Equity and Trusts

Introduction-The Nature of Equity

Lectured delivered on 2nd October 2018 at
Buckinghamshire New University,
by Ze’ev Portner,
LLB (Hons) LLM

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 Learning Outcomes
By the end of the lecture I intend to have covered the following
topics:

Definition of Equity

Why Equity developed?

The connection between Conscience, Unconscionability and Equity

The core Equitable principles

Remedies flowing from Equity

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 Overview
Introduction/ Overview of the Course

Lectures x 2 hours

Seminars x 1 hour

Assessments x 3
CW 1- Essay (40%)
SCAP (10%)
Exam (50%)

Sources

Books/Cases and Materials -See Reading List, Buy 1 textbook at least

Casebook less essential as online resources available
Journals – Read these in the library or online, many full text articles available
in the usual databases

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 Definition of Equity
 No accepted definition.
 The Oxford English Dictionary definition of Equity is the “quality
of being fair and just.” Equity is a theme that runs through most
legal systems in that all laws should strive for fairness and justice.
 Another sense of the word is that equity consists of a distinct body
of rules that seek to introduce ethical values into the legal system.
It is this definition that best encapsulates equity in English law.
 Equity is often described as functioning to “mitigate the rigour of
the common law. so that the letter of the law is not applied in such
a strict way that it may cause injustice in individual cases.” Earl of
Oxford’s Case (1615) per Lord Ellesmere 1 Ch Rep 1

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 Definition of Equity continued
Equity does this by examining the conscience of an individual defendant. ‘Earl of Oxford’s
case (1615) 1 Ch Rep 1

According to Alastair Hudson Equity is then part of English private law which seeks either
to prevent any benefit accruing to the defendant as a result of some unconscionable conduct
or to compensate any loss suffered by a claimant which results from some unconscionable
conduct and which seeks to ensure that statutory rules and common law are not
manipulated.

It has a moral basis and is a form of natural justice.

At the heart of Equity is the prevention of fraud.

Lord Ellesmere in the Earl of Oxford’s Case (1615) described Equity’s moral purpose to
“correct men’s consciences for frauds, breach of trusts, wrongs, and oppressions, and to
soften and mollify the extremity of the law.”

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 Defining Equity Recap
Defining Equity
There is no accepted definition of Equity – so we’ll pick some of the more accessible ones:
“Equity is the means by which a system of law balances out the need for certainty in
rule making with the need to achieve fair results in individual circumstances”

“… the accumulation of principles from past judgments in the Courts of Chancery which
sought to balance out the rigour of the common law by achieving justice in individual cases.”
Hudson, Equity and Trusts, 9th Edition.

English Equity does this by examining the conscience of the individual defendant. Earl of
Oxfords Case (1615) 1 Ch Rep 1.

English Private Law; Seeks…

To prevent any benefit from accruing to a defendant as a result of some unconscionable
conduct or

To compensate any loss suffered by a claimant which result from some unconscionable conduct
, and which also seeks to ensure that common law and statutory rules are not manipulated
unconscionably

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 Common Law vs Equity
Duality of Rights

Conflict? – not necessarily!- just seeks to achieve justice!

Central features of …

Common law? = Precedent – looks to form rather than substance!

Equity? = correcting unconscionable conduct – looks to substance rather than

form!

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 The Emergence of Equity
The common law:
Origins = far back as 1066 Norman Conquest
Introduced a new system of law for England
Laws based upon local customs = historical basis
William set up a central system of government inc justice system
King & representatives travelled the country = Curia Regis (Kings Court)
Kings court evolved into common law system – i.e. law was common to all

Further development
King Henry II (1154-89) was particularly interested in law and order and helped
to develop the legal system.
There were 18 judges in the country. 5 remained in London ( who were
ordered to travel the country (circuit) applying the laws of Westminster).
By the end of the 13th century. A central authority had established it
precedence through the establishment of the common law.

