The Principles of Equity

The roots of equity-type thinking are to be found in Aristotle and Plato’s discussion of justice. Aristotle argues that equity is the rectification of legal justice nomos in so far as the law is defective. In the words of Aristotle, “For equity though superior to justice is still just … justice and equity coincide, and although both are good, equity is superior. What causes the difficulty is the fact that equity is just, but not what is legally just; it is a rectification of legal justice. (The Nicomachean Ethics, 1955)

In its English legal senses, equity has no intellectual core in the form of a code or philosophy. It does not have an intellectual pedigree of the sort which can be assembled for human rights thinking. Consequently, it is by reference to the idea of conscience. At such, equity does not offer the possibility of being sufficiently free to reach the ‘right’ conclusion, and so to do justice between parties to a particular case in a broadest possible sense.

Equity is the means by which a system of law balances out the need for certainty in rule-making on the one hand, with the need for sufficient judicial discretion to achieve fairness in individual cases on the other.

Equity involves a departure from formal rights owing to moral or other consideration and is concerned primarily with the content of the lawsuit. A court of equity decides on the merit of the single case without insisting on the formalities of a legal process (Hegel definition).

Equity permits the achievement of ‘fair’ or ‘just’ results where statute or common law might otherwise admit unfairness or injustice.

Equity operates on the conscience of the owner of the legal interest. In trust law, the conscience of the legal owner (trustee) requires him to carry out the purpose for which the property was vested in him or for which the law imposes on him by reasons of his unconscionable conduct (constructive trust). The basis of trust is concerned with regulating the conscience of a person where the common law might otherwise allow that person to act unconscionably. One of the most sophisticated instruments in equity’s armoury is the trust: express trust (deliberately created) and trust implied by law (comprising constructive trust and resulting trust) imposed by the courts as a form of remedy to prevent unconscionable behavior.

Equity provides a better form of justice because it provides for a more specific judgement as to right and wrong in individual cases which rectifies any error of unfairness which the common law would otherwise have made. This is base from the basis that all laws are universal and there are some things about which it is impossible to pronounce rightly in general terms. Thus equity exists to rectify what would otherwise be errors in the application of the common law to factual situations which judges could not have intended.

Equity is no part of the law but a moral virtue, which qualifies, moderates, and reforms the rigour, hardness, and edges of the law, and is an universal truth; it does also assist the law where it is defective and weak in the constitution and defends the law from crafty evasions, delusions, and new subtleties, invested and contrived to evade and delude the common law, whereby such as have undoubted right are made remediless. Equity therefore does not destroy the law, nor create it, but assist it (Dudley v Dudley).

Aristotle argued that equity is the rectification of legal justice nomos in so far as the law is defective. Aristotle approach is to prevent any unfairness which might otherwise result from the rigid application of formal legal rules.

Before the Judicature Act 1873 which came into effect in 1875, litigants have to decide whether their claims relate to common law or to equity. To select the wrong jurisdiction would mean that the claim would be thrown out and send tom the other court (as explained in Dickens’s Bleak House: ‘Equity sends questions to Law, Law sends questions back to Equity; Law finds it can’t do this, Equity finds it can’t do that …’)

The result of the Judicature Act 1873 was that the practical distinction between Common law and equity disappeared. However, the intellectual distinction remains, which means that certain claims and remedies are only available at Common law (example: Tort) and other claims and remedies available only in equity (example: injunction).

The main result of the distinction between Common law and equity is that each has distinct claims and distinct remedies. Common law is the system which rewards cash damages for loss. On the other hand, a claimant seeking an injunction must rely on equity because the injunction is an equitable remedy awarded at the court’s discretion.

At its root, equity is concerned to prevent a defendant from acting unconscionably in circumstances where the common law would otherwise allow the defendant to do so. At such, courts would intervene to stop a fraudster or shyster from taking advantage of the rights of another person. Fraudster or shyster refer to those that deliberately commit fraud or those who are not acting entirely honestly without being fraudulent and even cover those who are carelessly acting in a way which would do harm to others. To prevent this unconscionable behavior, equity will attempt to intervene against a claimant that claim something which would otherwise appear lawful on its face which would nevertheless be declared void on account of some factors like fraud, mistake or misrepresentation.

The core of equitable jurisdiction is the following principles:

Equity will not suffer a wrong without a remedy. Where Common law or a statute does not provide for the remedying of a wrong, equity will intercedes to ensure that a fair result is reached. Equity will intervene in circumstances in which there is no apparent remedy but where justice demands that there be some remedy made available to the complainant (Sanders v Sanders). In trust law, a beneficiary has no legal rights at Common law to have the terms of the trust enforced but the court will intercede to ensure a fair result is reached.

Equity follows the law but not always. The very purpose of equity is to enable fairness and principle to outweigh rigid rules in appropriate circumstances (James I in Earl of Oxford’s Case; 1615). However, equity is bound to follow statutes in all circumstances (except in fraud). It will not be bound by Common law if there is unconscionability in applying a particular Common law rule.

