MLL405 EQUITY AND TRUSTS – EXAM NOTES
Legislation
JA = Judicature Act (UK)
SCA = Supreme Court Act 1986 (Vic) TA = Trustee Act 1958 (Vic)
TTable of Contents
Topic 1: The origin and nature of equity & its relationship with common law ... 10
What is equity ... 10
The nature of equity ... 10
What is equity – 5 stages ... 10
Aristotle ... 10
Equity as a body of law ... 11
Equity corrects the law ... 11
Form and substance ... 11
Standards of conduct ... 11
Unconscionability ... 11
Equitable maxims ... 12
Distrust of equity ... 12
Equitable relief is discretionary ... 12
Scope of equity ... 13
The origin of the equity jurisdiction ... 13
Historical Evolution: Medieval Period ... 13
The Formative Period: 15th – 17th Century ... 13
Systemisation Period ... 13
The relationship between CL and equity ... 14
Jurisdictional operation of equity ... 14
Judicature Act ... 14
Fusion Fallacies ... 15
Legitimate Fusion ... 15
Legitimate fusion: contributory negligence ... 16
Legitimate fusion: causation and remoteness ... 17
Legitimate fusion: account of profit ... 18
Integration of equity into common law ... 18
Topic 2: Undue influence and unconscientious dealings ... 19
1. Undue influence ... 19
Development of Undue influence ... 19
1.1. Categories of undue influence - Class 1, 2A and 2B ... 20
Class 1: Actual Undue Influence ... 20
Class 2A: Presumed Influence ... 20
Class 2B: Proven Influence ... 21
Case Focus: Johnson v Buttress HCA ... 21
Undue Influence: Class 2B Proven Influence – Rebuttal... 22
Case Focus: Bester v Perpetual Trustees [1970] ... 22
1.2. Undue influence and third parties ... 23
1) third party agents ... 23
2) third party actual/constructive notice ... 23
Case Focus: Barclays Bank v O’Brien UK (rejected by HCA in Garcia v NAB) ... 23
Case Focus: Royal Bank of Scotland v Ettridge (No 2) ... 24
3) Yerkey v Jones/Garcia: special wives’ equity ... 25
Case Focus: Yerkey v Jones (1939) HCA ... 25
Case Focus: Garcia v NAB (1998) HCA ... 26
Extensions of Yerkey: Relationships other than Married Women ... 27
Relationships other than married women ... 27
The English position: an approach essentially founded in notice ... 28
1.3. Independent legal advice ... 29
2. Unconscientious Dealing ... 30
2.1. Special disadvantage/special disability ... 31
Information imbalance... 31
Case Focus: Commercial Bank of Australia v Amadio (1983) HCA ... 32
Emotional dependence ... 32
Case Focus: Louth v Diprose (1991) HCA ... 32
2.2. Knowledge of the stronger party ... 33
Case Focus: Bridgewater v Leahy (1998) HCA ... 33
Bridgewater and Louth: issues ... 33
2.3. Unconscientious dealing: knowledge of disability ... 34
2.4. Unconscientious Dealing: Exploitation ... 34
2.5. Unconscientious Dealing: Independent legal advice ... 34
2.6. Recent Applications of Unconscientious Dealing... 35
2.7. Australian Consumer Law ... 35
Conclusions ... 36
Topic 3: Fiduciary obligations... 37
Fiduciary and the Fiduciary relationship ... 37
Three Questions for determining relief ... 37
When will a fiduciary relationship arise? ... 37
Case Focus: Hospital Products Ltd v United States Surgical Corp (1984) ... 38
Relevance of Confidential Relationship ... 38
Case Focus: LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14 (CAN) ... 38
Relevance of Existence of a Contract ... 38
Case Focus: Pilmer v Duke Group Ltd (2001) HCA ... 38
Case Focus: C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd ... 38
Commerciality of the Transaction ... 39
Case Focus: Hospital Products Ltd v USSC... 39
Case Focus: John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) HCA ... 39
A relationship may be fiduciary as to some but not all of its aspects ... 40
Identifying a relationship as fiduciary does not provide a complete description of the legal nature of the relationship ... 40
The fiduciary will not breach their duty if the fiduciary position had no operative part in the gaining of the benefit ... 40
Fiduciary Relationships ... 40
Presumed fiduciary relationships ... 40
Trustee and beneficiary ... 41
Lawyer and Client ... 41
Director/ Company ... 42
Fiduciary Duties ... 42
Established fiduciary categories ... 42
Fiduciary Duties: Directors ... 42
Case Focus: Regal (Hastings) Ltd v Gulliver [1967] HL ... 43
Fiduciary Duties: Partners, JVs ... 43
Fiduciary Duties: Stockbrokers; Principal and Agent Relationship ... 43
Non-Established Categories: Principal/Agent ... 43
Fiduciary Duties: Partners/Joint Ventures ... 44
Employer and Employee ... 44
Non-established categories: Commercial dealings ... 44
Case Focus: United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 ... 45
Case Focus: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 .... 45
Case Focus: Chan v Zachariah (1984) HCA ... 45
Non-established categories: Personal relationships ... 46
Does the Crown owe fiduciary duties to the holders of native title? ... 47
Fiduciary obligations ... 48
Case Focus: Breen v Williams (1996) HCA ... 48
Case Focus:͒Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) HCA ... 49
Case Focus: Boardman v Phipps UK ... 49
Who should give consent? ... 49
Duty and interest ... 50
Unauthorised remuneration ... 50
Assuming a double character ... 50
Benefits derived by a fiduciary to the exclusion of another ... 50
Breach of Undertaking ... 51
Misuse of Position ... 51
Defences... 52
Consent ... 52
