LAW OF TRUSTS I

EQUITY
S.Selvakunapalan LL.B., LL.M.
Attorney-at Law, Deputy Legal Draftsman
Visiting Lecturer – Sri Lanka Law College.
https://selvakunapalan.blogspot.com/2019/
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 Question Paper- Law of Trusts
1. The examination paper consisting of 9 questions out of
which you are requested to answer 6 questions.

2. Every question except question No.1, carries equal marks of

16. The question No.1 which carries 20 marks is
compulsory.

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Recommended books:-
1. Keeton G.W. - Law of Trusts;
2. Scott A.W. - The Law of Trusts;
3. Dr. Jill Martin- Hanbury & Martin: Modern Equity;
19th Edition;
4. Philip H. Pettit - Equity and the Law of Trusts;
Twelfth Edition;
5. A J Oakley- Parker & Mellows :The Modern Law of
Trusts; 9th edition; and
6. Coorey L.J.M. -The Reception in Ceylon of the
English Trust.

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7. Michael Haley & Lara Mcmurtry- Equity & Trusts;

8. Alastair Hudson- Equity & Trusts (4th Edition).

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 What is equity?
• Equity means that which is fair and just, moral and ethical; but
its legal meaning is much narrower. It is not synonymous with
justice in a broad sense.

• The early development of equity categorized it as a separate

system from the then existing common law.

5 5
• Equity is the means by which a system of law balances
out the need to achieve fair results in individual
circumstances.

• Equity mitigates 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.

• Equity appears to imbue the courts with the general

discretion to disapply statutory or common law rules
whenever good conscience requires it.

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• Equity can be understood as the means by which
English law ensures that the strict application of a
common law or statutory rule does not result in any
unfairness. To this extent equity is a form of natural
justice and it has a moral basis.

• Equity can be considered in its formal sense as

constituting the collection of substantive principle to
judge people’s consciences.

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• Equity should be understood as being a code of
technical, substantive rules and not simply as a
reservoir of general principles.

• Principles of justice and conscience are the basis of

equity jurisdiction, but it must not be thought that the
contrast between law and equity is one between a
system of strict rules and one of broad discretion- A.
Duggan (1997) 113 L.Q.R 601)

8
• Equity operates on the conscience of the owner of the
legal interest. 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.

9
 What is common law?
• Norman invasion in 1066 and William I seized control of
the entire Kingdom.

• England and Wales developed as a single jurisdiction and

Scotland retained its own legal system.

• Hence the term “common law” coined to mean this new

system of legal principle created by the English courts
which was common to the entire Kingdom.

10
• Hentry II created the courts of King Bench to hear the
matters. Medieval courts and the principles of the
common law began.

• If the common law courts’ decision was unfair or

unjust, there remained a right to petition the King
directly.

• The proliferation of suits that were brought directly

before the King required the creation of a separate
mechanism for hearing them.

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• During the Medieval period, the position of Lord
Chancellor was created to hear the petitions.

• The Medieval Lord Chancellor was empowered to

issue royal writs on behalf of the Crown.

• The Lord Chancellor was a politician and foremost.

Until 1741, it was the Lord Chancellor who would
have been considered the prime minister to the
Crown.

12
• Early Lords Chancellor were all clerics; that is they were
bishops who were keepers of the King’s conscience.
Latterly, the Lords Chancellor were secular
appointments.

• Since the Constitutional Reforms Act 2005, the Lord

Chancellor need not be a lawyer. He must be ‘qualified
by experience’.- section 2 (Lord Bingham (2006) 122
L.Q.R 211.

13
• In time, the number of petitions brought before the
Lord Chancellor became so numerous that a separate
system of courts was created to hear those cases –
the courts of chancery.

14
• Lord Chancellor’s intervention gradually developed a
distinct body of law called ‘equity’ which was well
established by the fifteenth century. From then on,
the Chancellor’s jurisdiction was exercised via what
later becomes ‘Court of Chancery.’

• Equity is the branch of the law which, before the

Judicature Act of 1873 (Britain) came into force, was
applied and administrated by the Court of
Chancellery.

15
• Developed system of law has been assisted by the
introduction of discretionary power to do justice in
particular cases where strict rules of law cause
hardship.

• Equity is the body of rules which evolved to mitigate

the severity of rules of the common law. Its origin was
the exercise by the Chancellor of the residual
discretionary power of the King to do justice.

16 16
 History of the Court of chancery
• At the end of 13th century, if the common law courts failed to
do justice, an aggrieved person might petition to the King.

