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The Principles of Equity & Trusts

The Principles of Equity & Trusts (4th edn)

Graham Virgo
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date: 20 May 2022

p. 242. The Characteristics of Equityfree

p. 242. The Characteristics of Equityfree

  • Graham VirgoGraham VirgoProfessor of English Private Law, University of Cambridge; Senior Pro-Vice-Chancellor (Education), University of Cambridge; Fellow of Downing College, Cambridge; Bencher of Lincoln’s Inn

Abstract

This chapter analyses the essential characteristics of Equity. It identifies fourteen maxims that are useful and relevant today as guidelines for the operation of the equitable jurisdiction. The most important of the maxims are examined in some detail, namely that Equity is discretionary and is triggered by unconscionability. The meaning of discretion and the contemporary relevance of conscience and unconscionability are examined. Other maxims include that Equity will treat as done that which ought to be done and Equity responds to cynical conduct. This chapter explains the principles underlying these maxims and suggests that they are often subject to exceptions and sometimes it may even be necessary to redefine them to ensure that they are fit for purpose today.

2.1 Fundamental Principles

Judges who apply the rules and principles of Equity often make decisions with reference to a number of recognized equitable maxims. Sometimes these maxims are cited by judges and used by commentators without any obvious understanding as to what they really mean or why they are being used;1 this is not acceptable. The maxims are a useful method of paraphrasing a complex body of law: they are guidelines rather than rules. They are useful because, as Lord Upjohn recognized in Boardman v Phipps,2 rules of Equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the specific circumstances of each case.

But it is always important to unpack carefully what each maxim actually means. It is for this reason that it is essential to be aware of the existence of the maxims before you study the details of Equity. They are important because they can help you to get a better understanding of how the equitable jurisdiction operates, but they must be treated with caution, since they may require very careful interpretation and analysis. Also, some of the maxims are inconsistent with each other, or one may take precedence over the other, so it is important to determine when the application of one maxim will give way to another one.

p. 25In this chapter, a number of new maxims are identified as a way of summarizing some complex principles or rules in a pithy statement, such as Equity being cynical and imaginative. Some of the other maxims that will be examined in this chapter have been recognized for hundreds of years. Maybe that is the reason why some of them have become increasingly misleading, since the reality of the law that operates behind the maxims may have changed, but the maxim appears to remain the same. Consequently, the maxims are often subject to exceptions, and sometimes it may even be necessary to redefine them to ensure that they are fit for purpose today and, if it is found that they are not, reject them. Although there are traditionally twelve different maxims of Equity,3 some of these should no longer be regarded as valid. For example, it is sometimes said that ‘Equity will not suffer a wrong without a remedy.’ If this is interpreted simply as meaning that where there is an identifiable equitable wrong, Equity will fashion a remedy, this is not saying anything peculiar about Equity; the same is true of the Common Law. It may, however, mean that where wrongdoing has occurred that could not be remedied at Law, it is possible to resort to Equity for a remedy. This was indeed how Equity originated.4 But this is no longer the case. In Holmes v Milage,5 it was recognized that ‘it is an old mistake to suppose that because there is no effectual remedy at law, there must be one in equity’. This particular maxim should consequently be regarded as liable to deceive and useless, and so should be rejected.

There are fourteen maxims that are useful and relevant today as guidelines for the operation of the equitable jurisdiction. These maxims are as follows:

(1)

Equity is discretionary.

(2)

Equity is triggered by unconscionability.

(3)

Those who seek Equity must do Equity.

(4)

Those who come to Equity must come with clean hands.

(5)

Equity treats as done that which ought to be done.

(6)

Equity protects the weak and vulnerable.

(7)

Equity is cynical.

(8)

Equity is imaginative.

(9)

Equity follows the Law.

(10)

Equity looks to substance rather than to form.

(11)

Equity will not assist a volunteer.

(12)

Equity assists the diligent.

(13)

Equity is equality.

(14)

Equity acts in personam.

2.2 Equity is Discretionary

It was seen in Chapter 1 that there is a tendency to treat the application of Equity as being a discretionary regime that seeks to secure a just and fair result, without obvious regard to identifiable rules or principles that produce certainty and predictability.6 The reality is p. 26very different, in that much of Equity can be characterized as doctrinal, in the sense that it is made up of identifiable rules that are to be applied strictly, without any role for judicial discretion. In Re Diplock,7 the Court of Appeal recognized that:

if a claim in equity exists, it must be shown to have an ancestry founded in history and in the practice and precedents of courts administering equity jurisdiction. It is not sufficient that because we may think that the ‘justice’ of the present case requires it, we should invent such a jurisdiction for the first time.8

But doctrinal Equity is not fixed in stone. As Sir George Jessel MR recognized in Re Hallett’s Estate,9 ‘doctrines are progressive, refined, and improved’. It follows that the Equity that was developed in the nineteenth century may be very different in the twenty-first century because it has been adapted to cope with the very different problems that arise today.

