Equity and Trusts Week 1: Introduction

Textbook notes: https://doi-org.sussex.idm.oclc.org/10.1093/he/9780192857170.003.0001

Two fundamental features of equity as a body of law:

- It exists to modify the harshness and rigidity of the Common Law
o Characterised by flexibility
- It is a jurisdiction grounded on fairness, justice and morality
o It was founded on the exercise of the Lord Chancellor’s discretion, by
reference to his conscience
o So many petitions came to the Chancellor that it was necessary to establish a
separate court, known as the Court of Chancery, to deal with them. Later
developed by the judges in the Chancery courts, it was the law developed by
this court that became Equity

It would be fair to assume that Equity would lead to a lack of predictability, rules and
principles. In reality, Equity has become much more rule-based and principled, with
identifiable doctrines being recognised. This is because the Equity jurisdiction was
transferred to judges, whose decisions had value as precedent for future decisions so that,
increasingly, like cases could be treated in the same way. Therefore, Modern Equity is
founded on a framework of principles which purport to provide structure and
predictability, but their application and award of remedies can be tempered by the
exercise of judicial discretion to secure a just and fair result.
Lecture notes

The trust is a creature of equity.

“Equity can be described as the body of rules which evolved from those rules
applied and administered by the Court of Chancery before the Judicature Acts
1873 and 1875” (Hayton & Marshall, p.8)

To understand how Equity law came into being, it is important to start with a
look at The Common Law.

The Common Law and a little history

From “a patchwork of tribal customs” [before the Norman invasion of 1066]

(Hudson) to a system of law that is common to the entire realm [Normans
introduced a new legal system which strove to make the same laws applicable
throughout the land, so to make the law and its application common to the
entire realm.
- Pre-1066, different laws applied in different parts of the country, for any
given crime

“Litigation… was as uncertain as a game of dice”

As early as the end of the 12th century, reference is found in court records to
‘the custom of the Kingdom’, and by the end of the 13th century, the first
permanent Common Law Courts (The Court of Exchequer, the Court of
Common Pleas, and the King’s Bench) began to emerge.

Much like today, an individual wanting to start a claim/court proceedings would

have had to purchase a writ (claim form). The royal writ was to be purchased
from the King’s Chancery, and the writ would describe the cause of action. The
cause of action is what it is that is being complained about, which right has
supposedly been infringed upon. However, unlike today, in which there are a
list of causes of action, such as negligence or occupiers liability, in those days,
the writ was handwritten and bespoke for whatever the problem was.
The problem with the law (and why Equity law came to be)

Bespoke writs
- Inefficient way of dealing with and administering the law as more
individuals began to use the legal system (if everybody could approach
the court with their own handwritten writ unique to their case)
- The courts eventually streamlined the causes of action, such that an
individual claiming a cause of action that wasn’t found on the list, would
not be permitted to have their case heard in court
- The Common Law system was becoming more efficient, but this
newfound efficiency meant that some people weren’t getting access to
the Common Law Court, all because the particular wrong they alleged
wasn’t dealt with by the Common Law list of claims

We’ve seen the brief origins and the development of the Common Law
system, now we see where Equity fits in.

The Lord Chancellor was the ‘keeper of the King’s conscience’ and the keeper
of the King’s seal, giving them the power to issue royal writs on behalf of the
Crown. These were different to the writs that would have been issues by
common law courts, which, as we’ve already discussed, were becoming
problematic (fixed and rigid, inaccessible). So, the Chancellor did not get
involved in the day to day running of the legal system, instead taking interest in
issues which essentially ‘threatened’ the Crown or fell within the King’s
prerogative. In addition, where a legal decision had been taken and was simply
wrong and unjust, the Chancellor, on behalf of the King, would get involved.

So, where justice hadn’t been done properly, or where there had been a failure
of justice, unjust judgements, defaults of justice (etc.), these cases were
considered to be in the King’s prerogative, and the Lord Chancellor as keeper of
the King’s conscience was also concerned about these. However, the
methodology of the Lord Chancellor was not the same as those judges in the
Common Law courts; the L.C, when deciding what the outcome of a case
should be, was not concerned with consistency, working on a case by case
basis.