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 The Emergence of Equity Continued
Common law courts:
Local Courts = Merchants, Local Manor, Ecclesiastical Courts
Royal Courts = AKA the Courts of Common Pleas:
Court of Common Pleas and
The Exchequer.
Now abolished by the Judicature Acts, 1873, 1875 ,

The origins of Chancery

Inadequacy of the writ system = sealed letter in the name of the King
Office of issuing writs = The Chancellor was the ‘keeper of the King’s Seal’
Or the “keeper of the Queen’s conscience.”
Lord Chancellor would hear cases on the basis of the merits of the case, and .
grant remedies on the basis of conscience

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 The emergence of Equity Continued
The early court of Equity was essentially a court of Conscience.
Every case was decided on its merits rather than on the question
whether there existed a precedent to deal with the complaint
brought by the claimant
Most accounts of equity refer to the length of the
Chancellor’s foot, which was another way of saying that some
Chancellors went further in the exercise of equitable relief than
others.
The rigour’s of the common law = injustice!
Response? = development of equity!

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 The Judicature Acts, 1873 and 1875
Equity
Common law & Equity came into conflict
Equity developed case law and recognisable principles.

The division
Gave rise to procedural problems for potential litigants in the 19th Century
Common law courts did not have equitable jurisdiction & visa versa
Delays

Judicature Acts 1873 and 1875

Enacted in order to restructure the court system in England.
It created a new court structure we have today, and provided that equity and
common law could be administered by all courts.

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 The Judicature Acts 1873, 1875
Where there is a conflict between rules? = Equity will prevail!

Indeed as far back as the Earl of Oxford’s case, the principles of equity
prevail over the principles of common law and this principle was given a
statutory footing in the Judicature Act 1873.

This supremacy of equity is enshrined in s.25(11) of the Supreme Court of

Judicature Act 1873 which provides:
“generally, in all matters not hereinbefore particularly mentioned in which there
is any conflict or variance between the rules of equity and the rules of the common law
with reference to the same matter, the rules of equity shall prevail”.

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 Equity and Trusts are based on
Conscience
 Lord Browne Wilkinson in Westdeutsch Landesbank v
Islington LBC (1996) AC 669

“Equity operates on the conscience of the owner of the legal interest. In

the case of a trust, the conscience of a legal owner requires him to carry
out the proposes 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 trusts.)”

The basis of trust (and indeed the whole of equity) is concerned with
regulating the conscience of a person where the common law might allow
that person to act unconsciously, but in accordance with the letter of the
law.

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 Example of Equity intervening on the
basis of conscience
Rouchefoucauld v Boustead (1897) 1 Ch 196

Suppose, for example, that a defendant, is permitted by a statutory provision, or a rule of

common law, to receive a payment of money as a result of being red- headed. If the
defendant had worn a red wig to fool the payer into thinking that she fell within the
category of red-headed people, the common law might permit to keep the money on a
literal interpretation of the rule.

However, Equity would prevent the defendant from manipulating that statute for
fraudulent purpose on the basis that to allow the defendant to do so would be
unconscionable.
Westdeutsche Landesbank v Islington LBC 1996 reasserts thiis principle of
good conscience.

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 Equity, unconscionability and the role
of context
 There is an absence of a universal definition of unconscionability and yet it
becomes much clearer by looking at case law and the context in which it is
used.

Thorner v Major and others (2009) WLR 776 -The facts of the case
concerned the question of whether a claimant, who had worked unpaid on his
uncle's farm for many years was entitled to the farm in circumstances where he
had been made certain promises by his uncle that he would inherit the
farm.
The case involved the application of the equitable doctrine
of proprietary estoppel which prevents a person from denying a
claimant a proprietary right which the claimant has been led to
believe will be granted to him and one which the claimant has relied
upon and suffered a detriment.

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 Thorner v Major and others 2009
 The key question is in these cases turns on whether the
defendant made a clear and unambiguous assurance to the
Claimant that he will acquire some property right in the
defendant’s land.
 However what amounts to clear and unambiguous assurance
depends primarily on the context in which it is made.
 Lord Neuberger in Thorner v Major and others 2009 stated
that although there were not express references that the nephew
would inherit the uncle’s farm, it could nevertheless be
established a level of unconscionability which would otherwise
arise if the nephew was denied the right to inherit his uncle’s
farm.

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 Heart of Unconscionability
While unconscionability is not necessarily capable of a precise
definition, it is a concept which can be readily appreciated when
looked at in the context in which it is being employed.
At the heart of unconscionability is the element of some advantage ,
whether personnel or proprietary, taken by one defendant , which he
or she has agreed belongs to the claimant.

