Overall Equity Lecture Notes PDF

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Lecture 1: introduction    

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What is equity? The quality of being fair and impartial The term ‘equity’ can be used to describe social fairness, or a branch of morality, or even an aspect of divine justice The abolition of the old Court of Chancery and courts of common law has led to the suggestion that the distinction between law and equity is now obsolete. Common law and equity remain distinct, but mutually dependent, aspect of law - They ‘are working in different ways towards the same ends and it is therefore as wrong to assert the independence of one from the other as it is to assert that there is no difference between them’. However, the assertion that equity and the common law are identical is equally inaccurate. Law vs Equity “Law” is defined as “the body of rules that governs the activities of the community and which is executed by its political authority.” It is a legal system established as a set of rules on how people of the community should treat each other. It is regulated by the government and enforced by the courts. It is designed to create order, advocating freedom while at the same time enforcing order so that people can live harmoniously with each other. The common law was developed by the English Royal Courts. It is a body of laws which is based on customs and the judicial decisions of previous court cases or precedents rather than on statutory laws. The purpose for adapting this law is to have an anticipated and foreseeable outcome on specific activities. It is meant to guarantee a consistent and uniform application of the law in situations that are alike. It is based on the principle that treating similar situations or facts differently in different occasions is unfair or unjust. So when parties disagree on the interpretation of the law in certain cases, the court follows decisions made for the same situation in the past. Equity allows courts to apply justice based on natural law and on their discretion. Whenever there is a disagreement as to the application of common law, equity is applied. The most distinct difference between law and equity lies in the solutions that they offer. Common law usually awards monetary damages in certain cases, but equity can decree for someone to act or not to act on something. In cases wherein the aggrieved party does not want monetary damages, the defendant can be ordered to return what he has taken. Law courts can order writs which are harder to obtain and are less flexible than injunctions which are ordered by equity courts. While a law court can involve a jury, there is no jury involved in equity; the judge solely decides cases. Summary Law is the body of rules which are regulated by the government and enforced by the courts while equity is a set of rules which follows the natural law and fairness. In a court of law, defendants can be ordered to pay monetary damages while in equity, if the complainant wants to get back what is taken from him instead of getting money, the court can order the defendant to do so. Law can order writs while equity can order injunctions. In a court of law, a case is heard by a jury and the judge while in equity only the judge settles a case. Westdeutsche Landesbank Girozentrale v Islington London Borough Council per Lord Browne-Wilkinson Equity operates in the conscience of the owner of the legal interest.

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In the case of a trust, the conscience of the legal owner requires him to carry out the purposes for which the property was vested in him (express or implied trust) or which the law imposes on him by reason of his unconscionable conduct (constructive trust).

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Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience -

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i.e. until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect his conscience.

Legal philosophical traditions compared Christopher St. Germa[i]n: - The focus is on equity as a ‘canon of legal interpretation, tempering the letter of the law to perfect its just intention.’ - Natural law Hobbes: - The focus is on the discretionary powers exercised by an absolute sovereign. The origin of Equity Shortcomings of the Common Law led to petitions to the monarch -

Recognition of legal title only

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Problems with the royal writ (claim forms) system in 13th century

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The Lord Chancellor took over from the King -

Bleak House (Dickens)

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The Lord Chancellor as the ‘conscience of the King’

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Two parallel court systems: common law and the Court of Chancery (equity)

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The Earl of Oxford’s case (1615) -

The office of the Chancellor is to correct men’s consciences for frauds, breaches of trust, wrongs and oppressions of what nature soever they be, and to soften and mollify the extremity of the law” (Lord Ellesmere)

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Problems in the old system of law and equity

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The Judicature Acts 1873 – 1875

Maxims of Equity  These are the general legal principles that have been adopted threw following precedent in regard to equity. These maxims are the body of law that has developed in relation to equity and these help to govern the way equity operates. All maxims are discretionary in nature and courts may choose whether they wish to apply these principles. 1. Equity will not suffer a wrong to be without a remedy: - This maxim developed as common law had no new remedies only monetary damages. Maxim must be treated with caution as today’s laws are made by the Oireachtas. Maxim can be used by the beneficiary of a trust whose rights were not recognised by the common law. Equitable remedies such as injunctions or specific performance may be given.