The recognition of specific doctrines within Equity does not mean that there is no role for the exercise of judicial discretion, but it is important to be clear as to what discretion means in this context. There is an assumption discernible in the cases and in the literature that judicial discretion is a bad thing because it is uncontrolled and unpredictable, and the judge simply cannot be trusted to exercise their discretion appropriately. This suspicion of the judiciary was recognized by Lord Camden in Doe v Kersey,10 who said:

The discretion of a Judge is the law of tyrants; it is always unknown; it is different in different men; it is casual, and depends upon constitution, in temper and passion. In the best it is often times caprice; in the worst it is every vice, folly and passion to which human nature is liable.

The assumption is that the exercise of judicial discretion is inevitably arbitrary, as recognized 500 years ago by Sir Thomas More who said in Utopia:

The law and Judges should avoid arcane interpretations and debates about law but should instead judge the overall equity or justice of a situation and decide accordingly.11

But Hart12 recognized that discretion is fundamentally different from arbitrary choice: discretion by its nature is guided by rational principles, so that a decision which is not susceptible to principled justification is not an exercise of discretion at all but involves the making of an arbitrary choice. Hart rejected arbitrary choice as a basis for judicial decision-making. He was right to do so; judicial decision-making must be founded on recognized principles. Whilst the role of judicial discretion is essential to ensure that justice is achieved, if the resort to justice is to be defensible and predictable, there needs to be identifiable principles to guide that discretion and to ensure that like cases are treated alike, for the benefit of the parties, their advisers and, if the case goes to trial, the judge.

A principle is appropriately defined as a reason of general application.13 The difficulty relates to the identification of those principles, but they have emerged over time through the constant evolution of Equity. The principles are typically founded on what the judge considers to be just and fair; not determined through the exercise of arbitrary choice, p. 27but rather as an external normative standard against which the defendant can be judged. Some of these equitable principles can be identified at a high level of abstraction, such as fair dealing, trust, and conscience,14 but then various sub-branches can be identified from these principles,15 often influenced by the particular context. So, for example, Toulson LJ said of the equitable remedy of rectification16 that:17

its origins lie in conscience and fair dealing, but those origins cannot be invoked to justify an unprincipled approach: far from it. Particularly as rectification is normally invoked in a contractual context, it seems to me that its principles should reflect the approach of the law to contracts, in particular to the formation and interpretation of contracts. Similarly, as rectification most commonly arises in a commercial context, it is plainly right that the applicable principles should be as clear and predictable in their application as possible.

Whether the equitable approach should be considered to be primarily principled or discretionary has proved to be especially significant in respect of the constructive trust, which arises by operation of law rather than intention.18 Traditionally, in England, the constructive trust arises by operation of law by virtue of clearly defined principles and is known as an institutional constructive trust. In other jurisdictions, notably Australia and Canada, the constructive trust arises through the exercise of judicial discretion, and is known as the remedial constructive trust. As a consequence of scepticism about judicial discretion, in England the remedial constructive trust is not recognized, as confirmed by the Supreme Court.19 Lord Neuberger subsequently expressed his concerns about the recognition of the remedial constructive trust extra-judicially.20 He noted that ‘the notion of a remedial constructive trust displays equity at its flexible flabby worst’ and he considered it to be ‘unprincipled, incoherent and impractical’.21

But even in Australia the remedial constructive trust is founded on principle. It has been recognized that ‘[u]nstructured judicial discretion … has no place in the law of constructive trusts in Australia.’22 And Deane J in Muschinski v Dodds emphasized that:23

The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundations of such principles … proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion, subjective views about which party ‘ought to win’ … and ‘the formless void’ of individual moral opinion …

p. 28In England the characterization of the constructive trust as institutional, which cannot be modified by the exercise of judicial discretion, does not reflect the operation of the constructive trust in the real world.24 The reality of the constructive trust is that it arises by operation of law at the point when the defendant’s conduct can be characterized as unconscionable, as defined with reference to recognized principles, but this constructive trust (institutional if we have to call it that) can be modified in the exercise of judicial discretion, but itself in a principled and not an arbitrary way.25

It follows that, whilst it remains appropriate to recognize the maxim that Equity is discretionary, it must not be forgotten that discretion does not mean arbitrary choice. The exercise of judicial discretion must constantly be grounded with reference to principle. This is then consistent with the rule of law.26 The key consideration then relates to the identification of appropriate principles. That is what this book seeks to do.

Test your understanding of this section by trying these self-test questions.

2.3 Equity is Triggered by Unconscionability

Watch the author discuss the meaning of unconscionability in the following video.

Although doctrine and principle is vital to modern Equity, the very existence of the most important equitable principle might undermine the doctrinal coherence of the subject if it is not defined tightly and coherently. That principle is unconscionability. Today, one of the main justifications for the operation of the equitable jurisdiction is that the defendant has acted unconscionably. Indeed, in Westdeutsche Landesbank Girozentrale v Islington LBC,27 the key justification for the recognition of a trust was the principle that ‘Equity operates on the conscience of the owner of the legal interest.’28 But what does conscience mean for these purposes?

2.3.1 The meaning of conscience and unconscionability

Gleeson CJ has said that the use of the word ‘unconscionable’ ‘may be merely an emphatic method of expressing disapproval of someone’s behavior, but its legal meaning is considerably more precise’.29 But identifying that precise legal meaning is not easy. The preferable view is that unconscionability means ‘contrary to good conscience’.30 But is unconscionability a state of mind or does it relate to a normative standard for evaluating conduct, morality, or simply a sense of guilt?