Examples of unconscionability is the enforcement of a trust. If a

trustee has agreed to hold trust property for the beneficiary and
where a trustee refuses to accept the rights of the beneficiary in the
trust property. Equity will intervene in order to prevent him getting
an advantage over the trust property.

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 The Core Equitable Principles
Equity is based on some fundamental principles known as the
Core Equitable principles. They are:
Equity will not suffer a wrong to be 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;
Delay defeats Equity;
He who seeks equity must do equity;
He who comes to Equity must come with clean hands

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 The Core Equitable Principles
continued
Equality is Equity;
Equity looks to the intent rather than the form;
Equity looks on as done that which ought to have
been done;
Equity imputes an intention to fulfil an obligation;
Equity acts in personam;
Equity will not permit statute or common law to be
used as an engine of fraud;

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 The Core Equitable Principles
Continued
Equity will not permit a person who is trustee of
property to take a benefit from that property, qua
trustee;
Equity will not assist a volunteer;
Equity abhors a vacuum;
A trust operates on the conscience of the legal owner
of the property.

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 Equity will not suffer a wrong to be
without a remedy
Principle at the heart of Equity: where the common law or statute do
not provide for the remedying of a wrong, equity intercedes to
ensure that a fair result is achieved.
E.g. remedy of specific performance, injunction, rescission.

Right of beneficiary to enforce a trust.

Contract may be perfectly formed under common law, but if such a

contract has been entered into on the grounds of fraud, mistake or
undue influence, a person could escape liability under the common
law. Equity will intervene and can put the parties in the position had
the contract not been entered into.

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 Equity follows the law
Equity will be bound to follow statutes in all circumstances,
and where there is a conflict between common law rules and
equity, equity prevails.

But equity will not typically refuse to be bound by rules of

common law, unless there is some unconscionability in applying
a particular common law rule.

For example, general common law rules that only parties to a

contract will be bound by that contract, will be observed by
equity.

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 Where there is equal equity the law
Shall prevail
Where there is no clear distinction to be drawn between parties as to
which of them has better claim in equity the common law principle
which best fits the case is applied.

In a sense where the equitable doctrines produce an equal result,

then the common law prevails. So in circumstances where two
people have both purported to produce goods from a fraudulent
vendor of those goods, for the same price , neither of them would
have a better claim to the goods in equity.

Ordinary common law rules of commercial law would be applied in

that context.

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 Where Equities are equal, the first in
time prevails
Where there are two competing equitable interests in the same
property, then the first in time will prevail.

For example, if A grants an equitable mortgage to B and then

subsequently grants an equitable mortgage to C, B’s mortgage
will take priority.

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 Delay Defeats Equity
A person who seeks equitable relief must do so within a reasonable time. If
he does not assert his right to bring an action within a reasonable time than
his conduct is seen as being in acquiescence of the wrong complained of.

Employment Rights Act 1996 S111(2) Unfair dismissal claims

must be brought
a) before the end of the period of three months beginning with the
effective date of termination, or
b) within such further period as the tribunal considers reasonable in a case
where it is satisfied that it was not reasonably practicable for the complaint
to be presented before the end of that period of three months.’

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 He who seeks equity must do equity
Where a person seeks equitable relief he must act fairly towards the
other party against whom the equitable relief is being sought.

If an individual is seeking to rescind a contract, he must be prepared

to pay over any money received under the contract.

O’ Sullivan v Management Agency and Music Ltd (1985)

QB 428 a contract between a singer and a music agency was set aside
on the basis of undue influence. The Court of Appeal ordered the
music company to return any profits made to the singer, but also
held that the company was entitled to retain some of the money by
way of remuneration for their labour and skill.

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 He who comes to Equity must come
with clean hands
A person must not have acted improperly.

An applicant for an equitable remedy will not receive that remedy where she has not acted properly herself.
So in the case Coatsworth v Johnson (1886) 54 LT 520,

An applicant was not entitled to an order for specific performance of a lease as the applicant was in material
breach of that lease.

Lee v Haley (1869) 5 Ch App 155 Claimants sought an injunction to protect the coal business, This was however,
denied by the Court of Appeal on the simple grounds that they had fraudulently sold their customers short.

Highwayman’s case Everet v Williams 1725 one Highwayman trying to claim spoils of a robbery from
another highwayman.