Authorisation ... 52
Proof... 53
Topic 4: Equitable remedies of compensation and damages ... 54
Equitable remedies ... 54
Equitable compensation ... 54
Case Focus: Re Dawson [1966] ... 55
Equitable compensation and restitution ... 56
Equitable compensation and common law damages ... 56
The scope of compensation: The Brickenden Principle ... 57
Case Focus: Brickenden v London Loan and Savings Company of Canada [1934] 3 DLR 465 .. 58
Case Focus: Maguire v Makaronis (1997) HCA ... 58
Other jurisdictions: ... 59
Contributory Negligence ... 59
Equitable damages: Lord Cairns’ Act Damages ... 60
‘Wrongful acts’ of equity ... 61
Case Focus: Giller v Procopets (2008) 24 VR 1 ... 62
Account of profits ... 63
Quantifying the profit ... 64
Constructive trust ... 64
Secret bribes ... 65
Third parties as constructive trustees ... 66
Liability for receipt of trust property ... 66
Types of knowledge ... 67
Knowing receipt of trust property ... 67
Trustee de son tort ... 68
Third party recipients ... 68
Knowledge requirement: Australia ... 68
Personal liability of third parties as accessories ... 69
Liability requirements for breach of trust... 69
Following and tracing trust property ... 70
Tracing into a mixed fund ... 70
Tracing property to third parties ... 71
Topic 5: Equitable remedies of specific performance and injunctions ... 73
Specific Performance ... 73
1. Jurisdiction to make the order ... 73
2. A legally enforceable agreement ... 74
Doctrine of Part Performance ... 75
Equitable estoppel ... 76
3. The inadequacy of CL damages ... 76
When will damages be inadequate? ... 77
Case Focus: Dougan v Ley (1967) ... 77
Case Focus: ANZ Executors and Trustees Ltd v Homes Ltd (1990) ... 79
Doctrine of mutuality... 79
Contracts to pay a third party ... 79
Discretionary Considerations ... 80
1. Mutuality ... 80
2. Ready, willing and able (RWA) ... 81
Case Focus: Green v Sommerville (1979) HCA ... 81
Case Focus: Foran v Wight (1989) ... 81
3. Impossibility ... 83
4. Futility ... 84
5. Illegality ... 84
6. Plaintiff’s conduct ... 84
7. Hardship to the defendant ... 84
8. Contracts of personal service and ongoing performance ... 85
Case Focus: Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1996] ... 86
9. Unfairness ... 87
10. Uncertainty ... 88
11. Laches (delays) ... 88
12. The effect of the order for Specific Performance ... 88
Injunctions... 88
Definitions ... 88
Jurisdiction to grant injunctions ... 89
Discretionary matters ... 90
1. Injunction to enforce negative covenant ... 90
Contracts of personal service and the need for supervision ... 90
Case Focus: Lumley v Wagner (1852) ... 91
Case Focus: Page One Records v Britton [1967] ... 91
Case Focus: Tullett Prebon (Australia) Pty Ltd v Simon Purcell [2008] ... 92
2. Mandatory injunction ... 92
Case Focus: Redlands Bricks Ltd v Morris [1970] ... 93
3. Ex parte/inter parties ... 94
4. quia timet injunction ... 94
5. Interlocutory injunction ... 95
1. Is there the existence of a serious question to be tried... 95
2. Balance of convenience must favour the granting of the injunction ... 96
Undertaking as to damages ... 96
Case Focus: ABC v O’Neill (2006) ... 96
5. Mareva injunction – asset preservation order ... 98
Case Focus: LED Builders Pty Ltd v Eagle Homes Pty Ltd ... 99
Topic 6: The nature of the trust ... 101
Trust ... 101
Elements of a trust ... 101
History of the Trust ... 101
Statute of Uses ... 101
Recurring Themes in the Evolution of the Trust ... 102
What is a Trust ... 102
Four essential elements: ... 103
Three species of Trust ... 103
1. Express Trust ... 103
Express Trust Requirements ... 103
Express Trust Types ... 104
2. Resulting trust ... 105
Quistlclose Trust ... 105
3. Constructive trust ... 106
Distinction between Trusts and Other Similar Legal Relationships... 107
Trust & Contract: ... 107
Trust & Fiduciary Relationship ... 107
Deceased Estate & Trust ... 108
Bailment & Agency ... 108
Conditional Disposition & Trust ... 108
Case Focus: Quistclose Trust: Re Australian Elizabethan Theatre Trust (1991) 102 ALR 681 .. 109
Creation of Trusts ... 110
Three methods: Declaration; Transfer; Direction ... 110
Creation of Trusts: The Three Certainties ... 110
(1) Certainty of Intention ... 110
Case Focus: Richards v Delbridge (1874) ... 111
Case Focus: Paul v Constance [1976] ... 111
Case Focus: Barclays Bank v Quistclose Investments [1970] AC 567 (Quistclose trust) ... 112
(2) Subject Matter (Property) ... 113
(3) Objects (Beneficiary or Purpose) ... 113
Topic 7: Trustee and beneficiary powers and duties ... 116
Fiduciary Powers of Trustees ... 116
Fiduciary powers ... 116
Real and genuine consideration ... 116
Right to indemnity ... 118
Trustees indemnity and breach of trust ... 118
Excluding the trustee’s right of indemnity ... 119
Trustees indemnity against beneficiary/s personally ... 120
Assigning a beneficial interest: Does liability remain? ... 121
Trustees personal liability (re creditors) ... 121
Right to contribution from co-trustees ... 121
Right to seek advice and directions from the court ... 122
Trustee’s right to commission ... 122
Beneficiary rights ... 122
The beneficiaries right to extinguish the trust: the Saunders v Vautier principle ... 122
Rights where trustee in breach ... 123
Statutory rights of removal of trustee ... 124
Creditors rights ... 124
Creditors right of subrogation in the event of insolvency ... 124
