Equity and Trusts
Lecture 1 – Introduction to Equity
What is Equity?
The term ‘equity’ has a wide range of meanings.
Aristotle – “equity is superior to justice” – can deal with individual circumstances whereas
the law is general and must apply uniformly.
Hudson – equity ‘rectifies’ unfairness that would occur if the common law were followed
strictly.
For many people it is – ‘fairness’ and ‘justice’.
But for lawyers it is has a narrow meaning: that body of rules developed and applied by the
Court of Chancery, presided over by the Chancellor and the rules developed under that
authority.
Historical source of English law
- Common law: this term reflects the fact that the law as administered by the King’s
court became the common law, supplanting local custom. Courts of law – King’s
Bench.
- Equity: developed to remedy the deficiencies in the common law, leading to the
formal development of the Court of Chancery, until its abolition in 1875. Under the
jurisdiction of the Lord Chancellor.
- Legislation: originally, scarcely distinguishable from the common law, the growth of
Parliament as the dominant force, led to the growth of legislation as a major source
of law. Legislation & delegated legislation is the fundamental source of law, note EU
legislation.
The origins of the Court of Chancery
The rise of the Chancellor – the Keeper of the Great Seal and de facto Prime Minister.
Gradually the political role of the Chancellor waned and instead he began to exercise the
King’s residuum of justice.
By 1463, the Chancellor had begun to dispense justice in his own name and established his
own Court – the Court of Chancery (the Chancellor’s Court).
The Chancery Court was one of conscience “we are to argue conscience here, not law”.
This led to arbitrary justice – Cardinal Wolsey was regularly complained of for his arbitrary
justice. Two judges would argue with two different things – so your case would depend on
which judge heard your case.
The reforms of Lords Nottingham and Eldon introduced the doctrine of precedent to the
Chancery Courts to remedy this. This now says that you must follow what the higher court
says. In these circumstances, this is when we decide what we deem to be fair and what rules
will apply.
The context of Equity
Equity’s greatest invention was the trust – this is unique to criminal law and civil law does
not have this.
The Trust – the ‘true’ owner.
Equity estoppel. This stops something from occurring. If you promise not to enforce
contractual rights, you cannot go back on this and then enforce the rights.
, - Promissory: Central London Property Trust Ltd v High Trees House Ltd [1947] –
contracts. Landlord said he didn’t want all the rent during the war. When the war
was over, he demanded all the rent.
- Proprietary: Dillwyn v Llewellyn [1862] – land. When you promise someone your
land, and then you have detrimental reliance the land can become yours.
Creation / transfer of legal interest in land without a deed.
Equitable remedies – injunction (stopping someone or making someone doing something) ,
specific performance (you must carry out the contract) , duty to account (hand over
property) etc.
Common law and Equity – the relationship
Generally, equity followed the common law unless there was a reason to do otherwise.
However, there was bound to be conflict. Equity does not make rules that already exist.
If equity and common law conflict, then equity prevails.
Earl of Oxford’s case [1615] – equity will take priority if there is a conflict between the rules
of law and the rules of equity.
Judicature Acts 1873-1875 (now the Senior Court Act 1981) fused the administration of
Equity and the common law and reaffirms Oxford.
Errington v Errington [1952] – Equity and law are fused.
Asburner said that “the result is that the two streams of jurisprudence, though they are run
in the same channel, run side by side, and do not mingle their waters”.
Lord Dudley & Ward v Lady Dudley [1705] – “equity is no part of the law, but a moral virtue,
which qualities, moderates, and reforms the rigour, hardness and edge of law, and is a
universal truth; it does also assist the law where it is defective and weak…and defends the
law from crafty evasions, delusions, and new subtleties, invented and contrived to evade
and delude the common law, whereby such as have undoubted right are made remedies.
Although equity and common law are not dealt with in the same courts, they are dealt with
in different jurisdictions.
Differences between common law and equity:
- Hudson – the distinction between the two is an intellectual distinction.
- Claims – e.g. breach of contract, torts, fraud.
- Remedy at common law will usually be damages.
- Remedy in equity can be either damages or proprietary – constructive trust, tracing
at Equity, proprietary estoppel.Others are wide and varied, including specific
performance, injunction, rescission, subrogation and account of profits.
The Trust
Thomas and Hudson – the imposition of an equitable obligation on the legal owner of
property (trustee), requiring that person to act in good conscience in relation to the
beneficiary of the trust.
Simultaneous rights in the same property by two or more parties.
Westdeutsche Landesbank v Islington LBC - “trusts are imposed when it would be
unconscionable for the legal owner to deny the beneficiary’s rights (they are imposed on an
individual’s conscience).
