Equity and Trusts Notes Autumn 2012 Introduction to Equity, History and Nature of Equity

Transcription

1 Equity and Trusts Ntes Autumn 2012 Intrductin t Equity, Histry and Nature f Equity Equity refers t that bdy f law that derives frm the specific jurisdictin established and exercised by the English High Curt f Chancery befre Describing the nature f Equity, Lrd Cwper in Dudley v. Dudley (1705) Prec Ch 241 at 244; 24 ER 118 at 119, said that:

2 equity qualifies, mderates and refrms the rigur, harshness and edge f the law. [T]he ffice f equity [is] t supprt and prtect the cmmn law frm shifts and crafty cntrivances against the justice and the law. Equity therefre des nt destry the law, nr create it, but assist it. Therefre, it can be generally said that Equity supplements the general law by intervening in cases where the CL is in sme respect deficient. [Equity] crrected, supplemented and amended the Cmmn Law. It sftened and mdified many f the injustices in Cmmn Law, and prvided remedies where at law they were either inadequate r nn-existent. (MHL p.3) General Cmparisn between Cmmn Law and Equity! Institutinal distinctins: Equity develped the trust (splitting f wnership f prperty int tw- legal and equitable (beneficial))! Remedial distinctins: CL- damages (mnetary cmpensatin) Equity- discretinary remedies e.g. specific perfrmance, injunctin, restitutin! Prcedural distinctins: Jury- decides fact Chancellr- sat alne with n jury! argument in equity is mre sphisticated than CL. Gave reasns fr decisins- equitable decisin t develp precedent Methd f pleadings- CL plaintiff had t find an existing writ suitable t the grievance therwise it wuld nt be addressed. Equity prvided an alternative- where the case was appealed t the King Histrical Develpment f Equity (a) Medieval perid! 14 th /15 th C! Curt f Chancery allwed applicatin t the King fr use f equity! Originally little distinctin between tw jurisdictins! End f medieval perid= separatin f jurisdictins (b) Frmative perid! Henry VIII appinted Sir Thmas Mre as Chancellr- nly legally trained appintments and resulted in a jurisprudential apprach (legal reasning)! Reprts f Chancery published (practice f fllwing precedent began and systematic recrding f equitable apprach)! CL actin culd be cmmenced but if an equity was successfully raised, the prceedings in CL must be withdrawn r injuncted! Cnfrntatin between leading CL (Sir Edward Cke) and Equity (Lrd Ellesmere) judges in The Earl f Oxfrd s case (1615) Mich 13 Jac 1; 21 ER 485: Lrd Ellesmere LC: The cause why there is a Chancery is, fr that Mens Actins are s diverse and infinite, that it is impssible t make any general Law which may aptly meet with every particular Act and nt fail in sme circumstances.

3 The Office f the Chancellr is t crrect Mens Cnsciences fr Frauds, Breach f Trusts, Wrngs and Oppressins, f what Nature sever they be, and t sften and mllify the Extremity f the Law when a Judgment is btained by Oppressin, Wrng and a hard Cnscience, the Chancellr will frustrate and set it aside, nt fr any errr r Defect in Judgment, but fr the hard Cnscience f the party! Ryal Decree- equity shuld prevail ver CL! where there was a clash f jurisdictins equity shall prevail (c) Systemizatin perid! Develpment f classificatin f rules and principles in Equity (Lrd Nttenham particularly prevalent) Ck v. Funtain (1676) 3 Swans 585 at 600; 36 ER 984 In Re Diplck s Estate [1948] Ch 465 at 481-2; [1948] 2 All ER 318 at 326 Cwcher v. Cwcher [1972] 1 All ER 943 at 948: [t]his des nt mean that equity is past childbearing; simply that its prgeny must be legitimate by precedent ut f principle. Maxims f Equity! The maxims f Equity are general statements f basic equitable principles upn which the rules f Equity have been established.! Crin v. Pattn (1990) 169 CLR 540 at 557, per Masn CJ and McHugh J: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Equity will nt suffer a wrng withut a remedy! CL cannt prvide a remedy s equity will be cnsulted t prvide ne Equity fllws the law! Equity recgnises legal rights, claims and titles- it will nt allw the hlder f these rights t deal with them in an uncnscinable manner He wh seeks equity must d equity! Origins f the Curt f Equity are in Curt f cnscience! remedies in equity are discretinary He wh cmes t equity must cme with clean hands! Might result in the impsitin f cnditins n bth parties accrding t cnscience Equity aids the vigilant and nt the tardy Delay defeats equity Equality is equity Equity will nt assist a vlunteer Equity lks t the intent rather than t the frm! E.g. Vendr des nt cmplete n date f cmpletin, in CL they are in breach f cntract, in equity it might be sufficient t cmplete within a reasnable time after riginal cmpletin date.