Duties of Trustees ... 124
Fiduciary Duty of trustees ... 124
Breach of fiduciary duty ... 124
Duty to perform honestly and in good faith ... 125
Duty to avoid conflict of interest and account for any profit ... 125
Duty to carry out terms of the trust ... 126
Executors and Trustees under wills ... 126
Duty to act in the interests of beneficiaries͒ ... 126
Management of trust affairs ... 127
Establishing trustee’s duty of care ... 127
Standard of care in Australia ... 127
Powers of Investment ... 127
Duty of care of professional trustees ... 128
Investment: Statutory duties of care ... 129
s 6 TA: Duties of trustee in respect of power of investment ... 129
s 7 TA: Law and equity preserved ... 129
Duty to administer trust affairs impartially ... 129
Duty to keep funds separate͒ ... 130
Duty to act gratuitously͒... 130
Duty not to purchase trust property͒ ... 131
Duty to keep accounts and give information to beneficiaries ... 131
Duty to inform beneficiaries about their rights and entitlements ... 131
Beneficiaries’ right to information ... 131
Topic 8: Formality requirements for express trusts ... 133
Complete constitution of an express trust ... 133
Assignments ... 133
Statutory formalities ... 133
The function of formalities ... 133
Advantages of the writing requirement ... 133
Statute of Frauds ... 134
Section 53 Property Law Act 1958 (Vic) ... 134
Application of s 53: Which sub-section applies? ... 134
Case Focus: Secretary Dept. of Social Security v James (1999) ... 136
S 53(1): Legal interest or subsisting equitable interest ... 136
Case Focus: Grey v IRC House of Lords [1960] AC 1 ... 136
Declaration or disposition ... 137
The differences ... 137
Overlap between the sub-sections ... 138
Case Focus: Adamson v Hayes (1973) ... 139
Dealings in the form of a declaration of trust ... 140
Legal assignments of things in action ... 140
Equitable assignment of things in action ... 141
Statutory Assignment of things in action ... 141
Declarations of trust ... 141
Case Focus: Secretary, Department of Social Security v James (1990) 95 ALR 615 ... 142
Case Focus: Halloran v Minister, National Parks and Wildlife Act (2006) 224 ALAR 79 ... 142
Complete constitution of an express trust: Creation by transfer ... 143
Complete constitution of an express trust: Creation by direction ... 144
Directions to the trustee to deal with the legal estate- s 53 (1)(c) ... 144
Case Focus: Vandervell v IRC [1967] 2 AC 291 ... 144
Agreement to create a trust at a later time ... 145
Case Focus: Baloglow v Konstantinidis (2001) 11 BPR 20,721 ... 146
Case Focus: Khoury v Khouri (2006) 66 NSWLR 241 ... 146
Assignments of equitable property for valuable consideration ... 147
Case Focus: Oughtred v IRC [1960] AC 206 ... 147
Exceptions to the application of s 53 ... 148
Case Focus: Wratten v Hunter [1978] 2 NSWLR 367 ... 148
Statute of frauds cannot be used as an instrument of fraud ... 149
Summary ... 151
Topic 9: Certainty requirements for express trusts ... 152
Creation of trusts ... 152
Declaration ... 152
Transfer ... 152
Direction ... 152
Three certainties ... 152
1. Certainty of intention ... 152
Case Focus: Korda v Australian Executor Trustees (SA) Ltd (2015) HCA ... 153
Case Focus: Byrnes v Kendle (2009) 243 CLR 253 ... 154
An imperfect gift is not a valid trust ... 155
Intention by declaration ... 155
Other Legal Relationships ... 156
2. Certainty of subject matter ... 157
3. Certainty of objects ... 158
A. DISCRETIONARY TRUSTS ... 158
Types of powers conferred on a trustee under a discretionary trust ... 159
A gift over in default ... 160
B. FIXED TRUSTS ... 160
How much beneficiary certainty is required? (The beneficiary principle) ... 161
A. FIXED TRUSTS ... 161
B. NON-EXHAUSTIVE DISCRETIONARY TRUSTS ... 162
C. EXHAUSTIVE DISCRETIONARY TRUSTS ... 162
Administrative Workability ... 163
Administrative Unworkability... 164
Topic 10: Charitable trusts ... 165
Defining a charitable trust ... 165
Charitable purpose ... 165
Public benefit ... 166
Political purposes ... 167
Trust for the relief of poverty... 167
Poverty 1: The Poor ... 168
Poverty 2: The Aged ... 168
Poverty 3: The Impotent... 168
Trust for the advancement of education ... 168
Trust for the advancement of religion ... 169
Trust for other purposes beneficial to the community ... 170
Mixed charitable and non-charitable trusts... 171
Unincorporated associations ... 171
Statutory reform ... 172
Enforcement and administration ... 172
General scheme of administration ... 172
Cy-pres schemes ... 172
(a) initial impossibility ... 173
(b) supervening impossibility ... 173
(c) exhausted its original purpose ... 174
Statutory powers to create cy-pres schemes ... 174
Valid non-charitable purpose trusts ... 175
Topic 1: The origin and nature of equity & its relationship with common law
What is equity
x A concept of fairness x A Latin reference to balance
x A body of law that has emerged within the Chancery jurisdiction
x Discretionary principles (of the Court sitting in equity – will usually follow precedent, however, are able to deter using discretionary principles)
x Remedies to support exclusive actions x Maxims to regulate the implementation
x Equity is founded in natural justice, honesty and rightness;
x Equity means balance: fairness;