• From early times, these petitions seeking the King’s

extraordinary justice seem to have been referred to the
Chancellor, and as early as the reign of Edward-I petitions are
found addressed to the Chancellor and the Council.

17
• This procedure became more frequent, and by the
end of 14th century petitions began to be addressed to
the Chancellor alone.

• As the practice became habitual and references were

frequent, the Chancellor and his office of chancery
inevitably acquired the characteristic of the court.

• The Chancellor made a decree upon his own

authority.

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 In medieval period, the Chancellor’s jurisdiction was
vague and undefined; as well as the subject matter of
the petitions which invoked it.

The basis of intervention was that it was necessary on

grounds of conscience. His authority was
unquestioned in the case of fraud and breach of
confidence.

19
• During the medieval period, the chancellor was the
most important person in the country next to the King
himself: Maitland described him as “the King’s
Secretary of State for all departments.

• One of the important functions of the Chancery was

to issue the royal writs or inventing new ones, the
Chancellor could have some influence on the
development of the law.

20 20
• The cases referred to the Chancellor and chancery fall
into two main groups, firstly cases where the law was
defective, and secondly those where there was a
theoretically remedy at common law but the
petitioner was unable to obtain it because of
disturbed state of the country, power and wealth of
the other party.

• In exercising jurisdiction in cases of this kind, it is

unlikely that the Chancellor regarded himself as
administering separate system of law.

21
• Consequently hardship increasingly often arose
because of defects in the law, and petitions began to
be brought on this ground. In giving relief in these
cases, new law was being created, and it was this new
law which became known as equity in contrast
common law dispensed in the common law courts.

• The conflict between the jurisdiction was reduced by

the fact that it was a cardinal rule of the court of
chancery that ‘equity acts in personam’.

22
• In the central institution, the trusts, the Chancellor
never denied that the trustee was the legal owner of
the trust property.

• But merely insisted that the trustee should deal with

it in accordance with trust for the benefit of the
beneficiaries.

23
Until Judicature Act 1873, the Court of Chancellery
had almost exclusive equity jurisdiction; rules of equity
were not enforced in the common law courts.

24 24
• The two systems had a lot of conflict to the extent
that, by the nineteenth century a number of series of
Parliamentary reports resulted to the Judicature Acts
1873 and 1875.

• The two Acts were responsible for amalgamating the

existing superior courts into a single Supreme Court of
Judicature.

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• A claimant could only sue at common law, if his
complaint came within the scope of an existing writ.

• In the 13th century, the available writs covered very

narrow ground. Even if the claim came within the
scope of an existing writ, it may have been that for
some reasons, such as the power and influence of the
defendant or etc.

26
• It was possible after the Statute of Uses 1535, to
create equitable interests in land by imposing a use
upon a leasehold, or by requiring the legal owners of
freehold land to collect the rents and profits and to
pay them over to the beneficiaries.

• If the land limited to A to the use of B to the use of C,

is it possible to argue that the first use will be
executed, and that B will hold the legal estate to the
use of C?

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• Such a resolution was reached by about 1700; the
second use is called a trust.

• A shorter form, which became settled practice, was to

omit A, and to make the disposition “unto and to the
use of B in trust for C”.

• However, the story of development is confused and

uncertain.

28 28
• If land was given to A on A’s undertaking to hold the
land to use and benefit of B, it was unconscionable for
A to keep it for his own benefit. B however had no
legal claim or title of the land.

• The conveyance to A gave him whatever legal estate

was conveyed, and, at common law, A could exercise
all the rights which that estate gave him.

29
• From the beginning of Chancellorship of Lord
Nottingham in 1673 and to the end of that of Lord
Eldon in 1827, equity was transformed from a
jurisdiction based upon the personal interference of
the Chancellor into system of established rules and
principles.

• Lord Nottingham did much to weld together and

consolidate the whole system.

30 30
• In the nineteenth century, the modern law of trusts
developed and shaped to meet entirely new
conditions of social life.

• Section 25 of the Supreme Court of Judicature Act

1873 provided for the solution of many problems in
which those rules would conflict.

31 31
• Subsection 11 contained a general residual clause:
“Generally, in all matters in which there is any conflict
or variance between the rules of equity and the rules
of common law with reference to the same matter,
the rules of equity shall prevail.”

32 32
• There used to be two completely distinct sets of
courts in England. This position continued until
enactment of Judicature Act 1873, which removed the
need to sue in common law courts for a common law
remedy, and so forth.

• Before the Judicature Act 1873 came into full effect in

1875, it was necessary for a litigant to decide whether
his claim related to common law or to equity.

