Equity Notes PDF

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In depth notes topics 1-4 of Equity and Trusts ...

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Contents Topic 1: The Nature of Equity.................................................................................................................3 Unconscionability as a Standard:.......................................................................................................3 Discretionary Nature of Equitable Relief:...........................................................................................3 History of Equity:...............................................................................................................................4 Maxims of Equity:..............................................................................................................................5 Maxim: Equity does not suffer a wrong without a remedy............................................................5 Maxim: Equity regards substance rather than form:......................................................................5 Maxim: Equity regards as done that which ought to be done.......................................................6 Maxim: Equity regards as done that which ought to be done.......................................................6 Maxim: Equality is equity...............................................................................................................6 Maxim: Where equities are equal the first in time will prevail......................................................6 Maxim: Where equities are equal the law will prevail...................................................................6 Maxim: Equity follows the law.......................................................................................................6 Maxim: One who comes into equity, must come with clean hands...............................................6 Maxim: One who seeks equity must do equity..............................................................................7 Maxim: Equity aids the vigilant not those who sleep on their rights.............................................7 Maxim: Equity acts in personam, not in rem.................................................................................7 Maxim: Equity imputes an intention to fulfil an obligation............................................................8 Maxim: Equity acts specifically......................................................................................................8 Maxim Example and Application:......................................................................................................8 Fusion: 1873....................................................................................................................................11 Fusion: Harris v Digital Pulse:.......................................................................................................12 Fusion: Account of Profits............................................................................................................13 Fusion: Elders Pastoral Ltd v BNZ.................................................................................................13 Topic 2: Undue Influence and Unconscientious Dealing......................................................................15 Undue Influence:.............................................................................................................................15 Categories of Undue Influence:...................................................................................................15 Undue Influence and 3rd Parties:..................................................................................................17 Relationships other than Married Women:.................................................................................21 Unconscientious Dealing:................................................................................................................22 There are 3 elements to unconscientious dealing: special disability; knowledge; exploitation:. .23 Australian Consumer Law:...........................................................................................................26 Topic 3: Fiduciary Relationships...........................................................................................................28 Fiduciary Relationships - Definition and Scope:...............................................................................28 1|Page

No Pre-Existing Legal Relationship:..............................................................................................28 Characteristics:............................................................................................................................29 Fiduciary Duties – Nature and Scope...............................................................................................29 Scope:..........................................................................................................................................29 Established Fiduciary Categories:.................................................................................................30 Fiduciary Principles in Commercial Transactions:........................................................................32 The Defence of Consent:..................................................................................................................32

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MLL405 - Equity and Trusts Topic 1: The Nature of Equity -

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Aristotle: Equity and social justice (equal justice and distributive justice) o Distributive justice (merit: simple ‘humanity’ is not enough) Are equality and proportionality entirely different varieties of justice? o Epieikeia = ‘equity’ o It is equitable to excuse things characteristically human – and to look not to the law but toward the lawgiver; and not to the letter of the law, but to the intention of the lawgiver o For the arbitrator sees the equitable, but the citizen juror only the law. And it was because of this that the arbitrator was invented, so that epiekeia [the equitable] could prevail. Four Readings of Aristotle on Epiekeia: o An ethos that actual Athenian litigants adopt o Pathos appeal o Logical point about the connection between the general law and specific cases to the person virtue of making this connection o Starting from the actual norms of society, but is moving beyond them Rhetoric is a handbook for coping with a deficient legal regime Revival of legal formalism and the gap between the people and their law That all is not positive law (Heidegger) Affirmative Action; de jure and de facto discrimination To exercise good judgement – more than positive law and propositional language The defects that arise in and may be caused by the system of justice itself cannot be cured by the application of universal principles o Standards of conduct rather than rules: good faith; unconscionability; due care; honesty; fair dealing; generosity; reasonableness; unjust enrichment

Unconscionability as a Standard: -

Not simple unfairness but that in the circumstances it would be unconscionable for the court to withhold relief ACCC v CG Berbatis Holdings Pty Ltd (2000) 96 FCR 491 o Abusing a position or relationship of trust and confidence o Exploiting a recognised vulnerability or weakness o Unfair insistense on strict legal rights in circumstances where this would be harsh or oppressive o Unfair refusal to perform legal obligations

Discretionary Nature of Equitable Relief: -

Discretion operates at 2 levels: o Consider whether the particular circumstances warrant any equitable relief at all:  Is common law relief adequate?  Would it refute conscience to deny equitable relief? 3|Page

If ‘YES’  Assess the type or measure of relief to be granted in the circumstances  Taking into account the circumstantial factors: e.g. hardship, delay, conduct of parties, adequacy of common law, adequacy of relief being sought, consequences of relief on both parties ‘The liberty of considering all cases in an equitable light must not be indulged too far, lest thereby we destroy all law, and leave the decision of every question entirely in the breast of the judge’ (Blackstone, Commentaries) o

