Characteristics of Equity
Core Characteristics and Nature of Equity
Foundational Characteristics:
Conscience-based: The jurisdiction of equity is rooted in the conscience of the parties involved.
Acts in personam: Equity acts against the person specifically, rather than against the property itself (in rem).
Discretionary Relief: Relief provided by equity is not a matter of right but is discretionary. However, this discretion is not arbitrary; it is guided by established rules and principles.
Relationship to Common Law:
Non-Superiority: The Court of Chancery does not claim superiority over the common law.
Judgment Integrity: Chancery does not annul common law judgments. Instead, it directs judgments against the individual party (in personam).
Supplemental Function: Equity serves to supplement common law remedies. F.W. Maitland famously stated in Equity: A Course of Lectures that: "Equity came not to destroy the law, but to fulfil it."
Recognition of Interests: Equity recognizes estates and interests that the common law might ignore due to defects in form or the absence of necessary formalities.
New Interests and Procedures Established by Equity
Established Equitable Interests:
Equity of Redemption: Provides protection for a borrower against the unfair seizure of land by a lender.
Beneficial Interest under a Trust: Recognizes the rights of a beneficiary even when legal title is held by another.
Purchaser’s Interest: The proprietary character of a purchaser’s interest under a sale and purchase agreement.
Burden of Restrictive Covenants: Equity recognizes these burdens, which were originally ignored by the common law.
Established Equitable Procedures:
Discovery of Documents: A procedural requirement to disclose documents relevant to proceedings.
Interrogatories: Specific questions posed to a party to obtain formal admissions.
Order for an Account: A procedure allowing a beneficiary to compel a trustee to provide full financial details regarding the trust.
Subpoena: A writ issued to compel attendance or the production of evidence.
Examination on Oath: The process of questioning a witness under a formal oath of truth.
Introduction to the Trust
Historical Background and the ‘Use’:
The concept of the trust is potentially traceable back to Roman law.
It emerged in England during the 13th century in the form of the "use."
The "use" was primarily employed to successfully pass land on to male infants.
Although the "use" was eventually abolished, its principles led the Chancery to create the modern trust.
Structure of an Express Trust:
The Settlor: The individual who establishes the trust by declaring it over specific assets, typically using a trust deed.
The Trustee(s): The party that receives the legal title to the assets. The trustee is the legal owner of the property.
The Beneficiary(s): Must consist of more than one person. They hold the beneficial or equitable title to the assets.
Rights of the Beneficiary:
Personal Rights and Remedies: Rights held against the trustee as an individual.
Proprietary Rights and Remedies: Rights related to the trust property itself.
General Characteristics of Trusts:
Title Division: There is a distinct division between legal title (held by the trustee) and beneficial/equitable title (held by the beneficiary).
Fiduciary Relationship: A trust creates a fiduciary relationship between the trustee and the beneficiary, requiring the highest standard of care and loyalty.
Legal Governance: In New Zealand, trusts are governed by the Trusts Act 2019, which introduced major reforms.
Classification by Timing:
Inter vivos: Created between the living.
Testamentary: Created upon death (via a will).
Classification by Formation: Trusts can be "express" or arise by "operation of law" (such as constructive or resulting trusts).
Contractual Intervention: Equity has the ability to intervene in contractual arrangements.
Enforceability and Proprietary Interests
Enforceability of Beneficiaries’ Rights (Maitland’s Framework):
Rights can be enforced directly against the trustee.
Beneficiaries can enforce ownership against the trustee’s successors.
Ownership can be enforced against the trustee’s creditors.
Enforcement is possible against a donee (someone gifted the property) of the trust.
Rules for Purchasers from the Trustee:
Actual Knowledge: If the purchaser knows of the trust, the beneficiary can enforce their rights.
Constructive Knowledge: If the purchaser ought to have known of the trust, the beneficiary can enforce their rights.
Bona Fide Purchaser for Value Without Notice: If a purchaser has no knowledge (actual or constructive), rights cannot be enforced against them because their conscience remains unaffected.
In Personam Jurisdiction and Registered Property:
Indefeasibility of Title: A registered proprietor usually enjoys title that is "indefeasible," meaning it is valid against the whole world, subject to specific exceptions.
Equitable Exception: The in personam exception allows equity to intervene against a registered owner.
