A more recent version of these Basic Concepts Of Equity And Trust notes – written by Oxford students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our Trusts and Equity Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Basic Concepts of Equity and Trust
BASIC CONCEPTS OF EQUITY AND TRUST Abbreviations: C Claimant D Defendant T Trustee S Settlor B Beneficiary
HISTORY OF EQUITY
The key distinguishing characteristic of equity is its connection with the Chancellor's jurisdiction. Ultimately, it is down to the principle of preventing unconscionable enforcement of Common Law claims/causes of action.
Equity is the body of rules which is administered by the Court of Equity [Maitland]
Spans both obligation and property - no clear characterisation.
Prevents person from using legal powers/rights in a manner contrary to good conscience. Relationship with the Common Law: NOT 2 rival systems!
Equity acts in personam.
Courts of Chancery is not bound by Common Law rules of evidence, but can look to substantive merits (different view of evidence and procedure)
common injunctions issued by Courts of Chancery to prevent D from enforcing judgment obtained at Common Law, if contrary to good conscience. The Earl of Oxford's Case, 1615: dispute between Lord Ellesmere (Chancery) and Lord Coke (Common Law)
Response to controversial practice of issuing common injunctions.
from the Common Law's perspective, this was a mode of irregular appeal - outside regular Common Law process
further, Court of Chancery was prerogative court, with Lord Chancellor exercising discretion while acting as King's delegate: Common Law courts were hostile to this.
Conflict: if P refuses to abide by injunction, he would be in contempt of Court of Chancery and imprisoned. But if this went back to KB, CJ of KB would use habeas corpus to release him. Unsustainable!
Hence, result of this case was to establish primacy of equitable jurisdiction over the common law - enshrined in statute today. BUT equity does not assume Common Law itself is wrong - doesn't abolish/compete with Common Law rules. Rather, it corrects the judgement, presupposing existence and application of Common Law rules. It provides a gloss/qualification on enforcement of Common Law rules.
equity is still secondary to Common Law insofar as it presupposes the existence of Common Law rights [Maitland: Common Law can exist without equity, but not the other way round]
Hence, after the Earl of Oxford's Case, procedurally, C would have to bring his claim before the right court, depending on the nature of the right.
But might have to go to more than one court to get complete remedy.
Eg. Tort of nuisance is Common Law right of action, but if you want more than Common Law damages, like an equitable remedy of injunction, you must get judgment from Common Law court first and then bring judgment to Court of Chancery to get injunction (can't start off with latter because it has no jurisdiction)
Problematic! Chancery procedure was slow and expensive (for most of 18th century, there were only 2 Chancery judges - Lord Chancellor and Master of the Rolls; required documents to be prepared by clerks who charged based on length of the documents) Judicature Acts 1873-1875:
Followed Judicature Commission's recommendation of having a single Sup Court, having complete jurisdiction, so that no matter what course of action/remedy is sought, C can go to a unified court and obtain complete resolution.
Basic Concepts of Equity and Trust
there are still specialised courts, but have unified jurisdictions to hear all matters/give all remedies Codified outcome of the Earl of Oxford's Case: Senior Courts Act 1981 s49 Impact: fusion of law and equity - the 3 perspectives of the consequences of the Acts
1. PROCEDURAL FUSION: putting together 2 different jurisdictions but without changing substantive law - outcomes don't change.
eg. Berry v Berry, 1929: husband and wife separated and husband agreed to pay annual maintenance, by deed. Later, both entered into simple variation by contract for reduced sum. Under Common Law, if you want to vary obligation obtained by deed, must be done by another deed. But the equitable rule is to "look to substance and not to form" hence any contract with valuable consideration will suffice to vary original agreement.
Under s25(11), equitable rule prevails so that the variation is upheld. But even pre1875, same outcome would have been arrived at - wife first goes to Common Law court with deed and gets judgment, and husband then goes to Court of Chancery for common injunction to restrain wife from enforcing Common Law judgment.
Hence, the only change is there is now a unified procedure - substantive rules are the same!
This was the earlier view. But now, some think there was/should be substantive fusion...
2. SUBSTANTIVE FUSION (the fusion fallacy): much more radical! Saying that distinction between equitable and Common Law rights ceased to exist! Rights will just be rights, with historical origins being irrelevant.
Allows use of Common Law defence against basic primary equitable claim. Eg. If T breaches equitable duty of care not to be negligent, in managing investment fund, but beneficiaries are negligent as well, T might counter Bs' equitable claim with Common Law defence of contributory negligence.
But some think this extreme view is NOT representative of the English approach. Meagher, Gummow and Lehane call it the "fusion fallacy", and think that allowing remedies from one jurisdiction to be imported to the other is wrong!