x Equity is the soul and spirit of all law and is discretionary: focuses upon substance over form;
x Equity directs itself against the individual person (purely in personam not in rem);
o Not a set of general rules unlike CL and Statue which are there to regulate us as a society, equity is to fix the paces where that results in something that we cannot live with.
o However, equity follows the law.
It doesn’t overrule the law, it overrules the result in a particular case.
Can’t bring a case originally in equity, there has to be something there that the law would grab hold of that the law can’t properly handle, then you would argue in equity.
When does come down to final decision – equity literally means equality, so if some group of persons has been wronged and there is some equitable remedy handed out, absent any good reason to do anything else, the remedy is distributed evenly amongst those people.
x Equity is needed in every rational legal system to address the defects of a universal law: Aristotle;
x Equity supplements the common law: Maitland: this supplementary law now represents a body of law in its own right;
x According to Aristotle: the essential nature of the equitable is a rectification of law where law is defective because of its generality.
The nature of equity
What is equity – 5 stages
x (1) the introduction of the common law theory of binding precedents and resulting case-law equity;
x (2) as a legitimate consequence, the crystallization of equity culminating under Lord Eldon;
x (3) the adoption of equitable actions and equitable defenses in the common law;
x (4) the conjunction of legal and equitable jurisdiction in the same courts, so general in America;
and
x (5) the abolition of the distinction between law and equity in procedure and the resulting power of courts to administer both or either in the same action
Aristotle
x ‘equity is a species of justice which is superior to legal justice because of its function as a
‘rectification’ of the law.’
x Equity is superior to the universal form of justice because it can cater for the individual
x Equity is not better than absolute justice but better than the error that arises from the
‘absoluteness of that statement’.
x Equitable justice must be distinguished from legal justice –
o Legal justice represents that which is distributive and corrective, and which enunciates collective proportionality. The articulation and application of CL principles may broadly grouped as ‘distributive justice’.
o Equitable justice considers the proportionality of conduct in private, individual transactions.
Equitable justice refers to individual equality and fairness.
Equity as a body of law
x Primary difference between CL and equity lies in the method of implementation
x Equitable principles are administered according to processes which have evolved in the courts of equity: equitable discretions, maxims and remedies are only relevant to the administration and application of equitable principles
x Equitable principles represent the application of equitable justice, and a court exercising equitable jurisdiction retains the inherent discretionary capacity to adapt to new forms of individual unfairness
x Equity occupies the realm of the conscience and morality, functioning as an exception to the general rule
Equity corrects the law
x The jurisdictional foundation of equity is corrective rather than distributive (Aristotle), it prescribes relief against the proscriptive operation of the CL
x Equity acts as a corrective to the law when the law operates so harshly that it undermines itself x Equity operates to correct all defects arising from the generalised operation of the law
x Equity endows the law with this capacity so that what is legally equitable us synonymous with what is singularly just
Form and substance
x Equity is not obliged to follow the letter of the law, where the universality of this ‘letter’ produces injustice
x Equitable principles follow the ‘reason and spirit’ so that deficiencies arising from a strictly literal interpretation of the local, written law can be corrected
Standards of conduct
x Equity does not apply defined rules, it evaluates specific conduct – this requires flexibility and discretion
x Most equitable principles are based on discretionary standards of conduct rather than definitive rules
x The principles usually stem from the basic precepts of good faith, honesty, generosity and fair dealing, which are relational in nature
x The application of a standard requires the judge to both discover the facts of a particular situation and to assess them in terms of the purposes or social values embodied in the standard, i.e.:
o Good faith o Unconscionability
o Due care
o Fairness
o Reasonableness
o Unjust enrichment
x Although the application of broad equitable standards may have the effect of creating uncertainty, when applied within a particular context and within established limits, equitable standards give courts the flexibility to assess circumstances in terms of their underlying social value and, in this respect, perform an altruistic duty.
x Courts have shown reluctance to extend equitable relief to areas relates to commercial regulation because of the importance of certainty in those areas, however, where the special nature of the circumstances warrant the sacrifice of certainty, equitable assessment may be imperative.