2.3.2 The history of conscience

Legal history can assist in determining how conscience and unconscionability should be interpreted today.31 The words themselves have been used for hundreds of years, so it is vital to identify their origins to see if they can be of assistance in understanding their contemporary application. The history of conscience in Equity is complex and uncertain.32 Although what follows is a simplification of rigorous historical scholarship, it is possible to p. 29identify six different stages in the development of conscience as an equitable construct, in broadly chronological order.

(i) The Chancellor’s conscience

Conscience originally referred to the conscience of the Chancellor as the measure of equity, with conscience being a reference to the individual moral judgement of the judge,33 albeit one influenced by theological learning and canon law, since the Chancellor was typically a cleric.34 Conscience in this moral sense was criticized for its inherent uncertainty being, as Selden famously acknowledged, like making the Chancellor’s foot the measure of the standard foot.35

(ii) Personal knowledge

As Chancery procedure developed, references to conscience involved the ascertainment of legally relevant facts from the judge’s personal knowledge or belief rather than by reference to what was alleged and proved.36

(iii) The defendant’s conscience

The focus shifted to the assessment of the defendant’s conscience, as determined by the court, but with reference to what the defendant knew or believed to be true, rather than what they believed to be morally right. This interpretation of conscience derived from the ability of Equity to compel the defendant’s appearance at court and to examine the defendant on oath with a view to extracting a confession.37 It also reveals a focus of the Chancery court on intervening to purge or purify what was considered to be the corrupt conscience of the defendant, and has been described as a ‘cathartic jurisdiction’.38 This was recognized by Lord Ellesmere in the Earl of Oxford’s Case:39

The office of the Chancellor is to correct men’s conscience for frauds, breaches of trust, wrongs and oppressions of what nature soever they be …

(iv) The foundation of equitable doctrine

Under the influence of Lord Chancellors, notably Lord Eldon, who were lawyers rather than clerics, equitable principles were identified and were often justified with reference to conscience. Through the development of a doctrine of precedent, categories of like cases were identified which were informed by past decisions and past values, notably unconscionability. So, rather than seeking to identify unconscionability in each case, it was sufficient that a case fell within a particular category of liability, the existence of which could be justified by reference to the old language of conscience.40 Here unconscionability operates as a matter of opinion, but one which has been ‘formed and inferred by considered decisions in similar but not identical cases, by the values of the community, that is by the palimpsest of past legal and community traditions’.41

(v)p. 30 Chancery is conscience

Conscience was also used simply to describe the Chancery jurisdiction, but without providing any justification for its exercise.42 Arguably, it is this sense of conscience which was recognized by Lord Nottingham in Cooke v Fountain:43

With such a conscience as is only naturali et interna this Court has nothing to do; the conscience by which I am to proceed is merely civilis et politica and tied to certain measures; and it is infinitely better for the public that a trust, security, or agreement, which is wholly secret, should miscarry, than that men should lose their estates by the mere fancy and imagination of a chancellor.

(vi) Rhetorical conscience

Throughout the history of Equity the language of conscience and unconscionability has also been used simply as a rhetorical device which the judge could hide behind to exercise a choice without reference to principle.44 The wheel may appear to have gone full circle, with the modern judge, who seeks to interpret conscience in this way,45 appearing to act like the former Lord Chancellor and exercising judgement without reference to principle. But that is not the case. For the first interpretation of conscience was highly principled, with reference to theological interpretations of conscience, with very close attention to biblical text and commentary by scholars. Modern approaches to conscience, which actually hide behind the language of conscience, do not reflect the original, principled notion of conscience.

(vii) Summary

This review of the history of conscience reveals a variety of different interpretations over time, although a general trend can be identified away from conscience as a test of morality, to conscience underpinning equitable doctrine. At times conscience has referred explicitly to the conscience of the defendant, but typically it has been interpreted objectively, with reference to what the court considers the defendant’s conscience should dictate.

2.3.3 A new taxonomy of conscience

In order to ensure precise analysis, consistent application, and appropriate communication of meaning a new taxonomy of conscience needs to be adopted, involving a fundamental distinction between the defendant’s conscience and the conscience of the court.46

(i) The defendant’s conscience

The conscience of the defendant is often used as a component of particular equitable causes of action.47 This can be interpreted in two different ways:

(1) The subjective assessment of the defendant’s mind, with regard to what the defendant knew, intended, or suspected. Inevitably, for reasons of proof, even this subjective test p. 31of conscience has objective connotations, because proof of a subjective state of mind is difficult, so the courts have regard to what the defendant would reasonably have known or suspected in order to determine the state of the defendant’s mind. As will be seen, this use of unconscionability will be rare and is primarily relevant to establish that the defendant holds property on constructive trust.48

(2) The objective assessment of the defendant’s conduct, in the light of the facts as the defendant knew, believed, or suspected them to be.49 This is consistent with the historical development of conscience in Equity: the court determines what the defendant’s conscience should reasonably require them to do in the light of the defendant’s own awareness of the facts. Perhaps, in order to distinguish this from the next category of conscience, it would be appropriate to call this ‘dishonesty’. This interpretation of conscience has proved to be significant to establish the defendant’s personal liability for receipt of property transferred in breach of trust where the defendant no longer retains the property,50 or where the defendant has assisted a breach of trust.51