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History of Equity: -

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Court of Chancery: o Lord Chancellor (‘keeper of the King’s conscience’) 1557: First Chancery reports published The Doctrine of the Use: o Franciscan monks inability to own land due to their vow of poverty o Foefee to use owns land for the benefit of cestui que use o Equity: right of the cestui to enforce the use against the foefee (compare common law) o Decreased revenue o 1535 Statute of Uses o From Mid 17C: Use known as Trust Marriage Settlement: o Common law transfer of women’s assets o Married Woman’s Property Act 1882 Common Injunction: o Discontinue proceedings or to prevent enforcement o Where the plaintiff’s enforcement of common law rights amounted to acting unconscionably In personam: attached to the person; focus on conscience Discretionary: required to establish unconscionable behaviour Conflict between courts of equity and common law courts Common law courts challenged Courts of Equity Earl of Oxford’s Case (1615) Lord Chancellor Ellesmere: o ‘The Office of the Chancellor is to correct Men’s conscience for Frauds, Breach of Trust, Wrongs and oppression, of what the Nature soever they may be, and to soften and mollify the Extremity of the Law’ 1676: When Courts of Chancery and Equity developed it began to resemble courts of law (Cook v Fountain, Lord Hardwicke) rejected subjective conscience o Conscience had settled principles o Equity was not concerned with certainty in law o The doctrine of precedent had supplanted the flexible search for justice 1818: Gee v Pritchard: o ‘The doctrines of this Court ought to be as well settled and made as uniform almost as those of the common law’ 1948: Re Diplock’s Estate; Diplock v Wintle: o ‘If the claim in equity exists it must be shown to have an ancestry founded in history and in practice and precedents of the courts administering equity jurisdiction. It is 4|Page

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not sufficient that because we may think that the justice of the present care requires it we should invent such a jurisdiction for the first time.’ 1983: Prevention of unconscionable conduct Legione v Hateley o Penalties and forfeitures in a contract o ‘Conforms to the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way the the exercise amounts to unconscionable conduct’ Categories of Unconscionable Conduct: o The exploitation of vulnerability or weakness: undue influence o The abuse of positions of trust and confidence: laws of trusts, fiduciary obligations o The insistence upon rights in circumstances which make such insistence harsh or oppressive: relief from penalties and forfeiture, equitable set off, specific performance, on the discretionary ground of hardship o The inequitable denial of obligations, doctrine of part performance, principle of equitable estoppel o The unjust retention of property, constructive trusts, principles of subrogation

Maxims of Equity: -

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What is a maxim? ‘An established principle or proposition. A principle of law universally admitted as being just and consonant with reason.’ (1) some so-called maxims are not maxims at all, but being concise and skilfully formulated phrases have gained popular recognition and have come mistakenly to be so regarded; (2) others are of definite value and if properly used, serve a beneficial purpose; and (3) even those which are useful are dangerous and should not be as a rule employed as the vertebrae of an argument or judicial determination, but rather as an aid or support for other legal reasoning. Riggs v Palmer 115 N.Y. 506 N.E 188 (1889): A grandson, knowing that he was a beneficiary under his grandfather’s will, murdered him o Law was clear and unambiguous in entitling benefit o To avoid incongruous result, courts said that statutory interpretation should ‘best answer the intention which the makers had in view, for qui hoeret in litera, hoeret in cortice’ (he who adheres to the letter adhered to the bark) o If you stick the literal meaning of the law you will not be able to reach the substance.

Maxim: Equity does not suffer a wrong without a remedy -

Where there is a civil right there is a legal remedy Equity follow the law: aequitas sequitar legem Equity fills the gaps in law But it does not apply: o To crime – although it may be part crime o To moral rights o Simply because there is no existing legal remedy

Maxim: Equity regards substance rather than form: -

True, inherent nature of the matter Compare common law – mortgage deed, gratuitous promise under seal The nature of a corporation

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Maxim: Equity regards as done that which ought to be done -

‘… equity will treat the subject matter as to collateral consequences and incidents in the same manner as if the final acts contemplated by the parties had been executed exactly as they ought to have been, not as the parties might has executed them. But equity will not thus consider things in favour of all persons, but only in favour of such as have a right to pray that the acts might be done’ Joseph Story, Commentaries on Equity Jurisprudence, para 64(g) (13th ed. 1886)

Maxim: Equity regards as done that which ought to be done -

Equitable estoppel: e.g. constructive trust on property given by mother to daughter for disabled son but claimed by daughter Equitable conversion: money paid for the purchase of land is treated as realty for purposes of descent; land to have been transferred for money is treated as money Equitable lien: mortgagor agrees to insure property for mortgagee but names himself as beneficiary under policy