To bring such a case was described in the case by the Judge as “scandalous and impertinent.”
And the Judge even ordered the arrest of the two solicitors who brought the case!

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 Equality is Equity
Typically in relation to specific property, where two people
have equal claims, to that property, equity will order an equal
division of title in that property between the claimants in
furtherance of an ancient principle that ‘equity did delight in
equity.’

Principle can be seen in operation in the principle of the

breakdown of marriages, where the parties have dealt with
their affairs as though they are sharing all of the benefits and
burdens, the parties will resolve equal title in the family home.
Midland Bank v Cooke (1995) 4 All ER 462

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 Equity looks to the intent rather than
the form
Equity will consider the parties’ intentions and not simply the form
which any documents may have taken.

Equity will not ignore formalities altogether, for example, in relation

to the law of express trusts, equity is particularly astute to observe
formalities, but it will not observe unnecessary formalities.

Walsh v Lonsdale (1882) 21 Ch 9 that a long lease which failed

for want of formality was nevertheless recognised and upheld in
equity on grounds that in substance the landlord had purported to
grant a long lease.

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 Equity regards that as done which
ought to be done
Courts have developed the principle that equity will consider
something that has been done if the court believes it ought to be
done.

Walsh v Lonsdale (1882) 2 Ch D 9 where a binding contract to

grant a lease was deemed to create an equitable lease, even though
the formal requirements to create a valid common lease had not
been observed. The rationale behind equity finding that there was a
lease was that the landlord was bound by specific performance to
carry out his obligations under contract and to grant a valid lease to
the tenant.

The granting of the lease was something which ought to have been
done.

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 Equity imputes an obligation to fulfil
and obligation
If a person intends to carry out an obligation and than does
something which has the effect of fulfilling that obligation,
equity will deem that obligation as being satisfied.

For example, when a debtor leaves a legacy, by will to his

creditor, the presumption is that the legacy will be viewed as
the satisfaction of the debt. The creditor will, therefore not be
able to sue both on the debt and keep the legacy.

Sowden v Sowden (1785) 1 Bro CC 582 

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 Equity acts in personam
The focus of a court of equity in making a judgment is to act on
the conscience of the particular defendant involved in the
particular case before it and not set down general rules.

Of course, over the centuries, the courts have come to adopt

specific practices and rules of precedent as to the manner in
which equitable principles will be imposed.

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 Equity will not permit statute or common law
to be used as an engine of fraud
Equity will not allow a defendant to use a statutory principle so
as to effect a fraud in relation to someone else.

In Shah v Shah (2001) EWCA Civ 527 a deed was not

properly executed and a witness to the deed sought to have it
set aside for his own benefit.

The court held that for the witness to rely on this defect would
be tantamount to fraud and upheld the deed.

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 Equity will not permit a person who is trustee of property to take
benefit from that property as a beneficiary
A trust is created by transferring the common law title in
property to a trustee to hold that property on trust for
identified beneficiaries.

Principle of equity that even though the trustee is recognised as

being the ‘owner of the trust property by common law, the
trustee is not to be permitted to take all of the rights in the
property in her capacity as a trustee’

Rather a trustee is required to hold the trust property on trust

for the beneficiaries under the terms of the trust.

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 Equity will not assist a volunteer
The above lays in the commercial roots of many of these
doctrines. Equity will not assist a person who gave no
consideration for the benefits for which she is claiming.

Someone who is the intended recipient of a gift will not have

a failed gift completed by Equity.

Exception, beneficiaries under trusts are the only category of

true volunteers who acquire the protection of Equity.

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 Equity abhors a vacuum
In considering rights to property, equity will not allow there to
be some property rights which are not owned by some
identifiable person. Thus a trustee must hold property on trust
for identifiable beneficiaries, or else there is no valid trust.

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 A Trust operates on the conscience of
the legal owner of the property
Legal owner of property will be obliged to hold it on trust for
any persons beneficially entitled to it where good conscience
so requires: this can be due to an express declaration of trust,
or to the imposition of a trust implied by the law or courts.

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 Remedies flowing from Equity
Specific Performance

Injunctions

Rectification (rewriting of a contract)

Rescission (unilateral withdrawal from a contract)

Appointment of a receiver to receive income from business

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 Maxims of Equity
Marcus Cleaver, Maxims of Equity

https://www.youtube.com/watch?v=mkJIuRWfG7I

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