(ii) The court’s conscience

The alternative sense of conscience refers to the conscience of the court generally or the judge particularly. Whilst this might suggest that the judge can determine the result by reference to arbitrary choice, in fact this interpretation of conscience is properly analysed as involving principled discretion;52 rather than treating the judge’s conscience as a rhetorical device behind which they can hide by asserting that a particular result is justified by good conscience, the judge needs to go further and explain why good conscience demands such a result. As Lord Sumption has recognized: ‘Good conscience … involves more than a judgment of the relative moral merits of the parties.’53 The exercise of judicial discretion with reference to identified principles is similar to objective dishonesty, since the identification of such fault is determined by the judge on the evidence and so can be characterized as a principle which triggers equitable intervention. But the conscience of the court is much more extensive in its operation as regards the identification of many other principles, which will be identified throughout this book.

Test your understanding of this section by trying these self-test questions.

2.4 Those Who Seek Equity Must Do Equity

The judicial discretion to determine whether an equitable remedy should be awarded is affected by the significant maxim that anybody who seeks an equitable award must themselves do equity. What this means is that, when granting an equitable remedy, the judge should ensure that the claimant is willing to act fairly towards the defendant in the future. So, for example, in Chappell v Times Newspapers Ltd,54 an injunction was denied to employees who wished to restrain their employer from dismissing them, because the employees had refused to undertake that they would not strike in future.

p. 32To ensure that the claimant does indeed ‘do’ equity, the judge can attach conditions to the grant of an equitable remedy. So, for example, following Ramsden v Dyson,55 when the claimant seeks to recover land from the defendant, but the claimant knows that the defendant has spent money on the land in the mistaken belief that the land belongs to the defendant, it can be a condition of the claimant recovering the land that the defendant is reimbursed for this expenditure. Similarly, in Re Berkeley Applegate (Investments Consultants) Ltd,56 it was recognized that a beneficiary cannot claim property from a trustee without reimbursing the trustee for costs that they have incurred as a trustee and for the trustee’s labour in administering the property.

2.5 Those Who Come to Equity Must Come with Clean Hands

Whereas the last maxim was concerned with the claimant’s conduct in the future, the maxim that those who come to Equity must have clean hands57 relates to the claimant’s past conduct. This maxim means that equitable relief will be denied to a claimant whose conduct can be considered to be improper in some way.58 This maxim, like the previous one, is clearly based on the historical origins of Equity as being founded on conscience, judged objectively.

In Dering v Earl of Winchelsea,59 it was held that improper conduct involves impropriety in a legal, and not a moral, sense. Also, the improper conduct must relate to the relief that is sought in some way. Consequently, just because the claimant’s general conduct is unacceptable does not mean that Equity will deny relief to the claimant. So, for example, in Argyll (Duchess) v Argyll (Duke),60 the duchess was able to obtain an injunction to restrain her former husband from publishing confidential information, even though it was her adultery that had led to the breakdown of their marriage in the first place. In that case, Ungoed-Thomas J recognized that, although a person coming to Equity must come with clean hands, ‘the cleanliness required is to be judged in relation to the relief sought’.61

A further restriction on the operation of the ‘clean hands’ maxim was once recognized, namely that it is possible to obtain an equitable remedy despite the claimant having unclean hands if it is not necessary for the claimant to rely on the improper conduct to obtain the remedy.62 This rule was, however, rejected by the Supreme Court in Patel v Mirza63 by virtue of its artificiality. Today, whether participation in a transaction tainted by illegality should bar an equitable claim will depend on the exercise of judicial discretion, guided by reference to a variety of recognized factors such as whether it would be proportional to deny relief.

2.6 Equity Treats As Done that which Ought to be Done

This maxim64 has been of particular significance in the development of Equity, but there is a tendency to rely on it too readily without regard to its rationale. The true function of the maxim is illustrated by the fact that, where the parties have entered into a contract that p. 33is specifically enforceable, Equity will treat the contract as having been performed.65 The maxim is also relevant where the defendant has agreed to transfer property to another party, but has not done so. In such a scenario, the Common Law will look at the reality and will treat the defendant as still owning the property. But, if the contract is specifically enforceable, Equity will treat the defendant as having done what they had promised to do, namely transfer the property to the claimant, who will then be treated as owning the property in Equity. Since the defendant now has legal title and the claimant now has a title recognized in Equity, the defendant will hold the property on constructive trust for the claimant. This will still be the case even if the defendant has done nothing wrong in not transferring the property to the claimant. So, for example, if the defendant enters into a contract with the claimant for the sale of land, title to the land will not be transferred until completion. But, once the contract for sale is made, Equity will treat the transfer as having occurred, so the vendor will hold the land on constructive trust for the purchaser.66 This trust is of a peculiar kind because the vendor also retains a beneficial interest in the property until the purchaser has paid the full purchase price, at which point the vendor is a bare trustee for the purchaser.67 The maxim has also proved to be significant in respect of leases. It provides the basis for the important decision in Walsh v Lonsdale68 that Equity will treat a person who has agreed for valuable consideration to take a lease as though that person is a lessee of property.