(Patterson v Murphy 1978 ILRM 85) injunction Attempts to alter this maxim in recent times by Lord Denning in (Hussey v Palmer 1972) were unsuccessful. Equity follows the law: - Courts will firstly apply common law and if this is not fair then an equitable remedy will be provided. This maxim sets out that equity is not in place to overrule judgements in common law but rather to make sure that parties don’t suffer an injustice. - Re Diplock [1948] He who seeks equity must do equity: A remedy will only be provided where you have acted equitable in the transaction. This maxim is discretionary in nature and is concerned with the future conduct of the plaintiff. - (Cheese v Thomas 1994) He who comes to equity must come with clean hands: - This maxim is linked to the previous maxim and relates to the past conduct of parties. They must not have had any involvement in fraud or misrepresentation or they will not succeed in equity - (Overton v Banister 1844) A beneficiary failed in their action against the trustees to pay her back the assets of the trust she had already received as a result of a misrepresentation of her age. - Bannister v Bannister [1948] Delay defeats equity: - Laches is an unreasonable delay in enforcing a right. - If there is an unreasonable delay in bringing proceedings the case may be disallowed in equity. Acquiescence is where one party breaches another’s rights and that party doesn’t take an action against them they may not be allowed to pursue this claim at a later stage. These may be used as defences in relation to equity cases. For a defence of laches courts must decide whether the plaintiff has delayed unreasonably in bringing forth their claim and the defence of acquiescence can be used if the actions of the defendant suggest that they are not going ahead with the claim so it is reasonable for the other party to assume that there is no claim. (Nelson v Rye 1996) Equality is Equity: Where more than one person is involved in owning a property the courts prefer to divide property equally. Prefer to treat all involved as equals. In the case of a business any funds left over from dissolution should be divided equally. Equity looks to the intent rather than the form: - Principle established in (Parkin v Thorold 1852). This maxim is where the equitable remedy for rectification was established this allows for a contract to be corrected when the terms are not correctly recorded. This maxim allows the judge to interpret the intentions of the parties if the terms aren’t recorded properly. Equity looks on that as done which ought to have been done: - The judges look at this contract from the enforceable side and the situation they would be in had the contract been completed Equity imputes an intention to fulfil an Obligation: - If a person completes an act that could be regarded as fulfilling an original obligation it will be taken as such. Equity acts in personam: - This maxim states that equity relates to a person rather than their property. It applies to property outside a jurisdiction provided that a defendant is within the jurisdiction. -

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(Penn v Lord Baltimore 1750) English court ordered specific performance on land in the US. 11. Where the equities are equal, the first in time prevails. - Where two parties have the right to possess an object the first one with the interest will prevail. - Burroughs v Philcox 12. Where the equities are equal, the law prevails. - Where two parties want the same thing and the court can’t honestly decide who deserves it most, they will leave it where it is -

Substantive fusion: 3 views 1. Prof Ashburner: “The two streams of jurisdiction, though they run in the same channel, run side by side and do not mingle their waters” 2. USH v Burnley (1978): “... the waters of the confluent streams of law and equity have surely mingled by now” 3. Elders Pastoral v Bank of NZ (1989): “harmonious development” The Modern Position - The two-stage process of legal reasoning – Equity as a gloss on the common law. (e.g., contractual mistake, equitable remedies) - Areas of equity: e.g. trusts, company, fiduciary relationships, partnership law, confidential relationships etc. THE TRUST Trust Definition  ‘When a person has rights which he is bound to exercise upon behalf of another or for the accomplishment of some particular purpose he is said to have those rights in trust for that other or for that purpose and he is called a trustee.’ The parties in a trust 1. Settlor - Self-declaration - Transfer and declaration - Testamentary and inter-vivos trusts 2. Trustee or trustees 3. Beneficiary or beneficiaries Transfers by an owner for the benefit of a 3rd party.

