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Modern Equity - Dissertation Sample

16 Mar 2017Dissertation Samples

The Development and Operation of Modern Equity

Although detailed consideration of the historical development of equity is inappropriate here, brief consideration of the emergence of the twin systems of common law and equity is essential to understanding the part that equity plays in the modern world.   In the three hundred years following the Norman Conquest, the courts of common law developed and consolidated their respective jurisdictions. 

The most significant matters were heard by the court of Kings Bench.   Less important matters were initially dealt with by the Court of Common Pleas and revenue matters were dealt with by the Exchequer.   It has been suggested  that while at first the common law judges were prepared to develop the law to cover new situations, in due course this flexible approach was lost.   The rules of procedure became disproportionately important.   A writ would only be issued if the facts of the case fell squarely within one of the recognised forms of action and, most particularly, the only remedy at common law was that of damages which would not necessarily prove an adequate remedy in all circumstances.

  As a result, the Chancellor (a member of the King’s Council) became involved in determining petitions for justice where the common law remedies were deemed defective.  The Chancery thus became the forum in which the emphasis was placed upon the concepts of justice, fairness and equality.   As has been observed , from the beginning of the Chancellorship of Lord Nottingham in 1673 to the end of that of Lord Eldon in 1827, equity evolved from a means of interference to its own set of established rues and principles.   Martin  comments:

“Throughout the eighteenth century, equity in a period of legislative stagnation, became the great force that moulded the progress of the law right up to the beginning of the nineteenth century.   In this period, the modern law of trusts developed and was shaped to meet entirely new conditions of social life…”

Major changes occurred however with the passage of the Judicature Acts of 1873 and 1875.   These created the Supreme Court of Judicature which was divided into “Divisions” known as the Queen’s Bench, Chancery and the Probate, Divorce and Admiralty (latterly Family) Division.   By virtue of s.24 of the Judicature Act 1873, each division exercised both legal and equitable jurisdiction.   Lord Cairns stated in Pugh v Heath  that the court “is not now a Court of Law or a Court of Equity, it is a Court of complete jurisdiction”.

The classically cited case that demonstrates the effect of the Judicature Acts is that of Walsh v Lonsdale .   A landlord agreed to grant a tenant the lease of a mill for seven years.   The lease was not granted - as was then required - by deed but the lease provided that rent was to be payable in advance, if demanded.   The tenant entered and paid quarterly (but in arrears) and so the landlord demanded a year’s rent in advance.  When the tenant failed to pay, he distrained.   The tenant brought an action for illegal distress.  

The action failed.   While the distress would have been illegal at law, it was held that, in equity, the agreement for a lease was as valid as a lease itself and the tenant was therefore liable to pay the year’s rent demanded.   It will be observed that the effect of the Acts was thus procedural only.   Prior to their passage, the same result would have occurred and the landlord’s claim would have been allowed in Equity.   What is novel about Walsh v Lonsdale is that equitable relief was allowed in respect of a claim that was brought at common law.

The Nature of Equitable Remedies

As Equity developed into a system of settled principles rather than ad hoc remedies, certain cardinal principles began to emerge.   Todd and Wilson  succinctly define the principal twelve:

 Equity will not suffer wrong without a remedy;
 Equity follows the law;
 Where there is equal equity, the law shall prevail;
 Where the equities are equal, the first in time shall prevail;
 He who seeks equity must come with clean hands;
 Delay defeats equities;
 Equality is equity;
 Equity looks to the intent rather than the form;
 Equity looks on that as done which ought to be done;
 Equity imputes an intention to fulfil an obligation;
 Equity acts in personam.

From the above statement of principles, the original intent of the development of equity will be divined: equity operates as a system by which to circumvent the rigid application of legal rules and provides a means by which commonly perceived notions of “justice” may be achieved.   It is this remit and the flexibility that it affords which means that the operation of equity is as relevant and important in the present day as it has been historically.   Indeed, the rapidly changing nature of modern times probably renders the need for the “equitable approach” all the greater.

This is not to say that the traditional tension between equity and the law does not continue to exist.   Modern legislation has been enacted to protect borrowers and consumers from “unconscionable” bargains.  Such overriding of the classic laws of contract might be regarded as traditionally the role of the equitable jurisdiction but has now become the creature of statute.   Similarly, the development of the law of tort starting with the classic formulation of responsibility by Lord Atkin in Donoghue v Stevenson  might be regarded as more akin to the equitable notions of fairness and doing justice rather than imposing the law than the application of robust and rigid legal principles.   From the above examples, it might be supposed that the ever-increasing legislative control of daily life coupled with the ability of the common law to develop principles which effectively meet the perceived “justice” of the situation might render the operation of equity redundant.  However, a consideration of certain specific examples illustrates that this is far from the current reality.