The maxim that Equity treats as done that which ought to be done has been applied in contexts other than contracts for the sale of land or chattels. It is especially significant as regards the law of assignment. So, for example, if Ann enters into a contract with Barry for valuable consideration to assign immediately property that does not yet exist (known as ‘future property’), this is not an effective assignment, because there is not yet any property to assign. But immediately the property comes into existence, Equity will treat it as having been assigned to Barry, without Ann having to do anything more, so Barry will own the property in Equity. This also illustrates a restriction on the operation of the maxim. It is not a pure fiction, in that Equity will not pretend that the property is in existence when this is not the case. But it is only when that which ought to be done can be done that the maxim will operate.

2.7 Equity Protects the Weak and Vulnerable

There are many examples of Equity intervening to protect the weak and the vulnerable, who are in a position in which they might easily be exploited. This is illustrated by the undue influence doctrine, which is a construct of Equity. This can be used to set aside a contract where one party actually unduly influenced69 the other party, or is presumed to have done so.70 Equity will also intervene where there is inequality of bargaining power between the parties and the defendant has unconscionably taken advantage of the claimant’s special disability.71 So, for example, in Cresswell v Potter,72 the claimant, who was a telephonist, had released her interest in the matrimonial home to her husband as part of a divorce settlement. p. 34This release of the interest was set aside because the claimant was characterized as being poor and ignorant as to the operation of property transactions. Also, the transaction was unfair, since it had been at a significant undervalue and the claimant had not received any independent legal advice as to whether the release on those terms was appropriate.

Another situation in which Equity operates to protect the weak and the vulnerable is the law relating to fiduciaries.73 A fiduciary relationship is a relationship of trust and confidence in which the principal trusts and has confidence in the fiduciary to manage the principal’s property and affairs. The fiduciary is placed in a position of responsibility in which they might be tempted to exploit the principal. It is for this reason that the highest standards of behaviour are expected from the fiduciary.

2.8 Equity is Cynical

A number of the traits of Equity that have been identified so far might be considered to be laudable. That Equity is cynical is more negative, but in fact this maxim, although not formally recognized by the courts, should be identified explicitly since it underpins a number of equitable rules that exist typically to protect the vulnerable and to prevent exploitation.

There are a variety of situations in which Equity appears to be cynical about human nature. So, for example, where one party makes a gift to another, the Common Law will treat that as being valid, so that the gift belongs to the donee. But Equity is suspicious of a benevolent intent and, in a number of different scenarios, Equity will presume that the donor did not intend to make a gift, so that the recipient will hold the putative ‘gift’ on a trust for the claimant.74

Similarly, Equity assumes that certain types of relationship may be such that one party is likely to exploit the other, so there is a presumption that any transaction between them might be exploitative which means that it can be set aside. So, for example, Equity will presume that a parent has influence over their minor child,75 that a doctor has influence over their patient,76 that a solicitor has influence over their client,77 and that a trustee has influence over their beneficiary.78

Much of the law on fiduciaries can be considered to be influenced by Equity’s cynicism: Equity requires the highest standards of fiduciaries because of fears that people occupying such positions of trust and confidence may be tempted to prefer their own interests over those of their principals. It is for this reason that a fiduciary who makes any profit from their relationship will be liable to disgorge it to the principal, even if this was part of a transaction that was for the benefit of the principal.79

2.9 Equity is Imaginative

Whereas the Common Law has a tendency to be rigid and unimaginative in its operation, Equity is much more imaginative in its application and development. This too is a maxim which has not been explicitly identified by the courts but it should be recognized since it provides a pithy statement of a fundamental truth relating to the operation of Equity. This is illustrated by two significant equitable rules.

p. 35First, where a claimant’s money is mixed with money belonging to the defendant or another party, the Common Law holds that the claimant’s property is no longer identifiable in the mixture, so that the claimant will no longer have any property rights in the money.80 Equity, however, treats the mixture as a fund and, as long as it is possible to know, or presume, what the claimant’s proportionate contribution to the fund was, Equity will recognize that the claimant continues to have a proprietary interest in that proportion of the fund.81 So, for example, if the defendant stole £100 from the claimant and credited this sum to a bank account that was already £100 in credit, the Common Law is unable to say which part of the credit belongs to the claimant and consequently legal title to the £100 will pass to the defendant. Equity is, however, able to identify the claimant’s value in the fund. Since the claimant contributed 50 per cent of the value to the bank account, it follows that the claimant will have a 50 per cent share of the fund. Therefore, if the fund doubles in value, the claimant will be able to claim half of the overall value of the fund.

