About Equity

The information herewith gives general guidance. It should not be regarded or relied upon as a complete or authoritative statement of the law or treated as a substitute for specific legal advice concerning individual situations. For our full legal notice, please visit Help4LiPs homesite.

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We need to talk about Equity……even if only here in the general sense.

If you look in a dictionary for the meaning of “equity”, the definition you are likely to get will encompass such things as ‘fairness’, ‘impartiality’, ‘being just’.  Look further down the entry and you might see something along the lines of “a branch of law that developed alongside the common law and is concerned with fairness and justice”.  You might even see something like “a system of jurisprudence supplementing and serving to modify the rigor of the common law.”

All well and good, but what does that mean when talking about the law of Equity.  At first glance the branch of law that is Equity can seem intimidating – it has its origins in history which makes it appear out-dated and no longer relevant; it comes full of abstract and technical terminology, apparently making it  difficult to access.  Everyone knows what it means to steal something, committing a crime; everyone has an idea what contracts arise.  However, while we might recognise words such as fairness or impartiality, it is often problematic to put these concepts into legal practice.

Equity arose out of historical accident, progressing from the petitioning of the 13th century Lord Chancellor for remedy on the grounds of conscience and fairness outside the strict rules of the Common Law, to the development of the distinct court of Chancery (heavily criticised in Dickens’ Bleak House) and finally to the combination of the common law and equitable jurisdictions into one Supreme Court.  What this means in practice for the litigant is that all judges are able to administer the Common Law or Equity regardless of the forum in which the claim has been brought.   That being said, certain matters are assigned to the Chancery Division (for example claims relating to land, mortgages, administration of estates, probate business, certain intellectual property rights, bankruptcy, partnerships).

So, Equity stands alongside the Common Law, but it remains a body of law in its own right.  The “trust” is perhaps the most easily recognisable and important development of Equity.  It is, perhaps, also the ultimate and blatant example of what is meant by Equity interfering with the strictness of Common Law.  The trust acknowledges that property rights can extend beyond legal title and that ownership can be separated between the legal management and control of the asset and the equitable right to benefit and use that asset.  However, beyond the recognisable consideration of the use of trusts in the context of private tax planning, family property and wealth, Equity and the trust can (and does) provide legal solutions not only in the context of family disputes, but also in the commercial arenas of conveyancing, investments, fiduciary relationships, market transactions, insolvency and charities to mention a few.

Additionally, in contrast to the strict rigours of the Common Law, and in mitigation against the apparent harshness of the Common Law, Equity has an on-going ability to develop and change.  It is this flexibility that enables Equity to respond more readily to social needs.  Given the breadth of its scope and the potential assistance it might offer the litigator in person, it is something which does need to be understood if it is to be used to its fullest potential.

However, while Equity may have its beginnings in concepts of fairness and justice, it is important to remember that Equity is not a court of good conscience or morality, it is a court of law.  Equity has its own body of legal rights and rules; a litigant wishing to claim his/her equitable rights or seeking an equitable remedy cannot just argue “justice demands it”; he/she must show that their claim is supported by the practices and precedents of Equity that have developed over time.  As was stated in the well-known case involving the administration of Farepak Food and Gifts Ltd, “at the end of the day … claims have to be based in law, not sympathy.”

So, just as with Common Law, equitable rights are exercised and remedies given only by applying well-known principles.  Some aspects of the jurisdiction are strict and technical.  However, unlike Common Law, other areas allow for an exercise of considerable discretion by the courts.  Equity is, therefore, a body of rules which is constantly being developed, moving into new fields of application, but only where the established principles allow.

This may sound like a contradiction – the court being able to exercise its discretion but in accordance with clear, and perhaps, rigid principles.  And that is perhaps the challenge of Equity, understanding the relationship between the two.