Maxim: Equality is equity -

In the absence of a clear firm applicable rule of law Pro rata distribution Those in similar circumstances should be treated equally and non-preferentially E.g. unsecured creditors of an insolvent corporation E.g. sureties contribution from cosurities

Maxim: Where equities are equal the first in time will prevail -

Qui prior est tempore potior est jure ‘tie-breaker rule’ Simply, as between two equally innocent persons acting in good faith the remedy goes to the first in time Trumped by the next maxim…

Maxim: Where equities are equal the law will prevail -

Negative and impartial principle Where moral rights are balanced, law can be dogmatic Bona fide purchaser for value without notice of legal title subject to equitable right e.g. trust BFP > trust holder because BFP has legal title … trumps previous maxim

Maxim: Equity follows the law -

Significant barrier to equitable relief E.g. equity cannot impose a new contract or supply deliberate omissions Prevents equity courts from straying into plain, unambiguous language of statutes

Maxim: One who comes into equity, must come with clean hands -

Act or omission of a person bars them from receiving equity’s assistance Carmen v Fox Film Corp 269 Fed 928 (2d Cir., 1920) o A motion picture actress sought to have contacts made with the defendants during her minority declared void, having disaffirmed them with reasonable diligence once she reached majority o Also sought injunction restraining defendants from asserting contracts’ validity, and from interfering with her contractual relations with other companies or individuals 6|Page

Actress had entered several contracts and sought to nullify all but most lucrative of them using her minority as the basis Clean hands maxim not triggered by mere negligence Courts may apply it on their own motion because the maxim is designed to protect the court from spending time and public resources on inequitable transactions The primary factor is whether the plaintiff sought to mislead or deceive the other party not whether the defendant relied on the misrepresentation A plaintiff who was denied a high school diploma for excessive absences was awarded by injunctive relief the diploma on the basis that the attendance policy was unreasonable Reversed on appeal because the plaintiff had unclean hands (she forged excuse notes) regardless of the unreasonableness of the policy Plaintiff’s deceit not defendant’s reliance disqualified her from receiving relief Clean hands not required for bigamy annulment Reasonableness not saintliness o

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Maxim: One who seeks equity must do equity -

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As a condition of receiving equity a party must do or refrain from doing some act which otherwise he could not be constrained to do or omit, to assure fair and just treatment to the other party. i.e. to return the defendant to the status quo ante Prevents unjust enrichment or unfair advantage o A tenant seeking to avoid eviction for non-payment of rent must pay back rent before equity will aid him o Plaintiff delayed seeking rescission for mineral leases until after land proved to have no oil, and could not therefore restore to the defendants leases of the same value

Maxim: Equity aids the vigilant not those who sleep on their rights -

Vigilantibus et non dormientibus aequitas subvenit You snooze, you lose Laches – not ‘limitations’: the effect of delay (prejudice), not the fact of delay Although equity will generally follow statutory limitation periods unless real equitable laches occur Limitations becomes laches if the delay changes the situations such that the enforcement of rights is unfair o Witnesses have died or memories have faded o Market fluctuations cause changes in price or market value especially if plaintiff is able to benefit by the delay

Maxim: Equity acts in personam, not in rem -

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Otherwise it would interfere with common law courts Equity decrees affect things (jurisdiction in rem) Interpleader o Court to determine which of several parties is rightly the recipient of one party’s obligation or property Bill pf Peace o To settle an issue common to several suits Writ of assistance o Gives plaintiff actual possession of land Writ of sequestration 7|Page

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o Sequestrator (eg sheriff) can seize chattels, rents, profits etc Writ of prohibition o Superior court orders inferior to desist from prosecution of a suit, matter not belonging in that jurisdiction

Maxim: Equity imputes an intention to fulfil an obligation -

Doing an act which can be considered the intention to perform an obligation may be deemed performance of the obligation E.g. person contracted to obtain property for another but obtains for their own use property is deemed fulfilment of contract Contract, trust, agency, partnership, corporate officer, fiduciary, executor, guardian, administrator

Maxim: Equity acts specifically -

Not (usually) compensation or damages but specific relief Restorative Examples: o Specific performance o Injunction o Receiverships o Interpleader

Maxim Example and Application: 1. Mrs B moves to the town of Bonchance. She intends to purchase and operate a business making and selling hats. She locate what she believes is an appropriate property. Bonchance officials inaccurately inform her that the property is zoned for business and she purchases on that basis and prepares to open her business. However, when the town subsequently merges with the town of Allez, it emerges that the property was zoned as residential and her application for business is rejected. What should the court do? 2. Under the immediate and direct threat of condemnation, private landowners reluctantly agreed to sell their property to the City of Goodgov. However, within six months of this forced and highly reluctant sale, the City determined it no longer had public purpose, or the requisite public funds required for the recently condemned property. When the private ...