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Traditional legal position A holds the property for her own benefit.

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How the trusts works A holds the house in Berkeley Square for the use or benefit of B

A transfers a house to the parent (B), but B holds the property for the use or benefit of the child, C.

Subject matter can be anything tangible or intangible (e.g. land, money, shares) The trust gives rise to proprietary claims Tracing and substitute property (Foskett v McKeown) Priority on trustee insolvency (Re Lehman Brothers) Trustee obligations from trust instrument, statute and case law Categories of trusts Express trusts - Private or Public trusts - Created intentionally by the settlor (inter vivos or testamentary) - “bare” trusts vs. “active” trusts  Bare: Tee holds property for a sole beneficiary (B) and B can call for the transfer of the trust property at anytime (Saunders v Vautier 1841).  Active: Tee has duties re: the trust property Fixed or Discretionary trusts -Fixed: each beneficiary is entitled to a fixed share -Discretionary: Each beneficiary has a right to be considered by the trustee. Discretionary trust - The beneficiaries do NOT have an individual share in property until the trustee has exercised his/her discretion - Tee has authority to choose which of the beneficiaries will receive the benefit of the trust property - Two types: Burrough v Philcox (1840) – small family discretionary trust Re Baden (1970) – large discretionary trust, e.g. for employees Limitations on the exercise of discretion under a discretionary trust: The trustees must stay within the scope of the discretion The trustees must exercise the discretion themselves: Turner v Turner (1984) The trustees must consider what criteria for distribution are appropriate The trustees must make appropriate inquiries: McPhail v Doulton (1971)

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Implied Trusts (arise by operation of the law) - Resulting trust  Occurs when an express trust fails. - Typical scenarios:  Transfer of shares was not done properly, and settlor retains beneficial interest (Vandervell)  Trust is created for benefit of B, but A dies before the trust is set up, so T holds on resulting trust for S.

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Constructive trust  Usually arises when the recipient of the property has acted in an unconscionable manner Breach of fiduciary duty (Keech v Sandford) 3rd party liability – receipt of property belonging to another (El Ajou) Unauthorised profit (AG for Hong Kong v Reid [1993]) Family home (Grant v Edwards)

Comparing legal concepts Trust vs Contract Contract is a common law concept; the trust is an equitable concept Contract creates personal obligations; the trust creates proprietary obligations Contract requires consideration to be enforceable; trust beneficiaries are not required to give consideration The same transaction could, however, involve both legal relationships - Pension Trust funds arise from employment contracts. - Westdeutsche Landesbank case Trust vs Debt On transfer, money becomes personal property of the debtor, whereas a trustee does not take beneficial title (only legal title) Debt creates personal obligations; the trust creates proprietary obligations. Bankruptcy of the debtor will affect the creditor's ability to recover property. Bankruptcy of the trustee will not affect beneficiary's ability to recover property.

Trust v Gif In a gift, the legal and equitable titles pass from the person making the gift to the person receiving it Legal and equitable titles do not split, therefore the transfer is an outright transfer of the legal title (Milroy v Lord)

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Remember that ‘equity will not perfect an imperfect gift’ (Milroy v Lord) If donee has done all he can to transfer property, then this is sufficient to make the gift valid (Pennington v Waine – ‘equity will not strife officiously to defeat a gift’) A gift subject to a condition may be more uncertain as a legal concept (Re Allen) Trust vs Power The basic and fundamental distinction is that: - A trust is imperative - A power to discretionary