Naturally, as the number of people failing to get access to, or justice from, the
Common Law Courts grew, so too did the power and authority of the L.C. So, a
new permanent court emerged, the Court of Chancery, or Equity. Justice in this
court was very much dependent on the particular facts of the case, as well as
the particular L.C, who was giving the remedy. It could be that the L.C of the
day was benevolent and took pity on most individuals, or it could be that the
L.C was restrictive and did not dispense justice ad generously. So, while the
flexible approach was helpful to a lot of cases, it also gave way to huge
uncertainty within the legal system, which is far from ideal.

“Equity is a roguish thing – for law, we have a measure… equity is according to

the conscience of him who is Chancellor and as that, is longer or narrower, so is
equity. Tis all one, as if they make the standard for the measure – a
Chancellor’s foot.” (John Seldon, 16th/17th century English jurist, scholar of
England’s ancient laws)

Who owns the land?

The graphic highlights the difference between how the law works and the value
of a legal right as against how equity works and the value of an equitable right.

First you go to the common law, you go to court, you see what happens, and
then, if the legal remedy is inadequate, only then at that point do you ask
equity to assist you with your case
Common law courts vs Equitable courts
Power struggle between the courts came to a head once and for all in the case
of the Earl of Oxford in 1615, in which equity prevailed, and then finally, in
statute in the Judicature Acts of 1873 and 1875
The Lord Chancellor at the time, Lord Ellesmere said, “the office of the
Chancellor is to correct men’s consciences for frauds, breaches of trust, wrongs
and oppressions of what nature so ever they be, and to soften and mollify the
extremity of the law”.
“where equity and law conflict, equity prevails”

Whilst it became clear that the role of equity was not to undermine or change
or alter the common law (it doesn’t affect the law), but to qualify, moderate,
and reform the rigor, hardness, and edge of the law. The very existence of two
different court systems was not ideal. You could have litigants with very similar
facts receiving different judgements depending on which court their case was
heard in. This unsatisfactory and complex situation was resolved in 1873 when
the Lord Chancellor, Lord Selborne, put before Parliemnt the Judicature Act,
enacted in 1875 with some amendments. These acts established a concurrent
jurisdiction which could administer both the common law and equity. So from
1875 onwards, and to this day , any court can administer both a legal and
equitable jurisdiction.

The remedy for a breach of contract is damages, that’s money. If I have a

contract with another person which is then broken/breached, I have a right to
damages.

Imagine I have a contractor with a tradesman who is going to sell me the last
available Ming dynasty vase in the world. In this case, damages (money) could
not satisfy me, and so the legal remedy is not adequate. So I would say to the
court, I want the Ming dynasty vase. The equitable remedy for breach of
contract is specific performance that forces the party in the contract to
specifically perform the thing that they originally promised to do.
Maxims of Equity provide the boundaries within which this equitable discretion
can be exercised in the courts.

Maxims of Equity
- Equity will not suffer a wrong without a remedy
- Equity follows the law
- Where there is equal equity, the law shall prevail
- Where the equities are equal, the first in time shall prevail
- Delay defeats equity
- He who seeks equity must do equity
- He who comes to equity must come with clean hands
- Equality is equity
- Equity looks to the intent rather than to the form
- Equity looks on as done that which ought to be done
- Equity imputes an intention to fulfil an obligation
- Equity acts in personam
- Equity will not permit statute or common law to be used as an engine of
fraud
- Where equity and the law conflict, equity shall prevail
Introduction to Trusts: The settlor, the trustee, and the beneficiary
The trust, quite simply, is a mechanism/device for holding property (money,
shares, jewellery, paintings, real property, land, etc). It is a mechanism for
ownership that importantly splits the legal title form the equitable title.

Gifting somebody your property wouldn’t be a trust, it would be an outright

gift.

Transferring property to a person with power/authority to deal with that

property in a certain way, which might create a power of attorney or a different
type of power (it is not a trust).

Definition of a Trust
“A trust is the relationship which arises wherever a person called the trustee is
compelled in equity to hold property, whether real or personal and whether by
legal or equitable title, for the benefit of some persons (…who are termed
beneficiaries) or for some object permitted by law, in such a way that the real
benefit of the property accrues, not to the trustee, but to the beneficiaries or
other objects of the trusts…” Sheridan’s Law of Trusts

Essentially, in a Trust, assets are held and managed by one person or people
(trustee(s)) to benefit another person or people (the beneficiary(ies)).