This imaginative approach to property and value is also illustrated by the role of Equity in the very different context of rescission of contracts. The remedy of rescission, either at Common Law or in Equity, is barred where the claimant has received benefits from the defendant under the contract and is unable to restore those benefits. This is known as the bar of restitutio in integrum being impossible. At Law, rescission is barred if the claimant has received a benefit in kind from the defendant, because the Common Law is unable to value such benefits. But Equity is not so inhibited. Where a claimant has received goods or services from the defendant under a contract that is voidable, Equity is willing to value the benefit in kind and make it a condition of rescission that the claimant repays this value to the defendant.82

2.10 Equity Follows the Law

The maxim that Equity follows the Law has long been recognized, although its interpretation and application are not straightforward. It is certainly the case that Equity recognizes legal rules. So, for example, Equity recognizes legal estates, rights, interests, and titles. But if Equity were to have followed the Law absolutely, there would have been no scope for the development of separate equitable doctrines and a separate identity for the equitable jurisdiction. It is for this reason that the American judge Cardozo J recognized that ‘Equity follows the law, but not slavishly nor always.’83 A more accurate statement of this maxim is simply to say that ‘Equity recognizes the Common Law’, or that ‘Equity is a gloss on the Law.’

One particular example of Equity following the Law arises where two parties own a house which is registered in their joint names. If the parties’ relationship fails, they will both claim a beneficial interest in the property. Equity will presume that the beneficial interest in the property corresponds to their legal interest, so that they will share the beneficial interest equally, save where this presumption can be rebutted by a contrary intention.84

2.11p. 36 Equity Looks to Substance Rather Than Form

In Parkin v Thorold,85 Lord Romilly MR recognized that:

Courts of Equity make a distinction in all cases between that which is matter of substance and that which is matter of form; and, if they do find that by insisting on the form, the substance will be defeated, they hold it to be inequitable to allow a person to insist on such form, and thereby defeat the substance.

There are numerous examples of this maxim being applied. For example, it provides the basis for the equitable remedy of rectification. Where the words of a contract do not reflect the common intentions of the parties, Equity is exceptionally willing to rewrite the document to reflect those intentions.86

Similarly, Equity will identify a trust, even though the settlor has not explicitly stated that they intended to create one, where it is possible to identify an obligation that the recipient of property holds that property for somebody else.87 At the other extreme are circumstances in which the settlor has purported to create a trust, but Equity, having regard to the substance of the transaction, concludes that the trust is a sham.88

Despite this emphasis on the substance of the transaction, there are a number of cases in which Equity is concerned with the process of decision-making rather than the substance. So, for example, where trustees under a discretionary trust have a discretion to determine which objects to benefit and by how much, Equity is much more concerned with whether the discretion is exercised rather than with how it is exercised.89

2.12 Equity Will not Assist a Volunteer

A ‘volunteer’ is somebody who has not provided consideration for a particular transaction, such as the donee of a gift. The main application of this maxim is where a donor purports to make a gift to the donee, but the gift is not effective at Law, so that legal title is retained by the donor. It has been recognized that Equity will not perfect an imperfect gift,90 and this rule is clearly founded on that of Equity not assisting a volunteer. In fact, there are numerous exceptions to this maxim, and Equity is perfectly content to intervene and provide assistance to a volunteer. So, for example, if the donor has done all that is necessary to transfer legal title to the donee, Equity will treat title as having been passed to the donee (by virtue of the maxim that Equity treats as done that which ought to be done),91 even though the donee has not provided any consideration for the transaction.92 Consequently, the donor will still have legal title, but, since Equity recognizes that the property belongs to the donee, they will have an equitable proprietary interest in it. Since there is a split of legal and equitable title arising by operation of law, the property will be held on constructive trust for the donee by the donor. The maxim that Equity will not assist a volunteer will also be trumped by the principle of unconscionability,93 so that a donor who has purported to make a gift, but who does so ineffectively, may be considered to hold the property on constructive trust for the donee if the donor’s conduct can be characterized as being unconscionable.94

2.13p. 37 Equity Assists the Diligent

Even if a claim is not time-barred under statute, the claimant may be prevented from obtaining an equitable remedy if there has been delay in seeking the remedy. This provides the basis for the equitable doctrines of laches95 and acquiescence.96

2.14 Equity is Equality

The maxim that Equity is equality means that, for example, where there are equitable interests in property, Equity presumes that they will be treated equally. So, for example, where the trustees have a power to appoint to a charitable purpose and a non-charitable purpose and that power is not exercised, the court will allocate half of the fund for charitable purposes and half for non-charitable purposes.97 The general significance of the maxim has, however, been doubted in the law of trusts, because it would rarely accord with the intention of the person who created the trust,98 although the maxim has proved to be significant in the context of determining the respective interests of a cohabiting couple in the family home.99

The maxim that Equity is equality was applied controversially in Re Bower’s Settlement Trusts,100 in which the testator left the residue of his estate in his will to the beneficiaries in unequal shares. There was also a direction in the will that, if one of the beneficiaries were to die, his share should accrue to the other beneficiaries. Morton J applied the equitable maxim so that the deceased beneficiary’s share was distributed equally between the other beneficiaries rather than proportionately in accordance with their existing share of the residue. Whether this literal application of the maxim was appropriate was considered in Re Steel.101 In that case, legacies of different amounts were left in a will, which also contained a clause stating: ‘Any residue remaining to be divided between those beneficiaries who have only received small amounts.’ Megarry V-C considered whether the application of the equitable maxim required ‘mathematical equality’ and concluded that it might mean ‘proportionate equality’102—that is, distribution in accordance with the existing proportions. He concluded that mathematical equality was appropriate on the facts of the case, although he considered that proportionate division would have been appropriate in Re Bower’s Settlement.