Where there is equal equity, the law shall prevail. In this circumstances, where 2 people have both purported to purchase goods from a fraudster and neither of them would have a better claim to the goods in equity, the ordinary Common law rules of commercial law shall apply.

Where 2 claimants have equal strong cases, equity will favour the person who acquired his right first. As an example, the court would give priority to the first person who created a mortgage when 2 equitable mortgagees each seek to enforce the security rights.

Delay defeats equity. If a claimant allows too much time to elapse between the facts giving rise to her claim, the court will not protect the rights (Smith v Clay; 1767).

He, who seeks equity, must do equity. A claimant will not receive the court’s support unless he has acted entirely fairly himself. A court of equity will not favour someone who has, for example, committed an illegal act (Rowan v Dann; 1992 & Neesom v Clarkson; 1845).

He, who comes to equity, must come with clean hands. You cannot act hypocritically to ask for equitable relief when you are not acting equitably yourself (Jones v Lenthal; 1669; Coatsworth v Johnson; 1886; Guiness v Saunders; 1990).

Equality is equity. Where 2 people have equal claims to a property, equity will order an equal division of title (Kemp v Kemp, 1795; Midland Bank v Cooke, 1995). However, courts will seek to effect a settlor’s intention if it is possible (Pettit v Pettit, 1970; Gissing v Gissing, 1971).

Equity looks to the intent rather than the form. Courts will seek to look through any artifice and give effect to the substance rather than surface appearance (Midland Bank v Wyatt, 1995). Equity will not ignore formalities altogether except unnecessary formalities (Milroy v Lord, 1862; Sprange v Lee, 1908; Ranieri v Miles, 1981).

Equity looks on as done that which ought to have been done. Equity will consider that something has been done if the court believes that it ought to have been done. In Walsh v Lonsdale (1882), it was held that a binding contract to grant a lease was deemed created even though formal valid Common law lease has not been observed.

Equity imputes an intention to fulfil an obligation. Equity assumes an intention in a person bound by an obligation to carry out that obligation (Sowden v Sowden, 1785). For example, if a deceased woman had owed money to a man before her death, equity will presumed that any money left in the will was in satisfaction of the debt owed.

Equity acts in personam. “The courts of equity are, and always have been courts of conscience, operating in personam, and not in rem.” [ (Lord Selbourne in Ewing v Orr Ewing (No.1) ] Equity is acting against that particular person and not seeking to set down general rules as to the manner in which the Common law should deal with like cases in the future.

Equity will not permit statute or Common law to be used as an engine of fraud. Whereas equity will not usually contradict Common law or statute, it will act in personam against the conscience of a defendant to prevent inequitable advantage of another person (Rochefoucauld v Boustead, 1897). Equity will prevent a person from perpetrating what is effectively a fraud on the intended beneficiary of the property under the secret trust (McCormick v Grogan, 1869).

Equity will not permit a person who is trustee of property to take benefit from the property as though a beneficiary. Even though the trustee is recognised as the legal ‘owner’ of the trust property by Common law, the trustee is not to be permitted to take the rights in the property in his capacity as trustee. He is required to hold the trust property for the beneficiaries under the terms of the trust.

Equity will not assist a volunteer. Equity will not assist a person who provides no consideration for the benefit that is claimed. An intended recipient of a gift will not have a failed gift completed by equity (Milroy v Lord, 1862).

Equity abhors a vacuum. Equity will not allow there to be some property rights which are not owned by some identifiable person. Trustee must hold property on trust for identifiable beneficiary (Vandervell v IRC, 1967).

A trust operates on the conscience of the legal owner. Legal owner of property (trustee) will be obliged to hold property on trust for any persons beneficially entitled to it where conscience so requires; this can be due to an express trust, or an implied trust by the court (Westdeutsche Landesbank Girozentrale v Islington LBC, 1996).

Equity and fraud. The main principle of equity is aimed at avoidance of fraud or avoidance of the result of fraud. The operation of trust is centred on the prevention of any unconscionable act or omission (Lord Browne-Wilkinson; Westdeutsche Landesbank Girozentrale v Islington LDC). So equity develops the cannon ‘constructive fraud’ in situation where there was no formal fraud but there were acts that tantamount to fraud; for example, the exertion of undue influence. The statute or Common law shall not be used as an engine of fraud (Rochefoucauld v Boustead, 1897).

Equity is therefore seen as a place in which our society should discuss the ways in which we will provide procedural justice through the courts, as well as in the political system which generates statutory rights before they come to law. Equity should be concerned to ensure equality of outcome in individual cases so that there is fairness between litigants. Equity has a significant procedural role to play in ensuring that the application of legal rules in individual cases does not allow unfairness. In the words of British socialist Aneurin Bevan (Bevan, 1952), “equity as a tool of social justice will enable us to ensure that ‘the greatest good for the greatest number’ cannot excuse indifference to individual suffering.” Equity therefore forces us to consider the plight of the individual to save him from being caught up in the machine or exposed to irremediable suffering.