33
• The result of the Judicature Act 1873 was that the
practical distinction between common law and equity
disappeared. However, it is vitally important to
understand that the intellectual distinction remains.

34
 Amalgamation of Administration or
Fusion of Rules?
• The Judicature Acts 1873 and 1875 were responsible for
amalgamating the existing superior courts into a single
Supreme Court of Judicature.

• This Supreme Court replaced the courts of Queen’s Bench,

Court of Exchequer chamber, Exchequer and Common Pleas
as well as the court of Chancery, and the court of appeal in
Chancery.

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• Many academicians have distinct perceptions as to
whether the Judicature Acts fused both the rules of
equity and common law to make then one, or
whether it was just an amalgamation of the two rules
so that each of them retains its identity but
administered in the same court.

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• The Judicature Act clearly fused the administration of
law and equity. The question is whether equity and
law fused.

• Some scholars think that the rules of common law

and equity are totally fused and are thus no longer
distinguished while others perceive the effect of the
Judicature Act to have been procedural.

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Fusion of Administration and
Continuing Distinction
between Common
Law and Equity

38
• The orthodox view is that only jurisdictions have been
fused.

• Legal rights remain legal rights and equitable rights

remain equitable rights though administered in the
same court.

39
• In Salt v Cooper, Sir George Jessel MR, stated to the
effect that, the intent of the Judicature Act was not to
fuse the two rules , but rather administrating law and
equity under a single tribunal.

40
• According to Professor Ashburner although equity
and common law are streams of jurisdiction running
through the same channel, they run side by side
without mingling their waters.

• In MCC Proceeds Inc v Lehman Bros

International Mummery LJ revealed the fact that, the
Judicature Acts intended to gain procedural
improvements when it comes to the administering of
law and equity. (continue)

41
• This was thus not to transform the existing equitable
rights into legal titles or fuse the equitable rules with
common law.

• The legislation 1925 is based on the assumption that

legal ownership is different from equitable ownership.

42
• In China and South Sea Bank Ltd v. Tan Soon Gin
[1990 1 AC536] the equitable nature of the duties of a
mortgagee has been emphasized, although in
Medforth v. Black [2000 Ch 86 at 102] It was said
whether the duty is expressed as a common law duty
or as a duty in equity, the result is same.

• However, in Raja v. Lloyeds TSB Bank Plc [2001] 82

PCR 191] it was said that result may not always be
same.

43
• Target Holdings Ltd. V. Redferms [1996 a AC 310]
although common law damages and compensation in
equity share the requirement of causation, they differ
on remoteness and foreseeability.

• Mcc Proceeds Inc. v. Lehman Brothers International

(Europe)- whether an equitable owner could sue for
conversion. It was held that such an owner, who has
no title at common law, could not bring such an
action.

44
 Fusion of Common Law and Equity
• Some scholar and judges believe that, the Judicature Act did
not merely fuse the administration of the rules of law and
equity, but rather fussed the rules themselves.

• According to Lord Denning in Errington v Errington stated that,

the rules of equity and common law have been fused for
almost eighty years by that time.

45
• In Tinsley v Milligan [1994] 1 AC 340, Lord Browwne-
Wilkinson held to the effect that, English law now has
one single law that contains both legal and equitable
interests.

• Therefore, Lord Browne- Wilkinson saw that a person

in ownership of either type of estate possessed a right
of property that amounted to a right in rem as
opposed to merely a right in personam. (continue)

46
• It was thus held that the equitable principle that
governs when property or a title was affected under
illegality had now become one after merging the
common law rule.

• In the case of In Napier and Ettrick v. Hunter [1993]1

All.ER 385 at 401, it was stated by Lord Goff inter alia
that, the judiciary task nowadays is to view the two
strands of authority equity and law moulded into a
coherent whole.

47
• Aquaculture Corp. v. New Zealand Green Mussel Co.
Ltd. [1990 NZLR 299] it was stated equity and
common law are now mingled … full range of
remedies should be available as appropriate, no
matter whether they originated in common law,
equity or statute.

• Medforth v. Black [2000] ch. 86] Sir Richard Scott VC.

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

48
• BICC Plc v. Burney Corp. (1985) ch. 232] It was said
that set-off, whether legal or equitable, can be raised
as a defence whether the relief sought by the
claimant is legal or equitable.

• In Sempara Metals Ltd. V. IRC [2008 AC 561] the

House of Lords held that the compound interest may
be recovered at common law as well as in equity.

