks at have you genuinely satisfied the criteria
rather than actually met every single rule you were supposed to
Equity will not permit a statute to be used as an instrument of fraud – even where a person
has followed the law, if that provides an unfair outcome because it has been done in a
fraudulent way, equity will not allow for that
Equity will not assist a volunteer – equity will not assist you because you have not done
anything to require equity to get involved. Decision not unfair.
Those who come to equity must come with clean hands – if you are going to ask for equity
These to assist you, you must’ve been equitable yourself (fair)
two Equity will not suffer a wrong without a remedy – if you have been wronged and you are
maxims the injured party then you are entitled to some type of remedy (equitable or common law)
conflict Equity sees as done that which ought to be done – if you should’ve done something and it
would be fair to see that you have done something, then equity will see that it has been
done
Why do we need equity?
Equitable remedies
We need injunctions, recission, specific performance – they are flexible and can be applied
in different circumstances and if we have these we have greater fairness within the law. If
the common law doesn’t provide a fair outcome, we can have these equitable remedies. “It
exists to modify the harshness and rigidity of Common Law.”4
Protection of mortgages
The trust
The Concept of the Trust
What is a trust?
Trust – an equitable obligation which binds a person, called the trustee, to use property
over which he has legal ownership for the benefit of someone else, who is called a
beneficiary
As far as common law is concerned, the trustee is absolutely entitled to the property,
however equity can see that the legal owner of the property holds the property for the
4
Vauxhall Motors Ltd v Manchester Ship Canal Co Ltd [2019] UKSC 46, [2019] 3 WLR 852, [63] Lady Arden
, benefit of someone else. If the trustee fails to manage the property properly, they will have
breached the trust and will be liable to compensate the beneficiary for any loss suffered or
to disgorge any benefits that they personally obtained from the property.
Core Characteristics
Three parties involved –
1. Settlor – the person who creates the trust
2. Trustee – the person who will end up with legal title of this property
3. Beneficiary – the person who will end up with beneficial title of this property
Separation of legal and equitable (beneficial ownership) – the trustee has the legal title and
the beneficiary has equitable ownership
Imposition of obligations on the trustee – the person who has legal title is now obliged to
use that for someone else’s benefit, they can’t just decide that they’re going to use it for
themselves
Acquiring of rights for the beneficiary – gives rights to the beneficiary, you don’t have
legal title but you have the right to claim rights
Historical Development
There are two theories behind where the trust originated from –
THEORY ONE
Monks
Monks were unable to old legal title of land without breaking their vow of poverty
therefore they were vulnerable as they were essentially homeless. Community would
purchase land for the ‘use’ of the monks. The ‘use’ here is a form of trust. The community
would own legal title of the land but it was for the benefit of the monks.
THEORY TWO
Crusaders
Crusaders would go off on crusades and the crusaders would own property and when on
the crusades they needed to make sure that their property was looked after and maintained
therefore they’d give the legal title of their property to a trusted friend and the trusted
friend would keep the property and maintain it for the benefit of the crusader. When the
crusader returned the trusted friend would re-convey the land into the crusader’s name.
Here, it is clear that equity gets involved in a trust. A trust cannot operate without
equity as seen in both theories.
Example
When the crusader goes on a crusade, he gives the legal title of his property to his friend to
maintain the property. The law says that when you convey land by deed the person now owns
the property, therefore by law, the crusader’s trusted friend owns the property. However,
when the crusader returns and wants his home back, it would be unfair if the friend were to
say, “it’s my home now, you are now homeless.” This is how equity gets involved and says,
whilst the law does say that the friend now owns the property, this is unfair as it was not the
purpose of giving the friend legal title and so actually equity has to get involved in order to
split legal and equitable title.
Modern day uses of trusts
Preservation of family estates and other property e.g. father holds property on trust
for their children so that it stays within the family