Unconscionability
x The concept of unconscionability is something more than bare inequality – it must be proven that the circumstances are such that it would be against the conscience of a court of equity to refuse relief
x ACCC v CG Berbatis Holdings P/L (2000) – circumstances of inequality do not of themselves necessarily call for the intervention of equity. It is the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct … where the
disadvantage or inequality is great it may take less to discern uncontentious exploitation of it than in a situation involving less disadvantage of inequality.
o The term unconscionable is used as a description of various grounds of equitable intervention to refuse enforcement of or to set aside transactions which offend equity and good conscience
x Behaviour coming within the unconscionability standard include:
o Abusing a position or relationship of trust or confidence o Exploiting a recognised vulnerability or weakness
o Unfair insistence on struct legal rights in circumstances where this would be harsh or oppressive; and
o Unfair refusal to perform legal obligations
x Conduct can only be characterised as unconscionable where a clear injustice is established, and the court determines that it would be against the conscience of a court of equity to deny relief in the circumstances
x ABC v Lenah Game Meats P/L (2001) – per Gummow & Hayne – the notion of unconscionable behaviour does not operate wholly at large. This does not mean that unconscionable behaviour can be clearly and comprehensively defined because it is essentially a behavioural standard with normative aspirations (it does not function as an arbitrary concept).
x Paciocco v ANZ [2015] – equitable relief for unconscionable conduct us based on a principle, not a rule. The application or exemplifications of the principle are impossible to describe fully.
Care should be exhibited in dwelling over technically or textually on individual expressions of the general principle of normative values, rooted in equity’s remedying of injustice.
Equitable maxims
x Equity follows the law: supplements (supports) does not overrule (or displace);
x Equity is equality: equity tries to balance out transactions in the form of relief granted;
x Equity assists only those with clean hands - must be ‘equitable’ to seek equity;
x Equity looks to intent rather than form;
x Equity deems that to be done which ought to be done;
o i.e. – contract would be completed but for a mere technicality, equity will go ahead and let the contract/property transfer etc go forward as if all the legal requirements had been fulfilled.
x Relief in equity is: discretionary, personal and damages must be inadequate.
o = specific performance x Equity acts in personam
x Equity does not assist a volunteer Distrust of equity
x Equitable principles are essentially discretionary and retrospective; the outcome is never absolute and can often be unexpected
x Uncertain, amorphous concepts
x Strong influence of religious principles in the evolution of equity x Fear of religious absolutism
x Exploitation of discretion – uncertainty regarding scope of remedy can generate commercial difficulties.
x Fact based analysis – too individualised.
o Always look at every detail of the facts because of the individualised nature, before looking to a case
Equitable relief is discretionary
x There are two different levels to the discretionary approach:
o 1) the court has discretion to determine whether or not the particular circumstances warrant any relief at all
The court must consider whether CL relief, if applicable, is adequate and if not, whether in the circumstances it would be against the conscience of the court to deny equitable relief
o 2)once it has been determined that relief is capable of being issued, the court has discretion to determine the type or measure of relief to be granted
A court may take into account a wide variety of factors including:
x hardship on D x laches or delay
x the overall conduct of both of the parties x the adequacy of CL relief
x the adequacy of the relief being sought
x the overall consequences of the relief on both parties
x Equitable relief can only be granted where CL relief is deemed inadequate and the circumstances demand equity. The underlying objectives of the e equitable jurisdiction are to mitigate hardships, balance needs and promote fairness in the resolution of legal conflicts
Scope of equity
x Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [92]:
o Equity has been said to lack the necessary "exacting taxonomic mentality" when providing an appropriate remedy for unconscientious activity. The better view is said to be that liability in "unjust enrichment" is strict, subject to particular defences while "[t]he unreliability of conscience" offends the precept that like cases must be decided alike and not by "a private and intuitive evaluation”. But the experience of the law does not suggest debilitation by absence of a sufficiently rigid taxonomy in the application of equitable doctrines and remedies.
Rebuttal to the idea that the lack of structure means there’s a lack of reasonably applicable law – even if we didn’t have equity, you still wouldn’t be able to run the system of law as if it’s a machine.
The origin of the equity jurisdiction
Historical Evolution: Medieval Period
x Inflexible procedures surrounding common law writs – form of action prescribed every aspect of the case.
x If an action did not correspond common law not available and an applicant would petition to the King for divine justice
x These petitions/bills first dealt with by Kings Council but during 14th century a practice developed of delegating these matters to the Chancellor (this practice proclaimed in 1349).
x Chancellor was the keeper of the great seal and head of Chancery.
x Usually at this point Chancellor was also a bishop or an archbishop and knew canon law x First Chancellor not exercising a judicial function but rather – an executive function x Chancellor could use his power to develop special writs – to correct the law
The Formative Period: 15th – 17th Century
x Equitable principles started to emerge and clash with common law
x Earl of Oxfords Case: 1615 – established that Chancery could set aside judgments at common law where they were against conscience and affirmed that equity prevails in conflict.
x Lord Ellesmere: ‘The office of Chancellor is to correct men’s consciences for frauds, breach of trusts, wrongs and oppressions, of what nature soever they be, and to soften and mollify the extremity of the law...’