Any property can be held on trust.
,The trust regulates the use of the property – the job of the trustee is to look after the
property for the beneficiaries.
Settlor – the person who creates / declares the trust. The settlor can also be a beneficiary
(self-declaration of trust) or it can be a third party.
Trustee – the ‘legal owner’. The trustee can also be a beneficiary and must act in the
interests of the beneficiary.
Beneficiary – the person who is ultimately entitled to the property or ‘equitable owner’. Can
also be a trustee. They benefit from the trust.
Beneficial owner – beneficiary.
Fiduciary duty – the duty to act in good faith in your role as a trustee.
Types of Trust
Express trust – is created from the individuals express intentions.
Constructive trust – arises to remedy an unconscionable contract, e.g. theft and bribery.
Resulting trust – arises at the result of the presumed intentions of the parties, e.g. if you
were to give someone an iPad and you give nothing in return, then the law still assumes the
iPad is still yours.
Equitable Maxims
The maxims of Equity describe some of the main principles which guide equitable
intervention.
Brief, pithy phrases which remain easily in the mind, but in practice, very rarely used today.
The historical importance is greater because they began to be formulated in 1673-82 and
were one of the main vehicles by which Equity changed from being based upon the general
notion of conscience to a more formal and predictable system.
Snell’s principles of Equity:
- Equity acts on the conscience
Grant v Edwards [1986] ‘equity acts on the conscience of the legal owner to prevent him
from acting in an unconscionable manner by defeating a common intention’.
Westdeutsche Landesbank v Islington [1996] – where it would be unconscionable for the
legal owner to deny the rights of the beneficiary.
What would the majority of people do if someone stole from someone?
- Equity acts in personam
Equitable jurisdiction is exercised against specific persons. It does not matter that the ‘thing’
is situated abroad, so long as the trustee can be found. As Equity developed, it acted not
only against the original trustee/owner, but also against subsequent owners. Thus, certain
equitable rights are property rights, there is equitable title to land, and equitable ownership
of goods. Various statutory provisions, and in particular the 1925 property legislation and
some taxation legislation treat equitable interests as property interests. Therefore, although
Equity acts in personamm, some equitable rights also have the characteristics of rights in
rem.
Richardson West & Partners (Inverness) Ltd v Dick [1969] – the English court held that they
had jurisdiction to grant a decree of specific performance of a contract for the sale abroad
, - Equity remedies are discretionary
Flight v Bolland [1828] – A minor was not granted a decree of specific performance because
it could not be granted against him.
- Delay defeats equity
The doctrine of Laches.
Vigilantibus non dormientibus aequitas subvenit.
Smith v Clay [1767] – “A court of equity has always refused its aid to stale demands where a
party has slept upon his rights and acquiesced for a great length of time. Nothing can call
forth this court into activity but conscience good faith and reasonable diligence.
Nelson v Rye [1996] – musician could not claim earnings from manager as the claim was
delayed by 6 years.
- He who seeks equity must do equity
Claimant seeking Equity relief must, before obtaining that relief, do what is right and fair by
the defendant.
Chappell v Times Newspapers [1975] – the claimant must show that he has either
performed his part of the contract or has tendered performance and is willing to perform
any further obligations under the contract.
- He who comes to equity must come with clean hands
Claimant must have a clear conscience as regards past events.
Overton v Banister [1844] – the court will not permit an infant who, by fraudulently
representing his age, persuades trustees to pay him money in breach of trust, to claim the
money over again attaining his majority.
Dering v Earl of Winchelsea [1787] – the only wrongdoing that can produce unclean hands
in the eyes of Equity is wrongdoing with an “immediate and necessary relation to the equity
sued for”.
Tinsley v Milligan [1993] – benefit fraud and claim to house. HoL held the maxim only
applies to claims where the conduct relied on his unclean.
- Equity will not suffer a wrong to be without a remedy
Ubi jus ibi remedium.
The wrong should be addressed if possible.
Ashby v White [1704]- “if the plaintiff has a right, he must of necessity have a means to
vindicate it, and a remedy if he is injured in the exercise or enjoyment of it”. This has in
mind only those wrongs capable of judicial redress.
- Equity follows the law
All interests that are recognised at common law are also recognised in Equity. However,
there are equitable interests that are not recognised at common law (the trust). Unless
there is a good reason for deviating (an injustice), Equity will follow the law.
Hopkins v Hopkins [1739]- estates created in Equity shall be governed by the same rules as
legal estates.
Kreglinger v New Patagonia Meat Co. [1914] – Equity deviated from law for good reason –
the right to redeem a mortgage earlier than the legal date of redemption.