49
• Coulthard v. Disco Mix Club Ltd. [2000 1 WLR 707] in the
context of limitation periods, it has been held that there
is no distinction between an action for fraud at common
law and an action in equity for deliberate and dishonest
breach of fiduciary duty based on the facts, which is
equitable counterpart of the common law claim.

• Swindle v. Harrison [1997 4 AllEr 705] Hobhouse LJ.

confirmed that common law damages were not available
for breach of fiduciary duty.

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• One indication of fusion is a situation where the legal
remedy of damages may be given for breach of an
equitable right.

• The converse, an equitable remedy for breach of a

legal right, such as an injunction to restrain a tort, or
specific performance of a contract, is explicable as the
exercise of equity’s concurrent jurisdiction and is not
an example of fusion.

51
• Generally, the breach of an equitable right will
provide an equitable remedy only. Thus a breach of a
restrictive covenant by a non-contracting party is
remedied by an injunction, not damages.

• In AG vs. Gurdian News paper Ltd. (1990 1AC190)

Lord Goff said that damages are available for breach
of confidence, despite the equitable nature of the
wrong.

52
 Conclusion
• Both views are supported by authorities and strong
justification that a lot of confusion as to which side is right
occurs. However, despite all the diverse opinions by judges
and scholars, the rules of equity and common law are clearly
administered in one court and as seen in the cases above, are
at times subjected to ‘cross-remedies’ as in Harris v Digital
Pulse Pty Ltd.

53
• This is to mean that, although not entirely the same,
the rules of equity and common law at times apply
inter-changeably.

• This perception accrues from the observation that,

the Judicature Act does not authorize any substantive
fusion between equity and law; neither does it reveal
any prohibition for the occurrence of such a fusion.

54
 Nature of Equitable Rights
• In its simplest form, one view emphasizes the fact that
a beneficiary’s remedy is in the form of an action
against the trustee; a right in personam.

• On the other hand, equitable interests under trusts are

equitable proprietary interests, corresponding to legal
estates, and the beneficiary can properly be regarded
as the owner of the beneficial interest; and ownership
is a right in rem.

55
In the Roman law, from which they are taken, the
expressions “in rem” and “in personam” were always
opposed to one another, an act or proceeding in
personam being one done or directed against or with
reference to a specific person, while an act or
proceeding in rem was one done or directed with
reference to no specific person, and consequently
against or with reference to all whom it might concern,
or “all the world.”

56
• The phrases were especially applied to actions; an
actio in personam being the remedy where a claim
against a specific person arose out of an obligation.

• while an actio in rem was one brought for the

assertion of a right of property, easement, status, etc.,
against one who denied or infringed it.

57
• The proper meaning of a right in rem is a right
enforceable against the world with respect of to the
particular thing. The legal owner does have the rights
in rem, Rights against the world with respect to the
property.

• In accordance with the maxim equity acts in

personam, equity did not say that the cestui que trust
was the owner of the land, it said that the trustee is
the owner of the land. But was bound to hold the
property for the benefit of the cestui que trust.

58
• The maxim that equity acts in personam does not prevent
us from treating a beneficiary under a trust as having
equitable ownership.

• A beneficiary’s interest behind a trust has long been

treated as having the basic characteristics of a
proprietary interest in that it can be sold or mortgaged.

• Historically, the protection of the beneficiary was based

on the Chancellor’s willingness to proceed in personam
against the trustee, that protection has ended up by
creating the rights in the nature of the ownership.

59
• The trustee is the owner at law and the beneficiary is
the owner in equity.

• The trustee sues for the possession of the trust

property. Trustee not the beneficiary, sues for
conversion of the trust property. The beneficiary’s
right is to compel the trustee to take action. Certain
cases, beneficiary may take action himself on behalf
of the trust, joining the trustee as defendant.

60
E.g. The trustee has sold the property to bona fide
purchaser. Here trustee would defeat the equitable
ownership of the beneficiary.

In this situation, bona fide purchaser is not

determinative of the question whether beneficiary’s
interest is proprietary or whether his rights are in rem
or in personam. It demonstrates simply that legal and
equitable ownership may have different effects.

61
In the practical point of view, it can be said that where
the problem involves the working of the trust
machinery, so that the beneficiary asserts his rights by
an action against the trustees to enforce their duties
the old theory that equity acts in personam is wholly
acceptable.

But in other cases, the theoretical view is overtaken by

a pragmatic approach. So, it depends on the language
of the statute.

62
• Ewing v. Orr-Ewing (1883)- there is no space here to
run through every aspect of equity jurisdiction to
establish the point that equity acts in personam. One
practical application of this proposition is the fact that
a court of equity will exercise to order specific
performance to administer assets abroad if the
executors are in England.