2.15 Equity Acts In Personam

This is a maxim that is often mentioned in cases, but its significance remains a matter of real controversy and a cause of confusion. The origins of the maxim can be identified in the fact that in its formative period Equity operated to create personal interests and not proprietary rights: when Equity intervened, it did not do so to deprive the legal owner of property, but ensured only that legal property rights were exercised conscionably. p. 38So, for example, whereas the Common Law would ensure that a claimant physically received property to which they were entitled, Equity would not order the transfer of property, but would impose a personal order against the defendant, breach of which would involve contempt of court, which was punishable by imprisonment.

But this is no longer true: Equity clearly operates to create property rights. Indeed, that is the essence of the trust, which recognizes that the beneficiaries have a proprietary interest recognized in Equity in the trust assets and is not confined to a personal remedy against the trustee for breach of trust. But the maxim that Equity operates in personam can be interpreted in another way, by distinguishing between in rem rights (which are good against the world) and in personam rights (which are good against a particular person). Equitable rights are not in rem in this sense, but are always in personam. This is because all equitable property rights are defeated if the property is obtained by a bona fide purchaser for value,103 and so cannot be good against everybody in the world.

Test your understanding of sections 2.4–2.15 by trying these self-test questions.

End-of-Chapter Scenario Questions

Test your understanding of this chapter by trying these scenario questions.

Notes

  • 1 This has sometimes been described as a ‘mantra’: Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776, [19] (Lord Walker and Lady Hale).

  • 2 [1967] 2 AC 46, 123.

  • 3 Meagher, Gummow, and Lehane, Equity: Doctrines and Remedies, 5th edn, ed. Heydon, Leeming, and Turner (London: Butterworths, 2014), ch. 3; Snell’s Equity, 34th edn, ed. McGhee (London: Sweet & Maxwell, 2019), ch. 5.

  • 4 See Section 1.3, p. 6.

  • 5 [1893] 1 QB 551.

  • 6 See Section 1.2, p. 4.

  • 7 [1948] Ch 465, 481–2.

  • 8 See also Denning, ‘The need for a new Equity’ (1952) 5 CLP 8: ‘[T]he Courts of Chancery are no longer courts of equity … They are as fixed and immutable as the Courts of law ever were.’

  • 9 (1880) 13 Ch D 696, 710.

  • 10 (1795) (CP) quoted in Bower’s Law Dictionary (1839).

  • 11 (1516) Book 1, 45.

  • 12 ‘Discretion’, written in 1956 and published in (2013) 127 Harv L Rev 652.

  • 13 Gardner, ‘Ashworth on principles’ in Principles and Values in Criminal Law and Criminal Justice: Essays in Honour of Andrew Ashworth, ed. Zedner and Roberts (Oxford: Oxford University Press, 2012), p. 9.

  • 14 See Section 2.3.1, p. 28.

  • 15 Shearer v Spring Capital Ltd [2013] EWHC 3148 (Ch), [250] (Daniel Alexander QC).

  • 16 Considered in Section 21.7, p. 692.

  • 17 Daventry District Council v Daventry and District Housing Ltd [2011] EWCA Civ 1153, [2012] 1 WLR 1333, [196].

  • 18 See Section 9.1.1, p. 271.

  • 19 FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [2015] AC 250, [47].

  • 20 ‘The remedial constructive trust: fact or fiction’, delivered in August 2014 to the Banking Services and Finance Law Association Conference, New Zealand.

  • 21 See also Birks, ‘The remedies for abuse of confidential information’ [1990] LMCLQ 460, 465.

  • 22 State Trustees Ltd v Edwards [2014] VSC 392, [143] (McMillan J).

  • 23 (1985) 160 CLR 583, 615.

  • 24 See further Section 9.4, p. 293.

  • 25 See Section 9.4, pp. 295–7.

  • 26 See generally Harding, ‘Equity and the rule of law’ (2016) 132 LQR 278.

  • 27 [1996] AC 669.

  • 28 Ibid., 705 (Lord Browne-Wilkinson).

  • 29 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51, [7].

  • 30 McConvill and Bagaric, ‘The yoking of unconscionability and unjust enrichment in Australia’ (2002) 7 Deakin LR 225, 249.

  • 31 See Havelock, ‘The evolution of equitable conscience’ (2014) 8 J Eq 128.

  • 32 One of the best investigations is that of Klinck, ‘The unexamined “conscience” of contemporary Canadian Equity’ (2001) 46 McGill LJ 571.

  • 33 Christopher St German’s Doctor and Student (1523, 1531).

  • 34 Baker, An Introduction to English Legal History, 5th edn (Oxford: Oxford University Press, 2019), p. 107.

  • 35 Selden, Table Talk of John Selden (London: Selden Society, 1927), p. 43.

  • 36 McNair, ‘Equity and conscience’ (2007) 27 OJLS 659.

  • 37 Ibid., p. 676.

  • 38 Ashburner’s Principles of Equity, 2nd edn, ed. Browne (London: Butterworth and Co, 1933), p. 39.

  • 39 (1615) 1 Ch R 1, 6. See also Allcard v Skinner (1887) LR 36 Ch D 145, 189 (Bowen LJ).