4 (x) (xi) Equity lks n that as dne which ught t be dne Equity acts in persnam! Earl f Oxfrd s Case- equity culd restrain the parties frm carrying ut a CL remedy! Nt strictly true t say it acts nly in persnam! it als acts in rem (against prperty)! Actin in persnam = remedy attaches t the persn themselves.! Penn v. Lrd Baltimre (1750) 1 Ves Sen 444; 27 ER 1132; [ ] All ER Rep 99! Chellaram v. Chellaram [1985] Ch 409; [1985] 1 All ER 1043! Baker v. Archer-Shee [1927] AC 844 Judicature System and Mdern Administratin f Equity a) Equity and CL befre the Judicature Act 1873! Befre Judicature Act= equity administered nly by Curt f Chancery! tw general rules: 1. The Curts f CL refused t entertain actin brught slely fr the relief against equitable rights alne, 2. Equitable rights and titles culd nt be relied n as cnstituting a defence in a CL Curt (these bth made it a time and mney cnsuming exercise)! Aim f JA= eliminate distinctin between tw Curts- united them in a single hierarchy f Curts with different divisins! JA refrms prvided fr the cncurrent administratin f law and equity in a single High Curt f Justice b) Classificatin f the equitable jurisdictin c) The administratin f Equity in N.S.W. befre the Judicature system! Legal prcedure n a civil basis in N.S.W. was established by the Charter f Justice in 1824.! The significant feature f the administratin f Equity in N.S.W. until 1972 was that Equity was administered as a bdy f law distinct frm the CL, by a distinct Equity jurisdictin f the Supreme Curt f N.S.W. d) Divisin between Equity & CL befre the Judicature system! the curts f CL refused t entertain actins brught slely fr relief against infringements f purely equitable rights, titles and interests, where the infringement was nt trtius nr in breach f cntract; and! thse equitable rights, titles and interests culd nt be relied n as cnstituting a defence t a CL claim. LORD CAIRN S Act 1858 s. 2 f Lrd Cairn s Act 1858 (21 & 22 Vict c 27), which granted the English Curt f Chancery pwer t award damages in lieu f r in additin t an injunctin r specific perfrmance. - s. 32 f the NSW Equity Act s. 9 f the Equity Act 1901 (e) The Judicature Act (1873) and cncurrent prcedure! The relatinship between legal and equitable prcedures was wrked ut at length in s. 24 f the Judicature Act. The bjective f that sectin is: t secure a cmplete and final determinatin f all matters in dispute between the parties and t avid multiplicity f legal prceedings [s.24(7)]

5 ! s. 24 (1): gave all branches f the curt pwer t administer equitable remedies! s. 24 (2) and (3): enabled equitable defences t be pleaded and equitable relief t be given n such defences! s. 24 (4): required all branches f the curt t recgnise and take ntice f all equitable estates, titles, and rights and all equitable duties and liabilities! s. 24 (5): prhibited the use f the cmmn injunctin within the curt (hwever: the equitable grunds that might have prvided the grund fr such an injunctin prir t the passing f the Act may be relied n by way f defence in the prceedings)! s. 24 (6): prvided the Curt with a general pwer t recgnise and give effect t all legal claims, estates, titles, rights, duties and liabilities existing by the CL r by custm r created by Statute.! In cnclusin: Judicature Act in s 24 prvided a new jint, cncurrent prcedure fr bth CL and Equity.! Furthermre, the Judicature Act included anther very imprtant prvisin: s. 25(11) stated that in cases where there is any cnflict r variance between the Rules f Equity and the Rules f the Cmmn Law with reference t the same subject matter, the Rules f Equity shall prevail. (f) The Judicature system in Australia! The present statutry equivalents f ss. 24 and 25 in the English Judicature Act f 1873 are fund in NSW legislatin in: the Supreme Curt Act 1970 ss and the Law Refrm (Law and Equity) Act 1972! s. 5 f the 1972 Law Refrm (Law and Equity) Act reads as fllws: In all matters in which there was immediately befre the cmmencement f this Act r is any cnflict r variance between the rules f equity and the rules f Cmmn Law relating t the same matter, the rules f equity shall prevail. The Fusin Fallacy Thery Equity & CL under the Judicature system! Thse wh wish t retain the dctrinal purity/clarity f Equity: maintain that the Judicature Act has nly prcedural character, and argue that the intentin f the Act was nt t fuse the principles f the CL and Equity int ne system f law.! That argument is als supprted by an interpretatin f s. 25(11) f the Judicature Act which declares that, in cases f cnflict, Equity rules prevail ver the CL rules. It is arguable that the prper applicatin f s. 25(11) presuppses the cntinued existence and distinct nature f the rules f CL and Equity.! Fr judicial supprt f this apprach, see Jseph and Lyns (1884) 15 QBD 280 at 285-6, per Cttn LJ. (a) Administrative fusin! Merged the separate prcedures and nthing mre (n mixing f principles)! Salt v. Cper (1880) 16 CH D 545, at 549; [ ] All ER Rep 1204, per Sir Gerge Jessel MR: It has been smetimes inaccurately called the fusin f Law and Equity ; but it was nt any fusin, r anything f that kind; it was the vesting in ne tribunal the administratin f Law and Equity in every cause, actin, r dispute which shuld cme befre that tribunal. That