63
• R. Nolan (2006) 122 L.Q.R 232] – trustee is owner at
law; and the beneficiary is the owner in equity. A
recent analysis is that the interest of the beneficiary is
negative, or ‘exclusionary’. It is a negative right to
exclude non-beneficiary from the assets as opposed
to a positive right to impose trustee duties on them.

64
• S. Aaron (2010) 24 T.L.I 155 at 173] Another view is
that the beneficiary’s interest is “a bundle of in
personam equitable rights against the trustee”.

• Mcc Proceeds Inc. v. Lehman Brothers International

(Europe) [1998 4 All ER 675] trustee sues for
conversion of the trust property.

65
• Shell UK Ltd. V. Total UK (2011) Q.B 86] it has been
held that a duty of care may be owned to a beneficial
owner of property just as much as to a legal owner,
but this has been criticized as blurring legal and
equitable ownership in a manner contrary to principle
and authority.

66
• Equity did not say that cestui que trust was the owner
of the land, it said that the trustee was the owner of
the land, but added that he was bound to hold the land
for the benefit of cestui que trust.

• A beneficiary’s interest behind a trust has been treated

as having the basic characteristics of a proprietary
interest in that it can be bought, sold, mortgaged, and
devised or bequeathed.

67
• Even though, the protection of the beneficiary was
based on the Chancellor’s willingness to proceed in
personam against the trustee, that the protection has
ended up by creating rights in the nature of
ownership.

• To argue that a beneficiary is not to say that legal

rights are the same as equitable, or that equitable
ownership is the same as legal.

68
• Rather, it is to accept the basic peculiarity of
ownership under the English law of trusts. The trustee
is the owner at law; and the beneficiary is the owner
in equity.

• The trustee sues for rent or possession; and with

personality, the trustee, not the beneficiary, sues for
conversion of the trust property. The beneficiary's
right is to compel the trustee to take action; though
he may, in some cases, take action himself, on behalf
of the trust, joining the trustee as defendant.

69
• The right sometimes be inadequate; as where the
trustee has sold the property to bona fide purchaser
of the legal estate for value without notice, who will
defeat the equitable ownership of the beneficiary.

70
• Webb v. Webb (1994) 8 J.L.T 99) Where a father
bought a flat in France in his son’s name and sought a
declaration that the son was trustee and an order to
vest the property in the father, his action was
classified as in personam for the purposes of the 1968
Brussels Convention. Now Article 22 of the Council
regulation (EC) No. 44/2001 so that the son’s claim
that only the French Court had jurisdiction failed.

71
• Prazic v. Prazic [2006] 2 F.L.R 1128] Where a wife
sought a declaration in the English courts as to her
beneficial interest in land in England, her claim was
classified as in personam. Thus the English courts did
not have exclusive jurisdiction and the action was
stayed because her husband had already commenced
divorce and ancillary relief proceedings in France.

72
• On the other hand in Re Hayward [1997 Ch 45] the
claim by the trustee in bankruptcy of a deceased legal
and beneficial co-owner of a villa in Spain to his share
of the property was held to be in rem, so that the
Spanish Court had exclusive jurisdiction under the
Convention.

73
Common Law and
Equitable Remedies

74
• The main result of the distinction between common law and
equity is that each has distinct claims and remedies.

• Common law is the system which is able to award cash

damages for loss.

• Common law claims such as breach of contract, negligence

and fraud and, remedies such as damages and tracing
property.

• Equity claims such as breach of trust, claiming property and,

remedies such as specific performance, injunction, rescission,
rectification

75
Equitable remedies-

1. Specific Performance
2. Injunction
3. Rescission and Rectification &etc.

76
 Specific Performance
• Specific performance is an equitable remedy in relation to
the enforcement contracts.

• An award of specific performance compels the defendant to

perform his contractual obligations.

• The specific performance is a residual and discretionary

remedy.

77
Cooperative Insurance v. Argyll [1997] 3 All
ER 297

• Specific performance is traditionally regarded in English Law as

an exceptional remedy, as opposed to the common law remedy
of damages to which a plaintiff is entitled as of right… specific
performance was part of the discretionary jurisdiction of the
Court of Chancery to do justice in cases in which the remedies
available at common law were inadequate.

78
• Specific performance is an order which is made to
require the performance of contractual obligations in
certain circumstances.