Anton Piller Orders

These orders (which have now been renamed “search orders”) are a form of equitable relief which have their origin in the case which gave its name to the original order of this type: Anton Piller KG v Manufacturing Processes Ltd .   Such an order operates where the court has reason to believe that a prospective defendant will remove or destroy evidence in the form of documents or moveable property.   They are made ex parte (now “without notice”) in situations in which it is believed that a fair trial might be prejudiced by the ability of the defendant to destroy or conceal evidence.   Their use was approved by Lord Wilberforce in Rank Film Distributors Ltd v Video Information Centre :

“Because they are made drastically and because they are made, necessarily ex parte - i.e. before the persons affected have been heard, they are closely controlled by the court…They are only granted upon clear and compelling evidence, and a number of safeguards in the interests of preserving essential rights are introduced.   They are an illustration of the adaptability of equitable remedies to new situations [emphasis supplied].”

Anton Piller orders have much in common with “freezing injunctions”.   These were once known as Mareva injunctions after the eponymous case of Mareva Compania Naviera SA v International Bulk Carriers SA .   This too is a form of interlocutory relief which prevents a defendant from removing his assets from the jurisdiction until the action pending has been tried by the court.   Together, the former Anton Piller orders and Mareva injunctions are known among practitioners as “the nuclear weapons of the law”.   It will be seen that such remedies have been developed to meet the exigencies of familiar modern circumstances: the defendant who is willing to destroy evidence and the defendant who is prepared to thwart a judgment by moving assets.   Despite its antiquity, Equity has been prepared to adapt to meet such latter-day challenges by developing such forms of relief.   It may be questioned, however, whether this was strictly-speaking necessary since the Supreme Court Act 1981 has now provided by s.37 that:

“(1) The High Court may by order (whether interlocutory or final) grant an injunction…in all cases where it appears just and convenient to do so.
(2) Any such order may be made unconditionally or on such terms and conditions as the court thinks just.”

Accordingly, sceptics may question the continued need for an equitable jurisdiction when statute appears quite capable of meeting the demands of such situations.

Injunctions

A further example of the determination of equity to achieve practical justice is to be found in the case of interlocutory (interim) injunctions.   These arise as a result of the need which sometimes occurs to preserve the status quo pending trial.   The object of an interlocutory injunction was described in Hoffman-La Roche (F.) & Co v Secretary of State for Trade and Industry  by Lord Wilberforce as:

“…to prevent a litigant, who must necessarily suffer the law’s delay, from losing by that delay the fruit of his litigation.”

The leading case in this area is American Cyanamid Co v Ethicon Ltd  which laid down the principles governing the grant of such injunctions.   The claimant must establish a prima facie case.   The court must be satisfied that the claimant’s case is not “frivolous or vexatious” and that there is a serious case to be tried.   It is in the next factor that the hand of Equity can be seen most clearly: once the above factors have been established, the court is required to consider whether the grant of an injunction is justified by reference to the “balance of convenience” between the parties.   In doing so, the court will consider the adequacy of damages as a remedy. 

  If an injunction were not to be granted, would damages adequately compensate the claimant for the potential actions of the defendant prior to trial.   A countervailing consideration arises as a result of the concomitant requirement of the claimant to give an undertaking to pay damages in the event that the claimant fails at trial and the defendant is found to have suffered loss as a result of the operation of the injunction.   Unlike the basic power to grant injunctions which, as has been argued above, could be readily supplied by statute, the type of balancing exercise which the courts are required to conduct under American Cyanamid could not easily be legislated for and is perhaps more appropriately provided by the type of discretionary approach which is afforded by Equity.

Fiduciary Relationships

The fiduciary relationship has been described  as “the spearhead of equity’s incursions into the area of commerce”.   There is, however, a tension between the imposition of the standards of conduct imposed by Equity and the perceived need to allow parties to a commercial transaction who may well be on an equal business footing to contract freely as they wish.   Mason  points out that such factors were probably an important consideration by the High Court of Australia when, in Hospital Products Ltd v United States Surgical Corporation , the reluctance to be seen to be interfering with the freedom to trade led the court to conclude that no fiduciary relationship existed.   However, it may be argued that there remains nonetheless an important role for Equity in the regulation of such relationships.   A prime example is probably that of partnership.   Partnerships are frequently entered into in a spirit of goodwill and on the basis of the trust that exists at the outset between the partners. 

  Such partners frequently regard the formalities of a trust deed as at best unnecessary and at worst intrusive and evidence of unwarranted distrust.   When the relationship breaks down, there are no regulatory documents to fall back upon and it becomes necessary to unravel the express or implied intentions of the partners.   It may also be necessary for Equity to become involved to protect the interests of innocent parties in commercial transactions.   In Leggett v Kensington , a bullion trader was selling bullion to the public.   It offered its customers the choice of taking delivery of the bullion or having it retained by the trader for safe-keeping on the basis that it was “non-allocated bullion”.   Purchasers on the basis were issued with a certificate of ownership and were entitled to collect their “property” upon the giving of seven days’ notice.  

The New Zealand Court of Appeal (by a majority) held that the trader owed a fiduciary duty to the customers.   This decision was based upon two practical propositions: the trader was bound to protect the interests of the purchasers and was, to all intents and purposes, free of the supervision of the purchasers.   Although from a foreign jurisdiction, this provides an interesting example of the propensity of Equity to “interfere” with what might be regarded as a straightforward commercial relationship.   It might be argued that the customers had been at liberty to enter into a contract on the terms offered and that, having done so, they should be prepared to shoulder the consequences of a breach of that contract by the other party and rely upon the remedies afforded to them by common law.  