But this is the approach adopted in New Zealand/some other jurisdictions. All remedies are made available, regardless of origin (Chirnside v Fay (No 2), 2005: though this case was reversed on appeal, the point on substantive fusion still holds)
3. FUSION BY CONVERGENT EVOLUTION OF PRINCIPLES: middle ground!
Burrows argues that as law develops, it is proper for judges to borrow ideas across the Common Law/equity divide, and may find good inspirations for development of law. (as opposed to NZ view of solving individual cases, this is about a wider view of general development)
This approach is particularly attractive where we have 2 bodies of law operating alongside, on same set of facts. Like cases should be decided alike, and mere historical differences do not justify differences in outcome.
Target Holdings v Redferns, 1996: A is cash buyer who retains solicitor to carry out conveyancing when buying house. Passes purchase money to B, solicitor, to pass on to vendor to complete contract. B is under common law duty (retained pursuant to contract of retainer), and B is under equitable obligations as trustee for A. Should A be better off suing B under Common Law rules, or should similar test for causation of loss apply?
Lipkin Gorman v Karpnale Ltd, 1991: where third party receives misapplied trust money, why should she be at fault before she can be required to restore trust fund?
At Common Law, 3rd party recipient of stolen money is liable whether receipt was innocent or not.
BUT note that the 2 approaches of Common Law and equity might not really be alike - if judges are allowed to borrow ideas across the divide, they must be sensitive to the real substantive differences between jurisdictions. There may be good reasons to justify why equitable remedies are fault based - in Common Law contract, parties are expected to be vigilant (thus have partial defences like contributory negligence), but under equitable trust rules, there is no similar basis
Basic Concepts of Equity and Trust
for mutual vigilance. Hence, don't assume that the only cause for difference is in historical origin. Should we be abolishing any reference to equity, and move instead to "event-based" categorisation of private law rights? No!
1. Over-simplified reductionism equitable wrongs can be quite different from Common Law wrongs - for instance, loss of profits under negligent misrep vs direct out-of-pocket loss from misapplication of trust funds.
2. -just calling both "wrongs" will not be helpful.
3. Subtlety that equity offers equity works at margins of legal doctrines, and qualifies strict contractual rights (eg. Promissory estoppel qualifies contract, but binding only if D goes back on his word. Hence sits on fence between intention/contract and wrongs/tort)
4. Need for morals/ethics in to direct future legal development-
HISTORICAL DEVELOPMENT OF THE TRUST
Originates from the use: owners transferring property to third parties to the use of owners themselves/some other person Note that equity thinks in terms of remedies, not rights - recognises existence of right where it awards a remedy - opposite from Common Law approach. Hence, if third party = Equity's Darling, B will have no remedy, therefore B's right is extinguished. But if third party is on notice, his conscience is affected, therefore B's proprietary interests still exist and are then enforceable against him. Common law saw third party transferee as legal owner - didn't give transferor/other intended beneficiaries any remedies. Hence latter had to look to Court of Chancery for protection instead.
If father conveys land to friends inter vivos, directing them to hold land to the use of himself during his lifetime, and after his death, to his daughter's use, there are no contractual obligations recognised by CL
But Chancery intervenes because Ts must not abuse terms of trust and assert Common Law rights for their own benefits, as a matter of conscience.
However, bona fide purchasers for value without notice (Equity's Darling) will be true legal owners equity follows the Common Law unless their conscience is affected. Purposes of the use: 1) for owner to transfer property to himself and someone in joint names; 2) to hold land for Franciscan Friars who couldn't own land (permanent nature); 3) to avoid the Statutes of Mortmain in the 13th C which prohibited gifts, aiming to prevent land being taken out from circulation permanently; 4) to allow for land to be devised by wills; 5) to avoid feudal incidences of wardship and marriage, especially when the heir was still in his minority. 6) circumvent rule that married women couldn't hold property in her own right during marriage.
Particularly because of the effect of (5) above on the Crown, Henry VIII enacted the Statute of Uses 1536, attempting to remove these advantages of uses.
But this legislative change was short lived! Right to devise freehold land by will eventually reestablished by the Statute of Wills 1540. Feudal incidences eventually abolished anyway. Sources: in the early days, law was mostly developed by successive Chancellors, as they extended protection of B (first against transferees with notice of the use, then against heirs of third parties who inherited the property, and then against anyone except Equity's Darling)
-even today, rules are mostly from case precedent. Still, legislation has increasingly intervened in past 150 years, in relation to appointment/removal of T and T's administrative duties and powers (eg. Trustee Acts 1925 and 2000) Modern uses of the trust
1. Let property be held for those who can't hold it legally themselves (minors)
2. Allow for private provision for dependants (testamentary gifts can become public knowledge) via a trust made inter vivos.
3. Tie up property to benefit persons in succession - ensure the property passes down the way you want
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