• Consequently, the order requires only the

performance of those obligations and does not rest
on there having been some breach of contract. (no
requirement of breach)

79
 Contracts where specific
performance available
• The underlying principle in relation to real property is that each
parcel of land is unique, so that an award of damages would be
insufficient compensation for a failure to transfer a specified
piece of land. Therefore, the buyer of the land may be able to
impose an award of specific performance on the seller to compel
the transfer. (Adderley v. Dixon 1824)

80
• The underlying in relation to contracts for the transfer
of chattels is that specific performance will be
ordered in circumstances in which the chattel has a
intrinsic value such that it would not be readily
possible to acquire a substitute chattel.

81
Contracts where specific performance
unavailable
• This remedy may be displaced in situations in which
such performance is impracticable.

• Contracts involving the personal skill of one of the

parties are the clearest example of contracts which
will not be specifically enforced on the basis that an
order of specific performance would be inappropriate
in the circumstances.

82
• In the case of Patel v Ali [1984] 1All ER 978 ‘A’ entered
into a contract to sell his land to B. Completion of sale
was delayed because of certain personal difficulties
on the part of ‘A’. At the time that he agreed to sell,
‘A’ was wealthy and healthy. However, during the
delay, ‘A’ contracted cancer and hospitalized. ‘A’
became heavily reliant on friends and neighbours. ‘B’
sought specific performance of the contract.

83
• It was held that exceptionally specific performance
may be refused because of change of circumstances
subsequent to the contract such that a decree of
specific performance would inflict on the defendant a
hardship amounting to injustice.

84
 Injunction

• The injunction is an equitable remedy. It is at the

discretion of the court to make an order to either party to
litigation.

• An injunction will be awarded on an interim or a

permanent basis, either in a mandatory or prohibitory
form.

85
• It is necessary that no common law remedy would be
sufficient in the circumstances; the applicant must
come with the clean hands; there must not have been
delay on the applicant’s part; some rights of the
applicant must be affected.

• The respondent must not suffer undue harm as a

result of the injunction.

86
• Injunctions divide between those which require some
actions from the respondent (mandatory injunction)
those which require the respondent to refrain from
some actions (prohibitory injunction) and those
which seek to prevent some action which it is feared
may be performed in the future.

• Interim injunction is awarded on an interim basis

during the litigation.

87
• Their award is based on a balance of convenience
between the potential harm suffered by the applicant
if no injunction were awarded, and the potential
convenience caused to the respondent if the
injunction were to be awarded.

• An injunction will not be ordered in circumstances in

which damages would be sufficient.

88
 Rescission
• Rescission is an equitable remedy used to set aside contracts
and to restore the parties to the positions which they had
occupied previously.

• In the case fraudulent misrepresentation, the claimant will be

entitled to rescind the contract to prevent the wrongdoer
from benefiting from its wrongdoing.

89
• A material mistake made by both parties to a contract
will enable that contract to be rescinded.

• The right to rescind will be lost where it is impossible

to return the parties to the positions they occupied
previously, where the contract has been affirmed, or
where there has been delay.

90
 Rectification
• Rectification is available to amend the terms of a contract
better to reflect the true intentions of the parties.

• Rectification will be available in circumstances of common

mistake.

91
Maxims of Equity

92
 MAXIMS OF EQUITY
• The maxims of equity embody the general principles which
evolved in the Court of Chancellery. They are not rules
which must be rigorously applied in every case, but are
more in the nature of general guidelines illustrating the way
in which equitable jurisdiction is exercised.

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1. Equity will not suffer a wrong to be without a
remedy;
2. Equity follows the law;
3. He who seeks equity must do equity;
4. He who comes to equity must come with clean
hands;
5. Where equities are equal the law prevails;
6. Where equities are equal the first in time prevails;
7. Equity imputes an intention to fulfill an obligation;

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8. Equity regards as done that which ought to be done;
9. Equality is equity;
10. Equity looks to the intent rather than the form;
11. Delay defeats equity;
12. Equity acts in personam.

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Equity will not suffer a wrong to
be without a remedy
• The principle behind this maxim is that equity will
intervene to protect a right which, perhaps because of
some technical defect, is not enforceable at law. It is
not sufficient that the defendant may guilty of some
moral wrong.

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• The classic example is the enforcement of the trusts.
The beneficiary had no remedy at common law if the
trustee claimed the property for himself, as the
trustee was the legal owner, but he could enforce his
right in equity.
Following are limitation of the maxim.
(i) Where right and remedy both within the
jurisdiction of common law.
(ii) Acts of State; the courts are not authorized
to question the acts of State.