6 was the meaning f the Act. The Legislature did nt create a new jurisdictin, but simply transferred the ld jurisdictins f the Curts f Law and equity t the new tribunal, and then gave directins t the new tribunal as t mde in which it shuld administer the cmbined jurisdictin.! Feltn v. Mulligan (1971) 124 CLR 367 at 392, Windeyer J referred with apprval t the statement in the classic text Ashburner n Equity [2 nd ed., p.18] that the tw streams f jurisdictins, thugh they run in the same channel, run side by side and d nt mingle their waters.! In O Rurke v. Heven [1974] 1 NSWLR 622 at 626, Glass JA said that the effect f the Supreme Curt Act 1970 (NSW) was nt a fusin f the tw systems f principle but f the Curts which administer the tw systems. (c) Substantive fusin! Equitable and cmmn law dctrines were merged! Seager v. Cpydex [1967] 2 All ER 415- Lrd Denning: even fr a breach f an equitable right cmmn law damages culd be prperly given. Des nt matter what the nature f the breached right is, the remedy that wuld fllw can be either frm equity r CL! In United Scientific Hldings Ltd v. Burnley Brugh Cuncil [1978] AC 904 at 924; [1977] 2 All ER 62 at 68, Lrd Diplck said: [T] perpetuate the dichtmy between rules f equity and rules f cmmn law, which it was a majr purpse f the Judicature Act 1873 t d away with, is, in my view, cnducive f errneus cnclusins t the ways in which the law f England has develped in the last hundred years. The waters f the cnfluent streams f law and Equity have surely mingled nw. (d) Criticism against the substantive fusin thery! In the Huse f Lrds case f Bank f Bstn Cnnecticut v Eurpean Grain and Shipping Ltd (The Dminique) [1989] AC 1056 at 1109; [1989] 1 All ER 545 at 557. Lrd Brandn applied the principle that the Judicature Acts, while making imprtant changes in prcedure, did nt alter and were nt intended t alter the rights f the parties.! In the NSW Curt f Appeal case f GR Mailman & Assciates Pty Ltd v. Wrmald (Aust) Pty Ltd (1991) 24 NSWLR 80 at 99, Meagher JA described the view f Lrd Diplck as s bviusly errneus as t be risible.! In the English Curt f Appeal case f MCC Prceeds Inc v. Lehman Brthers Internatinal (Eurpe) [1998] 4 All ER 675, Mummery LJ said (at 691) that the Judicature Acts were intended t achieve prcedural imprvements in the administratin f law and equity in all curts, nt t transfrm equitable interests int legal nes r t sweep away altgether the rules f cmmn law. (e) Supprt fr the substantive fusin thery! In A-G v. Wellingtn Newspapers Ltd [1988] 1 NZLR 129 [NZ CA] at 172, per Cke P, spke f the duty f cnfidence f members f the State Security Service as fllws: As law and Equity are nw mingled it des nt seem t me t matter whether the duty can be classified as equitable r nt. The full range f remedies deriving histrically frm either CL r Equity shuld be available. They include injunctin, damages and accunt f prfits.! In Aquaculture Crp v New Zealand Green Mussel C [1990] 3 NZLR 299 at 301, Cke P, in the cntext f a cnfidential infrmatin case befre the NZ Curt f Appeal, said: Fr all purpses nw material, equity and cmmn law are mingled r merged. The practicality f the matter is that, in the circumstances f the dealings between the parties, the law impses a duty f cnfidence. Fr its breach, a full range f remedies shuld be available as

