A Discussion Relating to Equity and its Restraint of Legal Rights and Powers

EQUITY & TRUSTS ASSIGNMENT 2014/ 2014 ‘’Legal rules allow the holders of legal right and powers to exercise them in the confidence that they are entitled to do so. The Function of equity is to restrain or restrict the exercise of Legal rights and powers in particulars cases, Whenever it would be unconscionable for them to be exercised to be full.’’ G Watt, Trusts and Equity, (Oxford 2003) at 13 Critically examine this statement by reference to the nature and application of modern equity Where common law became inflexible and unfavorable litigants then appealed to the King; as a consequence such appeals were attend to by the Lord Chancellor at the Court of Chancery. This leads to realize that the use of the principles of common law may not necessarily give just and fair decisions. It was further deduced that the rigidness in the common law sphere was unjust to the litigants. In order to remedy such inaccuracies in the legal system a new principle was introduced, namely equity. Such legal rules and principles exercised by the Court of Chancery fashioned its self as the principle of equity. Equity was developed several hundred years after the introduction of the common law system to resolve disputes and introduce fairness to the system. According to thecommon law,equityis the set of rules that customarily supplemented the common law where the application of the common law would have operated too unsympathetically. As per Lord evershed “The function of equity was to fulfill the common law: not so much to correct it as to perfect it”[1] Equity is not solely based on rules and principles of law but; is based on a person’s conscious. Equity will entail a person to act bestowing to his conscience. Equity does not allow any person to hide behind law and act unethically, against his conscious. It has been commonly said that one of the vital principals of equity is that it works on the conscience of the litigants. Nevertheless this does not inevitably mean that the cases are decided on the individual view of the judge what is ‘just’ in case without reference to principals and case law. As per Lord Browne Wilkinson, “equity operates on the conscience of the owner of the legal interest”. [2] .The early chancellors were clerical people and their conscience was vastly influenced by religion and morality. The positive side being when equity is centered on conscience is that principles of equity are capable of setting aside the legally essential unfair endings, in order to turn up at just and fair endings based on the particulars of each case. In the earlier Lord Chancellor endeavored to form fairness and justice over the procedure of equity. This was criticized as the rulings are based on a certain remit of a particular chancellor and the remit was compared to the “Chancellor’s foot” by Bagnall Justice since the size of a foot changes to individuals just as the conscience of individuals varies .[3] It is essential as per the question to discuss about the functional distinction between law and equity. According to the reputed legal historian professor J.H Baker, If for reason of history equity had become the law peculiar to the court of chancery, nevertheless in broad theory equity was an approach to justice which gave more weight than did the law to particular circumstances and hard cases[4] the main function of common law is to set up rules to govern cases in general and to make sure by such establishment of rules people in general acquire lawful rights and powers that can be exercised of the will of such holders. The people who acquire right lawfully can exercise them with certain and do any act within the sphere. However there are instances where a proper adherence to legal rules will not be possible in order to meet the necessary ends of justice. “So that the letter of the law is not applied in so strict a way that it may cause injustice in individual cases”[5] .In such instances it is essential to follow what is just. This is the time where equity comes into play. In this instance equity is brought to mitigate the rigidness of law. The main function of equity is to restrain the exercise of legal rights in particular instances where it may be necessary to avoid unconscionability. Equity is the means by which a system of law balances out the need for certainty in rule-making with the need to achieve fair results in individual circumstances. Litigants are not allowed by equity to act as the law provides and do any bad hiding behind law. Equity only intercedes in those circumstances where it is unconscionable for the parties to the case to depend on the flawed common law legal system. Therefore we can understand that equity plays a major role by intervening into circumstances where necessary by not allowing unconscionable conduct. ‘Unconscionabilty’ cannot be defined exactly; yet be understood as per the facts of any case. The concept of Unconscionabilty provides a useful mechanism for affording equitable relief against the strict insistence on legal rights or unfair and oppressive conduct[6] . In general we can say what Unconscionabilty is; “Will commonly involve the use of or insistence upon legal entitlement to take advantage of another’s special