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• A beneficiary has no right at common law to have the
terms of the trust enforced, but the court will require
the trustee to carry out those terms to prevent him
committing what would be in effect a wrong against
the beneficiary.

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 Equity follows the law
• Clearly equity may not depart from statute law, nor does it
refuse to follow common law rules save in exceptional
circumstances. Thus, equitable interests in land correspond
with the legal estates and interests.

• it can be said that equity always follows the law in the sense
of obeying it and conforming to its general rules and policy,
whether contained in common law or statutory law. The rules
of equity can not override the specific provisions of law.

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• The court of common law and a court of equity came
to completely different decisions on the merits of the
very same case. The common law courts applies the
rules mechanically. Equity enables fairness and
principle to outweigh rigid rules. Therefore, equity will
have priority over non-statutory common law rules.

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• Mexfield Housing Co-operative Ltd. V. Berrisford
(2011 Ch. 244) – it was said “if an interest in land does
not satisfy the basic legal requirements for its
existence, then it will not, as a general rule, exist as an
interest in land either at law or in equity.

• Stack v. Dowson (2007 2 A.C. 432) where the legal

title to land is held jointly, the equitable interests
follow the legal title unless a contrary intention is
proved.

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 He who seeks equity must do equity
• A plaintiff who seeks equitable relief must be prepared to act
fairly towards the defendant. The operation of this principle
can be seen where equity, in allowing the rescission of a
contract for mistake, puts the plaintiff on terms which appear
to the court to be just and equitable.

102
• In Ashby v. White, wherein a qualified voter was not
allowed to vote and who therefore sued the returning
officer, it was held that if the law gives a man a right,
he must have means to maintain it.

• A plaintiff seeking an injunction will not succeed if he is

unable to carry out his own future obligations.

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 He who comes to equity must
come with clean hands
• The ‘clean hand’ principle looks to the previous conduct. Thus
equity will not grant relief against forfeiture for breach of
covenant where the breach in question was flagrant.

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• In Argyll vs. Argyll (1967) the fact that the wife’s
adultery had led to the divorce proceedings was no
ground for refusing her an injunction to restrain her
husband from publishing confidential materials.

• If both parties have “unclean hands,” the court should

consider only those of the applicant, and need not
balance the misconduct of one against that of the
other.

• A court of equity will not act in favour of someone

who has committed an illegal act.

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 Where equities are equal the law
prevails
• This maxim operates where there are two or more
competing interests, one legal and the other equitable.
Where the claims of both parties are fair and
meritorious, precedence will be given to the legal
interest.

• This maxim was developed in connection with interests

in lands. When a purchaser acquires property bona fide
without notice of a defect in the vendor’s title, the
equities are equal and the legal estate will prevail.

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• If the purchaser takes title with notice of the defect,
the earlier title, if valid, will prevail. The force of this
maxim has largely been displaced by legislated
systems of land title registration.

• Where two people have purported to purchase goods

from a fraudulent vendor for same price, neither of
them would have a better claim to the goods in
equity. Therefore, the rules of commercial rules would
be applied.

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Where equities are equal the first in
time prevails
• This maxim dealing with the priorities of competing
interests, may be dealt with. This provides the
foundation for the doctrine of notice. Thus, a prior
equitable interest in land can only be defeated by a
bona fide purchases of a legal estate without notice.

• It the purchaser is bona fide and without notice, then

the equities are equal and his legal estate prevails.

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• If he took with notice the position is otherwise, as the
equities are not equal. If he does not acquire a legal
estate then the first in time, i.e. the prior equitable
interest, prevails as equitable interests rank in order
of the creation.

• This maxim has lost some of their importance since

the introduction of the system of registration of
certain interests in land.

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Equity imputes an intention to fulfill
an obligation
• Where a person is obliged to do some act, and does
some other act which could be regarded as a
performance of it, then it will be so regarded in equity.
This is the basis of the doctrines of performance and
satisfaction. For example, if a debtor leaves a legacy to
his creditor, this is presumed to be a repayment of the
debt so that unless the presumption is rebutted, the
creditor cannot take the legacy and sue to recover the
debt.

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• In Sowden v. Sowden, a husband agreed with the
trustees to pay them £50,000 for the purpose of
purchasing a land in a particular area D. He, in fact,
never paid the sum, but after marriage purchased the
land at D in his own name, for £50,000. He died and
could not bring the land into settlement. Equity courts
construed that he purchased land to fulfill his
obligation.

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 Equity regards as done that which
ought to be done
• Where there is a specially enforceable obligation, equity
regards the parties as already in the position which they
would be in after performance of the obligation. Therefore in
equity a specifically enforceable contract for a lease creates an
equitable lease. This is the doctrine of Walsh vs. Lonsdale.