A good place to look to get a clearer idea of how Equity works is to consider some (there are quite a few) of its general principles – called “maxims”:-

Equity will not suffer a wrong to be without a remedy – where it can, Equity will step in and find a remedy when one is not available at Common Law

Equity follows the lawEquity cannot override the Common Law and it cannot ignore statute.  Nor will Equity unnecessarily depart from legal principles

If Equities are equal – the law prevails/the first in time prevailswhere there are two people with competing rights, the one with the legal right will triumph; where two equitable rights go head to head, the right created first will take priority

Equity looks to the substance not formEquity will look beyond what something is called; it will look to see the nature of what was actually undertaken (a spade will still be a spade, even if the manufacturer calls it a fork)

He who seeks Equity must do Equityif you are going to seek remedy in Equity, then be prepared to act fairly towards your opponent if you succeed

He who comes to Equity must come with clean handsif you are going to seek remedy in Equity, then make sure that your own behaviour in relation to you claim is not tainted with illegality or misconduct as Equity will not support you

Delay defeats Equitythis works just like limitation at Common Law; failing to claim your equitable rights within a reasonable time means that Equity will not come to your aid

Statute cannot be used as an instrument of fraudEquity will not deny a claimant his/her rights merely because of a failure to comply with the legal formalities laid down in statute

Where Equity and Common Law conflict, Equity will prevail – where there is a conflict between the two sets of rules in relation to the same matter, it is the rules of Equity that will take precedence

These maxims offer guidance, signposts if you will, as to how Equity might be applied and are starting points for how the court might exercise its discretion.

For the potential litigant, another good way to understand Equity is to consider what remedy Equity could provide as this is perhaps where the court has been (and can be in the future) its most inventive.  Remedies at Common Law arise as of right, but are generally couched in terms of damages, monetary compensation.  Equity, however, supplements this to provide its own remedies, albeit on a discretionary basis, when mere compensation is inadequate in the circumstances.

For instance, specific performance – while at law everyone is free to breach a contractual obligation and become liable for damages if they wish, Equity might compel the performance of that contractual obligation if those damages are inadequate compensation.  Similarly, through the injunction, Equity can order someone to stop doing or compel them to do something, where the awarding of damages to protect an existing right at law would again be an insufficient remedy.   It is Equity which now enables litigants to obtain search orders so as to secure evidence from destruction and/or disposal and freezing orders so as to prevent disposal of assets to circumvent enforcement of a legal judgement.  As a protection against contracts or transactions brought about by mistake (as to facts or law) or tainted by undue influence (whether by improper pressure or the taking of unfair advantage) it is Equity which provides for rescission, where the transaction is made unenforceable at law or for rectification, where documents can be amended to carry out the actual intention of the party or parties.  A fiduciary’s duty to account generally or for unauthorised profit is another remedy arising in Equity.  It is Equity which provides more flexible mechanisms for recovering property derived from misappropriated assets – tracing.  And beyond its use as a means of family provision and wealth protection, it is Equity’s creation, the trust, with its separation of ownership, which has provided the court with a device, the constructive trust, to provide protection to co-habitees in the acquisition of shared property.   Trust and equitable principles have also been applied to aid the safeguarding of customers’ and lenders’ funds in the face of insolvency.

As has been said previously, equitable rights are exercised and remedies given only by applying well-known principles- litigants seeking these rights or remedies must satisfy the established principles.  So when a remedy is sought, litigants will need to consider whether their claim can at a basic level satisfy those fundamental requirements – for instance, the co-habitee seeking to acquire a share in the family home, must evidence both a common intention between parties in relation to that share as well as detrimental reliance on that intention.  And what is sufficient evidence for Equity is also laid down in those established principles.  Similarly a claimant seeking to use equitable tracing to reclaim misappropriated assets must evidence a breach of fiduciary obligations to obtain a remedy.

There may be a remedy available to a litigant in Equity.  However, whether Equity will offer a litigant that remedy will depend on whether that litigant can establish that there has been an unconscionable abuse of common law rights and powers.  Additionally, they will also have to evidence that their claim satisfies the basis requirements of Equity in light of the remedy sought.  It will not be enough merely to argue in Equity for fairness; the litigant will need to identify and understand the components needed to underpin their claim.  And, even if the litigant is certain they have met all the requisite criteria, remedies from Equity are at the discretion of the court; there are no guarantees.

That is why we cannot ignore Equity and we need to talk about it and understand it.  This may be just the beginning.

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The information herewith gives general guidance. It should not be regarded or relied upon as a complete or authoritative statement of the law or treated as a substitute for specific legal advice concerning individual situations. For our full legal notice, please visit Help4LiPs homesite.