Assets can be held by a trustee to protect, or for the benefit or minors, and the
trust instruments, once created, are usually private and will remain confidential
between trustees and the beneficiaries.
- Trusts can be used, for example, in place of a will so all the assets can be
transferred to a trustee by the asset holder (settlor) in their lifetime. On
the death of that person, the trustee is obliged to distribute the property
in the way that they have promised to do, and according to the trust
instrument. This would avoid probate (the official proving of a will), even
if the person didn’t have a will
Although there are 3 roles here, it is important to note that this does not mean
there are necessarily 3 people involved. Two or more of the roles could be
filled by the same person. It is the roles that are different, not necessarily the
people.

Key characteristic of the trust is that it is obligatory. The trustee can be in no

doubt that they are not allowed to act selfishly, they must act selflessly in the
interest of someone else. The person who is transferred the legal title of the
property does not have any choice about whether to fulfil the intentions of the
settlor, they are required and compelled by their conscience to comply with the
terms of the trust instrument.

The Court of Equity/Court of Chancery has the jurisdiction to remove trustees

who are not doing their job properly and to appoint new trustees to stick up
for the right of the beneficiaries.

The rights of the beneficiary then are the strongest rights anyone could have in
property. They can follow and trace their trust property into the hands of third
parties. They can deal with that property because they are the people with the
benefit. The beneficiary is entitled, under the rule in the case of [Re Bowden,
Saunders v Vautier), to direct the trustees to terminate the trust and to transfer
the legal title to themselves, as long as they are of full age and sound mind. So,
beneficiaries may demand that the trust be brought to an end.

It is not uncommon, especially in family trusts, for a trustee to be a beneficiary

of the same trust. If a family member is assigned the management of the trust
but you want them to benefit from its assets, this is a common arrangement.
The reasoning behind scenarios like this can vary, from the settlor’s confidence
in the person’s judgement, to wanting to keep the trust’s management within
the family. While it is possible for an individual to take on multiple roles within
a trust, some legal pitfalls may arise as a result, such as potential conflicts of
interest and transparency issues.

Seminar questions

What key differences can be seen between the ‘common law’ and ‘equity’?

Common law follows the legal precedents set by judges over time, while equity
allows for judicial discretion to adapt legal principles to new and unique
situations. The legal precedents set by judges establish general rules for the law
which provide certainty, while equity acts as a check and balance of common
law to ensure fairness within the legal system. The major distinction between
common law and the rules of equity is that common law remedies are available
as a given right, while remedies in equity are discretionary.

In personum

How and where do the maxims of equity fit in?

The maxims of equity serve as guiding principles for judges in applying

equitable remedies and ensuring fairness in the legal system. They help
balance the rigid rules of common law with the flexibility and discretion of
equity to achieve just outcomes in individual cases. Maxims of Equity provide
the boundaries within which this equitable discretion can be exercised in the
courts.

What is a trust – how did trusts develop historically?

“A trust is the relationship which arises wherever a person called the trustee is
compelled in equity to hold property, whether real or personal and whether by
legal or equitable title, for the benefit of some persons (…who are termed
beneficiaries) or for some object permitted by law, in such a way that the real
benefit of the property accrues, not to the trustee, but to the beneficiaries or
other objects of the trusts…” Sheridan’s Law of Trusts
 - Essentially, in a Trust, assets are held and managed by one person or
people (trustee(s)) to benefit another person or people (the
beneficiary(ies)).

Trusts developed during and following the Crusades, alongside the

development of Equity. Knights would leave their land with trusted
acquaintances to be safeguarded while they were away fighting in the
Crusades, but some would return and find that the people they entrusted
refused to transfer their title deed back. Common law courts would not always
acknowledge that anyone other than the legal title holder had rights to the
property, and so claimants began to petition the King to sidestep the common
law courts. On the King’s behalf, the Lord Chancellor developed a parallel
justice system in the Court of Chancery, commonly referred as equity. During
the reign of Richard II, the Court of Chancery started enforcing trusts to protect
the property rights of knights. It was recognised that in a trust a third party was
obliged to hold and manage the property entrusted to it only for the benefit of
the knight and his family until his return, or to pass it onto a designated son of
the knight upon his death. In common law, under the concept of trusts, it was
thus made possible to split the ownership of the property between the legal
owner of the interest of the property (trustee) and the owner of the interest in
equity (beneficiary). With the certainty of the enforcement of the trust by the
Courts of Chancery, the use of trusts became popular as they provided a series
of protections and privileges not afforded by the common law.

Paul v Constance
(protect assets)