vulnerability or misadventure…in a way that is unreasonable or oppressive to an extent that affronts ordinary minimum standards of fair dealing”[7]. Even the legal rights that accompany the legal title to a fee simple absolute in possession, the most complete form of ownership known as to land law, are not beyond equity’s jurisdiction to restrain an unconscionable abuse[8]. The novel rights introduced by equity are numerous and out of which the most important is the trust, which is considered to be the most pioneering concept by equity to the English legal system. Explaining the trust through an example, if a testator by a will transfers property to his sister entreating her to hold the property for the exclusive benefit of his minor daughter, the common law would only identify the rights of the legal owner, which is the sister. Henceforth, if the sister evaded in her responsibilities under the trust, in such an instance, equity interferes to ensure that the son is not caused any injustice by ordering the brother to fulfill his obligations by holding the property for the benefit of the daughter. Therefore equity recognized two types of ownership which made it likely for ownership in property to be divided between the legal owners and the equitable owners In the concept of trust, only the legal titleholder was accepted in law as the lawful owner of the property. But there were situations where there were persons who did have an interest over the property but who were not acknowledged on the title. Rights of such people were not accepted in common law. Consequently, there were persons who depend on this strict letter of the law to affect injustice to other party being ‘unconscionable’. For example, that A who is the legal titleholder to land invites B to build a house on his land and that the latter can live on it for the rest of his life and subsequent to the construction A refuses to let B live in the house, it caused injustice to B owing to A’s unconscionable conduct. Thus equity intervened, which recognized the rights of B and ordered A to hold the land for the benefit of B thus complying with the principle that equity would not allow a ‘statute to be used as an instrument of fraud’[9] At the center of the implementation of a trust is the trustee’s conscience that he has decided to hold the trust property for the benefit of the beneficiary. In a circumstance where such a trustee refuses to accept the rights of the beneficiary in the trust, equity will intervene and prevent him from gaining undue advantages of the trust property. However, it is to say that in practice, modern equity is encompassed principally of substantive and procedural principles which simply permit the courts a restricted amount of discretion. Equity exists at present as a separate system of law, developing to a system similar to that of the common law with rigid and inflexible rules which acquaint with a system of precedent. Nonetheless, the discretionary nature of equity still remains unharmed, but not to the degree it was recognized at the preliminary stages In contrast, in the present day the judges are to take into account the well-known equitable maxims in deciding whether a claimant is permitted to a remedy. Accordingly, as per Jessel MR “today equity is not a court of conscience but rather a court of law”[10].Henceforth, today equity functions on a system of precedent, going far-off from the early times, where pronouncements were constructed on conscionability, where ever and each individual case was treated as separately. Consequently,today a claimant who comes to equity must show that their claim has, “An ancestry founded in history and in the practice and precedents of the court 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” [11] Nevertheless, today, judges still discuss to this concept of unconscionability[12]. Hence, today the judges could be said to still consider the case still on an individuality basis but more according to precedent. As already been explained Equity acts not according to the strict rules of the common law, but according to its maxims. Whereas the discretionary nature of equitable rights might at one time have meant that its measure varied with the length of the Chancellor’s foot, by the late eighteenth and early nineteenth centuries sit was certainly the case that equity would only provide relief in a number of prescribed circumstances. Lord Denning was of the opinion that “the Courts of Chancery are as fixed and immutable as the courts of law ever where.”[13]The remedies may be discretionary, but it has been recognized that equity should only assist in recognized situations any attempt to provide justice on an ad hoc basis must lead to uncertainty (and thereby lead to injustice), increased litigation and “palm tree justice”[14]. Of course the functions of the equity acts to restrain or restrict, as an example if something injustice happens to the person who hold the power or person who is going to benefited from the trust as explained above the injustice nature of the substantive law can be mitigate by relying on the maxims of equity.