Case Study: Regal Castings v Lightbody (Supreme Court):
Facts: The defendant owned a jewelry business and agreed to a personal guarantee. They subsequently transferred private property into a trust.
Holding: The plaintiff invoked the in personam exception to the indefeasibility of title.
Legal Principle: Because the debt was personal, equity could require the property to be transferred to Regal Castings. The effect on the defendant’s conscience was a relevant factor in the court's decision.
Core Principles from Westdeutshe:
Equity operates specifically on the conscience of the holder of the legal interest.
A holder of legal interest cannot be deemed a trustee until they possess the relevant knowledge that affects their conscience.
Once a trust is established, the beneficiary gains an equitable proprietary interest. This is enforceable against everyone except a bona fide purchaser for value of the legal interest without notice.
The Fusion Debate
Historical Context:
Before the Judicature Act 1873, equity jurisdiction was divided into: (a) concurrent, (b) auxiliary, and (c) exclusive jurisdictions.
Delays in the Courts of Chancery led to jurisdictional reform and the unification of equity and common law jurisdictions.
Judicature Act 1873:
Section 24: Decreed both law and equity are administered in the same court.
Section 25(1): Established that in the event of a conflict between law and equity, equity prevails.
New Zealand Context: Both apply in NZ, established by the Supreme Court Act 1860.
Primary Viewpoints on Fusion:
Procedural Fusion (View 1): Suggests that law and equity are like "two streams in the same channel," flowing side by side without actual mixing.
Substantive Fusion (View 2): Suggests that the "waters of law and equity have now mingled" into a unified body of law.
The New Zealand Position:
NZ has generally favored substantive fusion.
Case: Day v Mead (1987): Cooke P stated that "law and equity have mingled or are interacting." This allowed the court to apply a common law remedy (contributory conduct) to an equitable wrong (breach of fiduciary duty).
Case: Aquaculture (1990): Cooke P reiterated that "equity and common law are mingled or merged," allowing the court to substantively fuse remedies. This fusion was viewed as incremental rather than instant/extreme.
The Australian Perspective:
Australia has largely rejected substantive fusion.
The "Fusion Fallacy": Meagher, Gummow, and Lehane argue that it is a fallacy to suggest common law remedies are available for equitable breaches or vice versa (e.g., at [2-140]).
Case: Pilmer v Duke Group (High Court of Australia): Accountants prepared negligent accounts resulting in loss. They argued for the common law defense of contributory negligence. The HCA held that a common law defense cannot be alleged in an equitable relationship.
Kirby J in Pilmer: Stated that "the substantive rules of equity have retained their identity as part of a separate and coherent body of principles."
Case: Harris v Digital Pulse: Breach of a non-compete clause by an employee followed by a claim for exemplary damages for breach of fiduciary duty. The court held that equity and common law are separate bodies of law that cannot be mixed and matched.
Equitable Maxims
1. Clean Hands Doctrine:
Determines if the plaintiff is disqualified from relief due to their own conduct.
Criteria:
Did the plaintiff act in an illegal or immoral way?
Is there a connection between the fraudulent conduct and the cause of action?
Case: Tinsley v Milligan: If the illegal conduct does not need to be relied upon to seek relief, the doctrine usually won't prevent the remedy.
Case: Graham v Graham: Where the fraudulent purpose of a transfer was required to establish the cause of action, recovery was prevented by the clean hands doctrine.
Note: A minority view by Goff in Tinsley suggests misconduct should be an absolute bar even if not directly connected to the issue.
2. Delay Defeats Equity (Laches):
Determines if a plaintiff’s inaction disqualifies them from relief.
Case: Collum v Opie: Focuses on whether the plaintiff’s standing by has placed the defendant or a third party in an inequitable or unreasonable situation if the remedy were now asserted.
Case: Eastern Services Ltd v No 68 Ltd: A plaintiff waited 26 years to enforce a right of way over land, yet the delay did not disqualify him from relief in that specific instance.
3. Unfinished Obligations (Equity regards as done that which ought to be done):
Case: Fredrick v Frederick: A man died before his contract to become a "freeman" could be fully processed. His wife successfully applied the doctrine to have equity regard him as a freeman.
This maxim is particularly relevant in cases of incomplete property transfers.