Powers of appointment - A power of appointment is power to dispose of trust property in favour of an “object”. - Is given to a “donor”; the donor of a power has no duty to exercise the power; “default” provision - A power must relate to trust property, but the donor of the power need not be a trustee. Recap

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The nature of the beneficiary’s rights Proprietary interests A proprietary interest can bind a 3rd party recipients and creditors Equity’s darling – the bona fide purchaser for value without notice Beneficiaries: ‘ladder of diminishing strength A beneficiary under a fixed trust has an equitable interest A beneficiary under a discretionary trust has an equitable right to seek the carrying out of the trust and to be considered in the selection process An object under a fiduciary power has an equitable right to ask a court to direct that the trustees consider (in good faith) whether or not to exercise the power The object under a mere power has no more than a hope that he/she may benefit

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Lecture 1 RECAP Absolute owner (settlor) – sets up the trust Legal title (trustees) – owner at common law, power (e.g. power of investments) & duties Equitable interest (beneficiaries’ interest) – owners in equity, benefit & rights

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Express trusts: based on settlor’s intentions - for people - Charitable purposes - Private purposes A self-declaration of trust: - Settlor same as the trustee - Beneficiary is a different person Multiple beneficiaries can also occur - E.g. one person asset for life and another for remainder - Or they both can have equal shares Vested: unconditional right to benefit Contingent: a right that depends on the occurrence of an uncertain event Examples of vested & contingent rights To A for life (v) To B if he marries (c) To C on my death (c) To E for life, then F (v,c) How Trusts and Powers differ - Fixed trust: settlor fixes who benefits and the size of each share - Discretionary trust: settlor defines the class and directs T to choose shares- T must choose. - Power of appointment

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Trusts ‘shall’, powers ‘may’ Settlor/ Donor Trustee/Donee Beneficiaries- court will enforce the trust/ Objects- court will restrain improper excersie

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The ‘three certainties’ Statutory formalities Constitution

Lecture 2: The Three Certainties Knight v Knight 1. Intention: Words showing an intention to create an obligation 2. Subject matter:  Identification of the precise property to be held on trust  Identification of the property to be given to the beneficiary. 3. Objects (i.e. Beneficiaries) Identification of the persons or class who will benefit. Why are the 3 certainties needed?  The trust involves an equitable obligation imperative in nature  Obligations are enforceable by law  The trust confers rights for the beneficiaries  The fundamental principle: the trust must be capable of being controlled and enforced Lord Wilberforce in McPhail v Doulton (1970) There must be “sufficient practical certainty in [the trust’s] definition for it to be carried out, if necessary with the administrative assistance of the court, according to the expressed intention of the settlor” 1. Certainty of Intention  No need for technical or formal words, but words should show an intention to impose an obligation: - “I give this to baby” (Jones v Lock (1865)) - “The money is as much yours as mine” (Paul v Constance [1977] 1 All ER 195 ) - “This boat is ours” (Rowe v Prance [1999]) Precatory words  ‘Hope’, ‘desire’, ‘suggest’, ‘request’ - Re Diggles (1888) 39 Ch D 253  The court will construe the document as a whole  In the absence of formal trust documentation, the court will construe the actions of the parties.

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- The term ‘trust’ does not need to be used (Staden v Jones [2008] EWCA Civ 936) - D’s subjective intent is irrelevant (Byrnes v Kendle [2011] HCA 26) ‘Equity looks at substance and not the form’ (Rowe v Prance [1999] All ER (D) 496; Paul v Constance [1976] EXCA Civ 2 The difference between: ‘in full confidence that… at her death she will devise it to such one or more of my nieces as she may think fit and in default of any disposition by her thereof by her will… I hereby direct that all my estate and property acquired by her under this my will shall at her death be equally divided among the surviving said nieces.’

Comiskey v Bowring-Hanbury [1905] AC 84 ‘unto and to the absolute use of my dear wife, Harriet… in full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime or by will after her decease...