[15] Equity will not permit a statute to be used as an instrument of fraud according to this maxim equity will not allow the trustee to go back from the trust if the trustee relying on any formality requirement such as the Land and Property Act 1925. Creation of a secret trust would be an excellent example of applying the equitable maxim of ‘Equity will not permit a statute to be used as an instrument of fraud’. A fully secret trust occurs when a testator leaves a gift in his will to a beneficiary but that beneficiary has agreed to hold the gift on trust for somebody else. On the face of the will it appears that T has left property to B absolutely, but in reality T intends to benefit. In order to understand why such trusts were necessary, it has to be remembered that a will is a public document and is open to inspection at the Probate Registry. A legacy under the testator’s will to, for example, a mistress or illegitimate child would be likely to arouse suspicion, but the mistress or child could be benefited by way of secret trust, in which case only the secret trustee (often T’s solicitor or a close friend) would be aware of the existence of the secret beneficiary. Secret trusts are rare nowadays, but still occur, for example when the testator is unable to make up his mind about who should benefit from his estate at the time of the execution of his will. When a testator left a gift to G, the solicitor of his common law wife he told G that he was to hold the gift for the benefit of his common law wife. H, the executor challenged the validity of the instructions to G, and the court held that they were analogous to a secret trust.[16] When there is evidence of a secret trust the law is on the horns of a dilemma because it has to choose between strict adherence to the formality requirements of the Wills Act 1837 and giving effect to the wishes of the testator. According to the Wills Act all testamentary dispositions must comply with section 9, and extrinsic evidence will not be admitted unless it is in order to resolve an ambiguity, or in the event of fraud. If the court is to enforce the secret trust, extrinsic evidence must be admitted.[17] The accepted notion is that secret trusts are enforced in order to prevent a statute becoming an instrument of fraud. If the terms of the Wills Act 1837 were to be adhered to the secret trustee would be allowed to take beneficially, an occurrence which equity could not condone. The leading case is the House of Lords decision in McCormick v. Grogan[18]. A testator left all of his property to G by will. Shortly before death he gave to G a letter which concluded with the words “I do not wish you to act strictly on the foregoing instructions, but leave it entirely to your own judgment to do as you think I would, if living, and as the parties are deserving.”[19] It was held that there was no secret trust because the testator did not intend to create an enforceable obligation.[20] More important than the decision however are the speeches of Lord Hatherley LC and Lord Westbury. Both of their lordships were clear that the reason for the enforcement of secret trusts was to prevent the secret trustee from perpetrating a fraud. Their definition of fraud appears to have been a very narrow definition however, based upon preventing the fraudulent enrichment of the secret trustee. Lord Hatherley LC was of the opinion that “it is only in clear cases of fraud that this doctrine has been applied cases in which the court has been persuaded that there has been a fraudulent inducement held out on the part of the apparent beneficiary in order to lead the testator to confide to him the duty which he so undertook to perform.” Lord Westbury stated that, in order to enforce a secret trust, “you are obliged, therefore, to show most clearly and distinctly that the person you wish to convert into a trustee acted malo animo. You must show distinctly that he knew that the testator or intestate was beguiled and deceived by his conduct.”[21] This view of the fraud theory explains why the secret trustee is prevented from taking beneficially, but it does not really explain why equity enforces the trust. It would surely be sufficient if the gift was held on resulting trust for the estate, rather than for the secret beneficiaries. David Hodge [1980][22] argues that the trust should be enforced because of fraud, which he interprets in a wider sense than is evident from McCormick v. Grogan[23]. He argues that fraud may be perpetrated not only by the secret trustee taking the gift beneficially, but also by failing to carry out the agreement. Failure to comply with the agreement is, he argues, a fraud upon both the testator and the secret beneficiary. Hodge’s argument transcends the traditional view of fraud. However, it could be argued that evidence of the secret trust is admitted to probate because of fraud and, once the evidence is admitted, equity must give effect to the trust. The valid oral secret trust of land in Ottaway v, Norman [24]may similarly be seen as an application of the maxim that equity will not permit a statute [in this case both the Wills Act and the Law of Property Act 1925 s 53(1)(b)] to be used as an instrument of fraud. Brightman J considered that “the basis of the doctrine of a secret trust is the obligation imposed on the conscience of the primary donee”,[25] but he did not discuss why the trust was exempt from the formality requirements of Sec53 (1) (b).[26] Bibliography