  • 40 Rossiter and Stone, ‘The Chancellor’s new shoe’ (1988) 11 UNSWLJ 11, 24.

  • 41 Ibid., p. 26. See also Finn, ‘Unconscionable conduct’ (1994) 8 JCL 37.

  • 42 Watt, Equity Stirring (Oxford: Hart, 2009), p. 106.

  • 43 (1676) 3 Swanst 585, 600.

  • 44 Kluck, Conscience, Equity and the Court of Chancery in Early Modern England (Farnham: Ashgate, 2010), p. 10.

  • 45 See e.g. Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108, [126] (Lord Walker). See also National Westminster Bank v Morgan [1985] AC 686, 703 (Lord Scarman).

  • 46 Havelock, ‘Conscience and unconscionability in modern equity’ (2015) 9 J Eq 1 argues that the use of the language of unconscionability is so confused that the word should be rejected.

  • 47 See Section 20.2.3.(i), p. 631.

  • 48 See Section 9.3.1, p. 275.

  • 49 See Agnew, ‘The meaning and significance of conscience in private law’ (2019) 77 CLJ 479, 483.

  • 50 See Section 20.2, p. 627.

  • 51 See Section 20.3, p. 646.

  • 52 See Section 2.2, p. 25.

  • 53 Angove’s Pty Ltd v Bailey [2016] UKSC 47, [2016] 1 WLR 3179, [28] (Lord Sumption).

  • 54 [1975] 1 WLR 482.

  • 55 (1866) LR 1 HL 129.

  • 56 [1989] Ch 32.

  • 57 Fitzroy v Twilim (1786) 1 TR 153. See Chafee, ‘Coming into equity with clean hands’ (1949) 47 Mich L Rev 877 and 1065 and Pettit, ‘He who comes to equity must come with clean hands’ [1990] Conv 416.

  • 58 Dunbar v Plant [1998] Ch 412, 422 (Mummery LJ).

  • 59 (1787) 1 Cox Eq Cas 318.

  • 60 [1967] Ch 302.

  • 61 Ibid., 322.

  • 62 Tinsley v Milligan [1994] 1 AC 340.

  • 63 [2016] UKSC 42, [2017] AC 467. See Section 8.2.5, p. 238.

  • 64 Banks v Sutton (1732) 2 P Wms 700, 715 (Jekyll MR).

  • 65 Re Anstis (1886) 31 Ch D 596, 605 (Lindley LJ).

  • 66 Rayner v Preston (1881) 18 Ch D 1. See Section 9.3.6, pp. 290–1.

  • 67 Lloyds Bank plc v Carrick [1996] 4 All ER 630.

  • 68 (1882) 21 Ch D 9.

  • 69 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923.

  • 70 Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773.

  • 71 Hart v O’Connor [1985] AC 1000.

  • 72 [1978] 1 WLR 255n.

  • 73 See Chapter 15.

  • 74 See Section 8.2.1, p. 232.

  • 75 Lancashire Loans Ltd v Black [1934] 1 KB 380.

  • 76 Mitchell v Homfray (1881) 8 QBD 587.

  • 77 Wright v Carter [1903] 1 Ch 27.

  • 78 Ellis v Barker (1870) LR 7 Ch App 104.

  • 79 See e.g. Boardman v Phipps [1967] 2 AC 46.

  • 80 Taylor v Plumer (1815) 3 M & S 562; Agip (Africa) Ltd v Jackson [1990] Ch 265, 285 (Millett J).

  • 81 El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717, 735–6 (Millett J).

  • 82 Mahoney v Purnell [1996] 3 All ER 61.

  • 83 Graf v Hope Building Corp (1920) 254 NY 1, 9.

  • 84 Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776, [51] (1) (Lady Hale and Lord Walker). See Section 10.2.2.(ii), p. 305.

  • 85 (1852) 16 Beav 59, 66.

  • 86 The Olympic Pride [1980] 2 Lloyd’s Rep 67.

  • 87 See Section 4.2.2.(iii), p. 75.

  • 88 See Section 4.2.3, p. 80.

  • 89 See Section 14.2.2.(i), p. 429.

  • 90 See especially Milroy v Lord (1862) 4 De GF & J 264, 45 ER 1185. See Section 5.3.3.(ii), p. 139.

  • 91 See Section 2.6, p. 32.

  • 92 See Section 5.3.3.(iii), p. 139.

  • 93 See Section 2.3, p. 28.

  • 94 Pennington v Waine [2002] EWCA Civ 227, [2002] 1 WLR 2075. See Section 5.3.3.(iii), p. 142.

  • 95 See Section 17.3.3.(ii), p. 518.

  • 96 See Section 17.3.4, p. 520.

  • 97 Hoare v Osborne [1866] LR 1 Eq 585.

  • 98 McPhail v Doulton [1971] AC 424, 451 (Lord Wilberforce).

  • 99 See Section 10.2.2.(ii), p. 305.

  • 100 [1942] Ch 197.

  • 101 [1979] Ch 218.

  • 102 Relying on Steel v Dixon (1881) 17 Ch D 825, 830 (Fry J).

  • 103 See Section 1.5.1, p. 16.