However, the court in this case clearly felt that fundamental “justice” in these particular circumstances was best served by imposing a higher duty than was normal in most commercial transactions.   While this is an arguably admirable instance of equity intervening to protect the vulnerable consumer, it may be suggested that it leads Equity into the realms of inappropriate and unwarranted interference.   It has been observed above that statute has shown itself willing to correct the unconscionable or extortionate bargain and that the common law is capable, as in the example of the law of tort, of developing principles which will impose fairness upon a given situation.   The concept of the fiduciary relationship stems from the basic law of trusts.   While Equity might be required to regulate the actions of a delinquent trustee, is it really appropriate to allow it to interfere in the world of commerce and consumer relations?

Fusion?

As has been stated above, there is no doubt that the Judicature Acts “fused” law and equity in the sense that it became possible for both law and equity to be administered by the same court in a procedural sense.   However, is this indicative of a true joining of both systems in a realistic and meaningful sense?   Martin  argues that:

“The orthodox view is that only the jurisdictions have been fused.   The changes made by the Judicature Act gave rise to no new cause of action, remedy or defence, which was not available before…Thus legal rights remain legal rights and equitable rights remain equitable rights, though administered in the same court.”

Nonetheless, judges both ancient and modern have expressed contrary views.   In Walsh v Lonsdale (supra) in 1881, Sir George Jessel stated:

“There are not two estates as there were formerly, one estate in common law by reason of the payment of rent from year to year, and an estate in equity under the agreement.   There is only one court and equity rules prevail in it.”

More recently and colloquially, Sir Richard Scott, VC said in Medforth v Blake :

“I do not, for my part, think that it matters one jot whether the duty is expressed as a common law duty or a duty in equity.   The result is the same.”

However, consideration of the case law reveals a conflicting approach.   In Att-Gen v Blake , the House of Lords held that the equitable remedy of loss of profits which is usually associated with the finding of a fiduciary relationship could nonetheless be awarded in exceptional cases for breach of contract.   This is a prime example of a remedy other than damages being awarded where damages themselves are regarded as inadequate and is therefore akin to such equitable remedies as injunctions or orders for specific performance.   By contrast, however, in Swindle v Harrison , Hobhouse LJ confirmed that common law damages were not available for breach of fiduciary duty.   Evans LJ proceeded to hold that it was still necessary to take account of the distinction between law and equity notwithstanding the effect of the Judicature Acts:

“The reason is, of course, that the origins of both common law and equitable rules are always relevant to their scope, although we should endeavour now to identify the underlying common principles.”

Conclusion

It is therefore possible to disagree with the statement of Mason that the discretionary approach of Equity stands “in marked contrast to the more rigid formulae applied by the common law”.   As has been argued above, the common law has proved itself flexible enough - particularly so far as the law of tort is concerned - to develop principles which protect the individual without recourse to the equitable notions of confidence, fairness and equality.   Furthermore, even the rigid regime of statutory legislation has - as in the example of consumer protection - proved adequate to guard against “unconscionable” conduct. 

  This does not mean, however, that there remains no place for Equity and that she has, at long last, passed the age of childbearing.   There will always remain situations in which the traditional common law remedy of damages will be inadequate to meet the justice of the situation and there will always be circumstances in which it is appropriate to produce a new remedy of the Anton Piller or Mareva type.   It is perhaps interesting to note that the conclusion of the Mason article resiles to some extent from the statement to which this piece is directed.  He states (at p.258):

“Equity and common law are converging and will continue to converge so that differences in origin of particular principles should become of decreasing importance.   It is inevitable that equitable relief in some of its forms will become available for the protection and enforcement of common law rights to a greater extent than was formerly the case.”

The characterisation of the common law as overly rigid and requiring the tempering approach of Equity is inappropriate.   There may even be a case in the fullness of time, as the common law continues to develop, to dispense with the subjective and discretionary approach of Equity altogether.

Bibliography

  • Hayton D. & Mitchell, C., Hayton & Marshall, Cases and Commentary on the Law of Trusts and Equitable Remedies, (12th Ed., 2005)
  • Martin, J., Fusion, Fallacy and Confusion; a Comparative Study, Conv. 1994, Jan/Feb 13-30
  • Martin J., Hanbury and Martin, Modern Equity, (17th Ed., 2005),
  • Mason, A., The Place of Equity and Equitable Remedies in the Contemporary Common Law World, [1994] 110 LQR 238 at 245
  • Pettit, P., Equity and the Law of Trusts, (10th Ed., 2006)
  • Phang, A., Common Mistake in English Law: the Proposed Merger of Law and Equity LS 1989 9(3), 291-306
  • Semple Piggot Rochez (CPD Direct), The Nature and Development of Equity and Trusts, (2003)
  • Todd, P. & Wilson, S., Textbook on Trusts, (6th Ed., 2000)

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