1. Online Resources

1. https://heinonline.org/HOL/LandingPage?handle=hein.journals/uwatlw26&div=5&id=&page

2. https://cw.routledge.com/textbooks/9780415497718/downloads/chap01.pdf

3. https://heinonline.org/HOL/LandingPage?handle=hein.journals/denlj16&div=5&id=&page

4. https://books.google.lk/books?id=q_YfAwAAQBAJ&pg=PA147&lpg=PA147&dq=Hatherley+LC+and+Lord+Westbury&source=bl&ots=-M3L4bYJsb&sig=yfd6O8ktfuz-PEf4TsN0iTX0iTE&hl=en&sa=X&ei=-FjvU5WGBYyD8gXMjYLgDQ&ved=0CCMQ6AEwAA#v=onepage&q=Hatherley%20LC%20and%20Lord%20Westbury&f=false

2. Journal articles

1. Lord denning law journal

2. Evershed, Reflections on the Fusion of Law and Equity after 75 years, 70 L.Q.R. (1954) 326 at 328, paraphrasing Maitland.

(3)Books

1. Trust and equity by Garry Watt,5th Edition (Oxford University press, Great Clarendon street, oxford,OX2 6DP, United Kingdom)

2. Exploring Equity & Trusts by Sukhninder Panesar, 2nd Edition( Pearson Education 2010/2012 , Edinburgh gate, Essex CM 20 2JE, England)

3. Unlocking Trust by Mohamed Ramjohn, 4th Edition (Routledge Taylor and Francis London and New York )

4. Essentials of Equity and trust Law by John Duddinton, 1st publish 2006,

(Pearson Education Ltd, Edinburgh gate, Essex CM 20 2JE, England)

5. Equity and Trust by Emma Warner-reed, 1st publish 2011, (Pearson Education Ltd, Edinburgh gate, Essex CM 20 2JE, England)

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[1] Evershed, Reflections on the Fusion of Law and Equity after 75 years, 70 L.Q.R. (1954) 326 at 328, paraphrasing Maitland. 2 https://www.judiciary.gov.uk/ [2] Westdeutsche v Islington Borough Council [1996] AC 699 [3]Sukhninder Panesar, Exploring Equity & Trusts, 2nd Edition, Pearson Education 2010 wcher v Cowcher [1972]1 WLR 425 [4] trust and equity by Garry Watt, op.cit. at 132-3 [5]earl oxfords case [6] Lord denning law journal [7] the common wealth v verwayen [8] Trust and equity by Garry Watt,5th Edition, Oxford University press [9] https://www.lawteacher.net/equity-law/essays/concept-of-unfairness-unconscionability-equity-law-essay.php [10] Re national funds Assurance Company [11] Re Diplock [12] Pennington v Waine [13] Lord Denning, [(1952) 5 CLP 8] [14] Cowcher v. Cowcher [1972] 1 WLR 425 [15] https://www.slideshare.net/AhmadFarouqAmir/maxims-of-equity-12601606 [16] Ibid [17] Wills Act 1837 S. 9 [18] McCormick v. Grogan (1869) LR 4 HL 82 [19] Ibid [20] Ibid [21]https://books.google.lk/books?id=q_YfAwAAQBAJ&pg=PA147&lpg=PA147&dq=Hatherley+LC+and+Lord+Westbury&source=bl&ots=-M3L4bYJsb&sig=yfd6O8ktfuz-PEf4TsN0iTX0iTE&hl=en&sa=X&ei=-FjvU5WGBYyD8gXMjYLgDQ&ved=0CCMQ6AEwAA#v=onepage&q=Hatherley LC and Lord Westbury&f=false [22] David Hodge [1980] Conv. 341 [23] McCormick v. Grogan (1869) LR 4 HL 82 [24] Ottaway v, Norman [1972] Ch 698 [25] Ottaway v, Norman [1972] Ch 698 ‘Brightman J’ [26] Law of Property Act s53(1)(b)

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