Systemisation Period
x Period leading to the Judicature Act
x Chancellors lawyers rather than ecclesiasts
x Evolution of legal principles (more formalised jurisdiction)
x 19th Century equity jurisdiction characterised by delay, corruption and decadence x Charles Dickens in Bleak House: - Ch 1 (‘In Chancery’):
o ‘On such an afternoon, some score of members of the High Court of Chancery bar ought to be – as here they are – mistily engaged in one of the ten thousand stages of an endless cause, tripping one another up on slippery precedents, groping knee-deep in technicalities, running their goat-hair and horsehair warded heads against walls of word and making a pretence of equity with serious facts as players might.’
The relationship between CL and equity
Jurisdictional operation of equity x 1) Exclusive Jurisdiction:
o Principles only recognised by equity and therefore only supported by equitable remedies.
o Common law remedies not available
o For example, breach of confidence – common law damages not available but equitable compensation is available – different remedy.
If you are going to argue equity, you first have to be sure that damages will not fix whatever the issue is.
o EXAMPLE: If A acts as a fiduciary for B the principle and A breaches that duty to B, then B is entitled to bring an action for breach of fiduciary duty in the exclusive jurisdiction of equity. If a breach can be established B will be entitled to claim equitable relief against A, which may include:
equitable compensation
an account of profits
in some instances, the imposition of a constructive trust
CL damages would not be available for such an action because the CL does not recognise a breach of fiduciary obligation as a valid principle. Damages are a legal remedy not generally recognised by the equitable jurisdiction.
x 2) Concurrent Jurisdiction:
o Where equity provides the same sort of relief as would have been issued at law, equity is said to be exercising ‘concurrent jurisdiction’.
o Equity ‘concurrently’ recognises that a remedy should be available but will only provide it where it can be established that the common law relief which is concurrently available is inadequate on the facts.
For example: a breach of a contract for the sale of land may attract the decree of specific performance.
o EXAMPLE: A purchaser enters into a contract with B vendor to purchase a house. B is unable to settle on the due date. A is told by her lawyer that she has a choice: she can rescind the contract and seek damages for the breach at law; alternatively, she can claim specific performance of the contract in equity. The choice lies with A. If A decides to seek specific performance, equity must determine whether such relief should be awarded.
In making this determination, a court of equity must consider whether a legal right exists and whether damages at law are adequate. Courts have generally held that damages for a breach of contract for the sale of land are inadequate as, in many situations, the land being purchased is unique and cannot be adequately compensated by a pecuniary award.
x 3) Auxiliary Jurisdiction:
o Equitable principles which support the bringing of a legal action. A classic example is the doctrine of discovery of documents which originated in equity.
o In this jurisdiction equity acts purely as an aide.
o This course does not examine the auxiliary function of equity Judicature Act
x Equity and common law administered in separate courts up until the introduction of the Judicature Act UK in 1873.
x Prior to this stage – had to use ‘common injunction’ to freeze proceedings at law if an equity issue had to be resolved.
x Judicature system sought to eradicate the delays and inefficiencies of this system by implementing an administrative fusion (bring equity into the same court – same judge, lawyers etc but not the same law)
x Features of the Judicature System:
o All branches of the court had the power to administer equitable remedies o Equitable defences can be pleaded in all branches of the court
o Equitable rights, title and interests can be recognised in all branches of the court o The common injunction is abolished
o Where the rules of equity and the rules of the common law conflict, the rules of equity shall prevail.
x Concurrent Jurisdiction:
o s 25(11) JA
o s 29 SCA: procedural provision allowing for dual jurisdiction in a single court (every court in Vic)
x Conflict or Variance provision:
o s 25(11) JA
o s 29(1) SCA: Unusual provision giving equity precedence in a conflict. Conflict should, however, be rare given that equity supports the law: this provision is often misused.
x Abolition of common injunction:
o s 25 JA
o s 37 SCA– injunction may now be granted wherever ‘just and convenient’ (provide justice but also ensure case management principles are upheld)
Fusion Fallacies
x Best described as an incorrect interpretation of the effects of the Judicature system on the orthodox jurisdictional relationship between CL and equity – amounts to an erroneous assumption.
x Despite the procedural focus of the JA – cases below (which would now be seen as wrongly decided) have misinterpreted administrative fusion as destroying the doctrinal boundary between law and equity:
o 1. Walsh v Lonsdale: Written lease – not executed by deed – for seven years. Remedy available ineffective at law. Prior to JA – court would have issued specific performance by ordering landlord to execute a lease.