7 apprpriate, n matter whether they riginated in cmmn law, equity r statute.! this view was cited with apprval by the Supreme Curt f Canada in Cadbury Schweppes Inc v. FBI Fds Ltd (1999) 167 DLR (4 th ) 577 at 590 (f) Fusin fallacy defined The fusin fallacy invlves the administratin f a remedy, fr example cmmn law damages fr breach f a fiduciary duty, nt previusly available either at law r in equity, r the mdificatin f principles in ne branch f the jurisdictin by cncepts which are imprted frm the ther and thus are freign, fr example by hlding that the existence f a duty f care in trt may be tested by asking whether the parties are in fiduciary relatins.! Thse wh cmmit the fusin fallacy annunce r assume the creatin by the Judicature system f a new bdy f law cntaining elements f law and equity but in character quite different frm its cmpnents. The fallacy is cmmitted explicitly, cvertly, and n ccasin with apparent inadvertence. But the state f the mind f the culprit cannt lessen the evil f the ffence. MGL (p.54): (e) Examples f fusin fallacies! Cmpensatin fr breach f fiduciary bligatins Day v. Mead [1987] 2 NZLR 443 Duke Grup v Pilmer (1999) SASR 64; [1999] SASC 97 Pilmer v Duke Grup (2001) 180 ALR 249. In the judgment f the High Curt, reference is made t the existence f severe cnceptual difficulties in the path f acceptance f ntins f cntributry Negligence as applicable t diminish awards f equitable cmpensatin fr breach f fiduciary duty.! Cmmn Law Damages in Equity? Seager v. Cpydex (N 1) [1967] 2 All ER 415 Attrney-General v. Wellingtn Newspapers Ltd [1988] 1 NZLR 129 Aquaculture Crp v New Zealand Green Mussel C [1990] 3 NZLR 299 Digital Pulse v Harris (2002) NSWSC 33 Harris v. Digital Pulse [2003] NSWCA 10 per Masn P at [154], addressing the questin f fusin fallacy, stated his entire agreement with the fllwing remarks f Prfessr Tilbury (Principles f Civil Remedies, Vl. I, Butterwrths, Sydney, 1990, at pp ): But the further cnclusin, inherent in the fluvial metaphr and explicit in the fusin fallacy, that in a fused jurisdictin it is impssible, fr all time, t have a fused law is bth a nn-sequitur and hard t justify in principle and plicy. It is a nn-sequitur because the prpsitin that the Judicature Acts d nt authrize fusin f principles, cannt lead t the cnclusin that such a fusin is prhibited. In shrt, there is n fallacy. Fusin can, and des, take place independently f the Acts. Indeed, cnstant administratin alne suggests such an interactin f the rules f law and f equity as t make fusin f principle inevitable. Further, it is submitted that, bth in principle and in plicy, it is desirable that the jurisdictinal rigins f rules f law becme less and less imprtant as thse rules are adapted t changing scial realities by curts in fused jurisdictins, where the relatinship f thse rules inter se and their verall purpses in the legal system as a whle can be better appreciated. After all, what can be dne with rules is much mre imprtant than where they came frm. Harris v Digital Pulse (2003) 56 NSWLR 298

8 ! On appeal, previusly rdered that the appellant pay the respndent exemplary damages fr breach f fiduciary duty! Facts: There was an express term in the defendant s emplyment cntract that he has the emplyee wuld nt cmpete with his crprate emplyer during his emplyment During his emplyment the emplyee wrked secretly fr the benefit f his wn business! Issue: in cmpetitin with his emplyer The emplyer terminated the emplyment cntract and brught an actin seeking exemplary damages fr a breach f fiduciary duty whether a punitive mnetary award can be made in equity (whether exemplary damages apply in equity) Whether a pwer t make a punitive mnetary award shuld be acknwledged with respect t the kind f fiduciary relatinship (emplyer/emplyee- characterised by a cntract between tw parties = may have wider applicatin) in the case befre the Curt.! Spigelman CJ Nt apprpriate at this level f generality t draw analgies with cmmn law dctrines f trt and cntract- but if there were t be ne cntract is the mre apprpriate a punitive mnetary award is incmpatible with the law relating t penalties in cntracts f this character, in the sense that an express prvisin in the precise terms f the curt rder in the present case wuld be regarded as f n effect, bth at law and in equity. Agreed with Heydn JA! Masn P The trt analgy is frceful and shuld be fllwed in the interests f cnceptual cherence. Agreed with trial judge Palmer J! Heydn J- REVISIT Dal Pnt & Chalmers (5th ed, 2011): Prlgue pp 1-32 Uncnscinable Dealings/ Undue Influence Equity has jurisdictin t relieve a party frm a transactin, such as a cntract r gift, in certain situatins. Tw f the equitable dctrines which a plaintiff may rely upn t seek relief frm a transactin are undue influence and uncnscinable dealing. Undue influence:! Deals with the effect f a relatinship f influence, ften described as an ascendancy by ne persn ver anther persn, s that the latter s act in entering int a transactin cannt be cnsidered free r vluntary.! The secnd persn s judgment is regarded as impaired by the influence f the first.