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• Similarly, a specifically enforceable contract for the sale
of land transfers the equitable interest to the
purchaser, the vendor holding the title on constructive
trust until completion.

• In AG for Hong Kong vs. Reid (1994 1 A.C. 324) the

issue was whether a fiduciary who took a bribe
became constructive trustee of it or was merely
personally accountable. Because he was under a duty
to hand over the bribe to his principal, it was held that
the property belonged to the principal in equity.

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• Napier and Ettrick (Lord) v. Hunter (1993 A.C. 713) it
was considered that the duty of an insured person to
hand over any damages from the wrongdoer to the
insurer was enforceable, so that the insurer had
immediate proprietary rights in the form of lien over
money.

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 Equality is equity
• Where two or more persons are entitled to an interest in
the same property, then the principle of equity is equal
division, if there is no good reason for any other basis for
division. Equity, therefore, dislikes the joint tenancy where,
by the doctrine of survivorship, the last survivor takes all.

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• This may be contrasted with the tenancy in common,
where the interest of each party devolves upon his
personal representative on his death. In the absence of
an express declaration, to the effect that the equitable
interest is held jointly, equity presumes a tenancy in
common in certain cases where at law the parties are
joint tenants: for example where the purchase money
provided in unequal shares, equity presumes a tenancy
in common in shares proportionate to the contributions.

116
Equity looks to the intent rather than
the form
• This principle does not mean that formalities may be
ignored in equity, but rather that equity looks at the
substance rather than form. Thus equity will regard a
transaction as a mortgage even though it is not so
described, if in substance it appears that the property was
transferred by way of security. Similarly a trust may be
created although the word ‘trust’ has not been used.

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• A trust is created with- (1) an intention on his part to
create a trust thereby, (2) the purpose of the trust, (3)
the beneficiary, and (4) the trust property. Where an
author uses words such as ‘I hope’, ‘I request’ or ‘I
recommend’ the first condition is missing. In cases
where subsequent ingredients are found, in early
days, it was held by the equity courts that he had the
intention. This view is in use now but not as liberally
as before.

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 Delay defeats equity
• Equity aids vigilant and not the indolent. This is the
foundation of the doctrine of laches, whereby a party
who has delayed cannot obtained equitable relief.

• For example under the English law, actions against

trustees for breach of trust must be brought within six
years and delay short of this will nor bar relief. Under
the Trusts Ordinance there is no time bar.

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• Plaintiff’s unreasonable delay is a weapon of defence
by the defendant against the plaintiff.

• In a Bombay case, the plaintiff allowed his land to be

occupied by the defendant and this was acquiesced
by him even beyond the period of limitation. On a suit
of the land it was decided that as the period of
limitation to recover possession had expired, no relief
could be granted.

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• Humphreys v. Humphreys [2004 W.T.L.R 125] it was
said that the claims to rescission and rectification may
be barred by delay.

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 Equity acts in personam
• Equity has jurisdiction over the defendant personally.
The personal nature of the jurisdiction is illustrated by
the fact that failure to comply with an order, such as
specific performance or an injunction, is contempt of
court punishable by imprisonment.

• Provided that the defendant is within the jurisdiction,

it is no objection that the property which is the
subject matter of the dispute is outside it.

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• Thus in the leading case of Penn vs. Lord Baltimore
(1750) specific performance was ordered of an
agreement relating to land boundaries in
Pennsylvania and Maryland, the defendant by in that
country.

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 Distinction between maxims
He who seeks equity must do equity He who comes into equity must come with clean
hands
i) It is applicable when both the plaintiff and i) It is applicable when the defendant has no
the defendant have claims of equitable separate claim to relief and the plaintiff’s
relief against each other. conduct is unfair.

ii) It exposes the condition subsequent to the ii) It is a condition precedent to seeking
relief sought. equitable relief.

iii) It refers to the plaintiff’s conduct as the iii) It refers to the plaintiff's conduct before
court thinks it ought to be, after he comes he  approaches the court.
to the court.

iv) The plaintiff has to mould his behavior iv) If the plaintiff’s conduct is unfair, it would
according to the impositions by the court. not entitle him to the relief sought.

v) The plaintiff has an option or a choice v) The conduct of the plaintiff snatched his
before him either to submit to the choice from him. His equitable right
conditions put by the court, or to get out of therefore neither be recognized nor
the court. enforced.
vi) This maxim looks to the future. vi) This maxim looks at the past.

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The end of the equity session

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