Post J. Act – Sir George Jessell said a tenant holding under an agreement to grant a lease of which specific performance would have been decreed, stood in the same position as if it had been decreed:
‘…since the J. Act the possession is held under the agreement. There are not two estates as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court and equity rules prevail in it.’
x Not correct today – only really if CL and equity both provide remedy, equity prevails
o 2. Redgrave v Hurd: Sir George Jessell held that common law damages could be awarded for innocent misrepresentation (a purely equitable action) because the difference between law and equity no longer existed since the passing of the J.Act.
o 3. Seager v Copydex/Aquaculture Corp v New Zealand Green Mussel: Damages awarded for breach of confidence (purely equitable action). President Cooke in Aquaculture stated:
‘For all purposes now material, equity and common law are mingled or merged. The practicality of the matter is that in the circumstances of the dealings between the parties the law imposes a duty of confidence. For its breach a full range of remedies should be available or appropriate, no matter whether they originated in common law, equity or statute’
Legitimate Fusion
x Since the introduction of the Judicature Act it is reasonable to expect greater interaction. Some cases illustrate this:
o Harris v Digital Pulse – trial judge awarded punitive damages for a breach of fiduciary obligation. Palmer J said: ‘wrongful and reprehensible conduct calls for the manifest disapprobation of the community.’
Court of Appeal rejected this.
Spigelman CJ and Heydon J: Punitive damages not available. No past decisions have awarded them and no equivalent notion of punishment under the equity jurisdiction.
High rate of interest and account of profits for breach of fiduciary duty is equivalent
Breach of fiduciary duty akin to breach of contract and punitive damages not available in that context.
Heydon JA expressly noted that it was not ‘irrational to maintain the existence of different remedies for different causes of action having different threshold requirements and different purposes. The resulting differences are not necessarily anomalous.’
o Post Harris v Digital Pulse: Giller v Procopets (2008) 40 Fam LR 378 at [156]-[158] per Ashley JA and at [434]-[435] per Neave JA;
Breach of confidence – but still followed Court of Appeal in Harris.
Did, however, hold that ‘aggravated compensatory damages’ were available because primary purpose is a consideration of the effect on the victim rather than punishment.’
o Nicholls v Michael Wilson (2010) 243 FLR 177 per Basten JA at [147] - [183] – no punitive damages but can be ‘robust’ in awarding compensation but this does not give judges the liberty to ‘think of a number’ or to award punitive damages under another name.
o Attorney-General v Blake [2001] 1 AC 268, TB 3.8.4
Facts: Crown sought to recover a 90,000 pound advance paid to an ex-member of the British secret services by a publishing house. The author had originally entered into an employment contract whereby he agreed not to disclose any information derived in the course of employment. Many years later, when the information was in the public domain, he published his exploits (double agent activities).
Held: House of Lords (Lord Nicholls in the majority) held that Crown could obtain an account of profits for breach of contract. Gains based focus was merely an
‘accident of history’ and the contract here was akin to a relationship of trust and confidence therefore disgorgement of profit warranted.
x Lord Hobhouse (dissent) disagreed holding that an account of profit was based on the proprietary connection between the fiduciary and the gain and this connection did not exist in contract. Different focus of common law and equitable remedies and would distort focus of actions to confuse them.
x Lord Nicholls: Remedies are the law’s response to a wrong (or more precisely a cause of action.) When, exceptionally, a just response to a breach of contract so requires, the court should be able to grant the discretionary remedy of requiring a defendant to account to the plaintiff for the benefits he has received from his breach of contract.
Not followed in Australia: Hospitality Group Pty Ltd v Australia Rugby Union Ltd [2001] ATPR 41-831 per Hill and Finkelstein JJ; Australian Medicare Co Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220 per Finn J at [679]
Legitimate fusion: contributory negligence
x Day v Mead (NZ) – the tortious defence of con neg was applied to reduce the award of equitable compensation for a breach of fiduciary duty. Traditionally, equitable compensation could not be mitigated by a CL defence. It is possible that the circumstances will be such that a court of equity would deem it fair and appropriate to reduce a compensation award by taking into account the con neg of the principle.
o Whilst equitable compensation and CL damages had different perspectives, with compensation in equity being aimed ‘at restoration or restitution’ and CL tortious damages being directed at compensation ‘for harm done’, the court held that this was really a
‘distinction without a difference’ given that law and equity are not either ‘mingled or interacting’. His honour held that the application of con neg to equitable compensation was ‘an opportunity for equity to show that it has not petrified and to live up to the spirit of its maxims’.
x Pilmer v Duke Group Ltd (in liq) – HCA concluded in obiter dicta that an award of equitable compensation for a breach of fiduciary duty should not be reduced by taking into account the con neg of the principal.
o Majority concluded that no fiduciary obligation existed and therefore the comments concerning the applicability of con neg to reduce an award of equitable compensation was purely dicta.
o McHugh, Gummow, Hayne & Callinan JJ in the majority concluded that any apportionment by con neg should only apply on the fats where it arise from legislative application because the focus of con neg is fundamentally different from that of the fiduciary principle ‘con neg focuses on the conduct of the P, fiduciary law upon the obligation by D to act in the interest of P’.
x The incorporation of con neg into the equitable assessment of the compensation relevant for a particular breach of fiduciary duty is a clear example of judicial interaction.
o It is a clear example if the court drawing on different jurisdictional concepts to develop particular policy perspectives.
o The underlying policy of con neg is relevant to both CL and equitable principles and therefore strict jurisdictional segregation in this context is inappropriate.