9 ! Sme types f relatinships are presumed at law t give rise t influence, thers can be prved by evidence.! Nt all influence in a relatinship will result in a transactin being set aside. The influence must be undue within the meaning f the term derived frm the cases. Actual undue influence can als be prved utside f a relatinship f influence. Uncnscinable Dealing:! Dctrine which fcuses upn the existence f a special disadvantage in ne party t a transactin.! If the ther party t the transactin takes uncnscientius advantage f that special disadvantage, the transactin may be set aside.! It des nt turn n any pre-existing relatinship between the parties, but lks at their persnal characteristics and the bargaining prcess between them. Fraud at Cmmn Law and in Equity! At Cmmn Law fraud requires intentinal deceit: Derry v. Peek (1889) 14 App Cas 337! In equity, this is much brader: Nctn v Ashburtn [1914] AC 932 a man may miscnceive the extent f the bligatin which a Curt f Equity impses n him. His fault is that he has vilated, hwever inncently because f his ignrance an bligatin which he must be taken by the Curt t have knw and his cnduct ahs in that sense always been called fraudulent.! Equitable fraud is nt defined- equitable cases evlve ver time t accmmdate different frms f equitable fraud that arise, instead dctrines have been develped! Equity des nt intervene t relieve against mere unfairness r pressure in cmmerce Bartn v Armstrng [1976] AC 104 at 121 per Lrd Wilberfrce and Lrd Simn f Glaisdale: many acts are dne under pressure, it must be that ne actr has n chice but t act Bruzewitz v Brwn [1923] NZLR 1106 per Salmnd J: unfairness f transactin is nt ff itself the basis fr it t be set aside, it must have ne f the invalidating circumstances such as fraud r undue influence as established under equity Hartigan v Internatinal Sciety fr Krishna Cnsciusness Inc [2002] NSWSC UNDUE INFLUENCE General Principles! Where a party is in a psitin f influence ver anther, equity presumes that a transfer frm the subrdinate t the dminate party is the result f undue influence and the transactin will be struck dwn unless the dminant party can prve that it was dne with the free and independent will f the ther.! Equity seeks t prevent relatinships which give rise t influence frm being abused! N persn shuld be allwed t retain a prfit arising frm his r her wn fraud! Dctrine f undue influence is an example f a particular applicatin f the equitable cncept f fraud

10 ! The strnger party des nt have t have vertly influenced the weaker party- it is abut the quality f the cnsent f the weaker party! Aims f the Dctrine: Directed t transfers f prperty which cannt be explained n grunds f friendship, clarity r ther rdinary mtives n which peple rdinarily act: Natinal Westminster Bank plc v Mrgan [1985] Examines hw intentin is prduced (nt intentin f either parties- it is an examinatin f the nature f the relatinship and whether this influenced the actin f entering the transactin) Transfers f real r persnal prperty can be set aside whether by gift r fr cnsideratin! Allcard v. Skinner (1887) 36 Ch D 145; [ ] All ER Rep 90: Facts: " Wmen gave away her prperty t her cnvent Held: " Tw classes f undue influence: Actual: must prve the influence exerted (type f fraud) Presumed: cmplainant needs t prve a relatinship f trust and cnfidence frm which it is fair t presume that the benefit was btained by the defendant by use f influence (presumptin raised n public plicy grunds t prevent abuse f cnfidence! Jhnsn v Buttress (1936): Independent and well understd act f a man in a psitin t exercise free judgement based n infrmatin as dull as that f the dnee! Cmmercial Bank f Australia Ltd v Amadi (1983) per Deane J: Undue influence lks t the quality f the cnsent r assent f the weaker party Uncnscinable cnduct lks t the cnduct f the strnger party in attempting t enfrce, r retain the benefit f, a dealing with a persn under a special disability in circumstances where it is nt cnsistent with equity r gd cnscience that he shuld.! Cmmercial Bank f Australia Ltd v Amadi (1983) per Masn J: In undue influence the will f the inncent party is nt independent and vluntary because it is verbrne In uncnscinable cnduct the will f the inncent party, even if independent and vluntary, is the result f the disadvantageus psitin in which he is placed and f the ther party uncnscientiusly taking advantage f that psitin! UI als applied where the party exercising the influence is nt the recipient f the transactin, the benefit ges t anther party-it must be shwn that the party wh takes the benefit knws the weaker party is acting under the influence f the influential party