Legitimate fusion: causation and remoteness
x Another area of increased interaction between CL and equity is causation and remoteness in determining equitable compensation for breach of trust and breach of fiduciary duty.
x Canson Enterprises Ltd v Boughton (Can) – case reached a unanimous conclusion that there should be a rule in fiduciary law limiting the recovery of losses stemming from a breach of a fiduciary obligation according to their remoteness from the breach.
o La Forest J in the majority concluded that some cross-pollination between CL and equity was desirable as the interaction ‘allows for the direct application of the experience and best features of both law ad equity, whether the mode of redress originates in one system or the other’.
o McLauchlan J recognised the need for a remoteness principle within the context of fiduciary obligations. Her Honour noted that the failure of a P to mitigate may become so egregious that it is no longer sensible to say that the losses which followed were caused by the fiduciary’s breach. In such context, it would be unreasonable to make that fiduciary liable for all possible losses; to do so would mean fiduciaries were not merely deterred, they would be ‘rendered impotent’.
x The difficulty with any interactive process between CL and equity is that it maty overwhelm the fundamental dynamic underlying the particular principle. This is a problem in the relationship between tort and fiduciary, because in tort, the parries are primarily self-focused whereas in fiduciary relationships the focus is the interest of the principle.
x The difficulty with incorporating too many mitigating factors into the assessment of equitable compensation for breach of a fiduciary duty is that the protective focus of fiduciary protection may be diluted.
x The nature of the association between contract, tort and fiduciary principle were raised by the HCA in Breen v Williams:
o The majority noted that care should be given in imposing fiduciary obligations on a class of relationship which has not traditionally been recognised as fiduciary and which would significantly alter the applicable doctrines of contract and tort.
x Subsequent Aus decisions have followed McLauchlin J in Canson, preferring to develop an approach to the assessment of equitable compensation which is quite independent from the CL approach.
x Target Holdings v Redfern – conclusions of HoL make it clear that causation, despite its CL foundation, is a highly relevant factor in the assessment of equitable compensation. A breaching fiduciary should not be held to account in circumstances where there is no causal link between the conduct causing the breach and the consequential loss. The quantum of compensation should be fixed at the date of the judgement and not the date when the breach occurred.
o On the facts, the loss was caused by the third parties, the breach of trust by the solicitors left the clients in exactly the same position once the transaction was completed, as if there had been no breach.
x The nature of the connectivity that must be established between a breach of trust and the award of equitable compensation was outlined by the HCA in Maguire v Makaronis:
o ‘... the basic rule is that a trustee in breach of trust must restore of pay to the trust estate either the assets which have been lost to the estate by reason of the breach, or compensation for such loss. Courts of Equity did not award damages, but acting in personam, ordered the defaulting trustee to restore the trust estate.’
o The HCA endorsed the Brickenden principle which required a breaching fiduciary to compensate for all loss flowing from a breach where the facts relevant to the breach were material to the loss.
x The causation test that has emerged in equitable jurisprudence in Aus has disregarded the CL principles of remoteness and foreseeability, favouring a more absolute liability.
x Causation and remoteness may also be utilised in a breach of fiduciary duty as a tool to restrain the scope of the remedy where the breach is inconsistent. Where a trustee is under a duty to restore trust assets, causation, foreseeability and remoteness are usually not material.
o They are, however, useful for equitable relationship beyond the trust paradigm as these relationships are assessed against ‘diminished policy concerns for protecting the principle’.
Legitimate fusion: account of profit
x The application of equitable relief for CL actions is usual in circumstances where the CL relief is proven to be inadequate.
x However, the application of equitable relief in the form of an account of profit historically only available for a breach of fiduciary duty in circumstances where the fiduciary has made a clear gain from such a breach – to support a breach of contract is jurisdictionally unorthodox.
o The difficulty lies in the fact that the account of profit is a remedial reaction to the fiduciary principle and therefore is not responsive to the conditions surrounding a contractual breach.
o See, Attorney General v Blake (HoL – page 53 textbook).
x Biscayne Partners Pty Ltd v Valance Corp Pty Ltd – NSWSC criticised Blake, arguing that the problem with the Blake approach was that the ‘remedy of account of profits is for cases where someone misuses a position of ascendancy or influence or trust and obtains something that ought to have gone to a person in a position of protection, vulnerability or beneficial entitlement’
and therefore is not readily transferrable to pure breach of contract situations.
o It has been argued that the ‘better view might be that the discretion should be confused to the circumstance identified by the court (in Blake) as whether P has a ‘legitimate interest’
in preventing D from acquiring profit from the breach where the existing remedies would not be adequate.
o Under such an approach, P would be required to prove a special interest in preventing D from profiting from the breach; this would require proof of an interest over and above the usual interest in having D perform the contract. Such an approval would ‘ensure that the remedy be confined to exceptional cases, thus limiting its uncertainty impact on commercial transactions.
Integration of equity into common law
x Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 307 ALR 512 at [12] per French CJ:
o ‘notions derived from equity have been worked into and become part of the fabric of the common law. And in light of that, Ashburners metaphors of the common law and equity as two streams which run side by side but do not mingle seems at odds with commonsense and the reality of equity’s influence on the common law.’