Advantages and Disadvantages of Equity's Flexibility

Equity … will frequently find a way to produce a convenient answer in spite of the technical rules.”

– Alastair Hudson, Equity & Trusts (9th Edition, Routledge, 2016) at p 336

With reference to the above, critically evaluate the principles upon which – despite the maxims to the contrary – equity does in fact sometimes assist volunteers and/or perfect imperfect transactions and assess the advantages and disadvantages of this.

This essay will attempt to discuss whether equity and its flexibility is an advantage over the rigidity of legal certainty, and the dynamic that exists between. “The following ideas come from Aristotle’s Ethics, and could be understood as considering the difference between common law and equity”.[1] “For equity…What causes the difficulty is the fact that equity is just, but not what is legally just: it is a rectification of legal justice”.[2]

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The single idea of conscience is an ideology, which is described as “the part of your mind that tells you whether your actions are right or wrong”.[3] This highlights a confusing part of equity, how do you determine it? Hudson points out the contingency between equity and the law ‘equity is as much a part of the law as the strict legal rules’. It could be said that conscience runs parallel to equity; however, there is arguments to suggest the contrary.

Conscience as a principle has served as a foundation of equity, and has been instrumental in the development of law[4]. An excellent case to illustrates this point is the Earl of Oxford’s Case[5], “…the office of the Chancellor is to correct men’s consciences for frauds… and to soften and mollify the extremity of the law”.[6] This was further supported by Lord Cowper “equity is no part of the law, but a moral virtue, which qualifies, moderates, and reforms… weak in the constitution”.[7] Furthermore, Dudley describes conscience as the basis of equity. Further clarity is provided by Story who stated, “equity therefore does not destroy the law, nor create it, but assist it”.[8] To summarise, the authors agree with the notion that equity is flexible especially when concerning modification of common law. Equity’s personification as the guardian of conscience was supported by the House of Lords Westdeutsche, Lord Browne- Wilkinson, “equity operates on the conscience of the owners of the legal interest”.[9] Thus reaffirming equity’s role as guardian of conscience.

The aforementioned assertion, was supported by Lord Turner in Milroy v Lord[10] who established the rule “for there is no equity in this Court to perfect an imperfect gift”.[11] A conservative example of this maxim is the case of Re Fry[12]. It was also suggested by Jenkins J in the Re Rose[13] that the settlor in this case had not done enough in his power, having said that, “it is difficult to see exactly which element remained outstanding in Fry which similarly had not been completely in Rose”[14]. Garton specifies In Re Frey[15] “there was a possibility that further information may have been sought from the transferor”.[16] Garton subtly points out the decision equity arrived was insufficient, the subsequent implication being that equity does not always provide flexibility. Another supporting perspective is that of Davies and Virgo who highlight cases such as “Milroy v Lord[17] and Re Fry[18] “have sometimes led to harsh and seemingly paradoxical results”.[19] This furthers our understanding on why equity does not always reach a conscionable outcome.

Equity as a means of achieving fairness, can be called into question, the question being does it actually work? As seen in Rose[20], where the directors were inclined to refuse consent. In Rose v. I.R.C [21], the directors had full and uncontrolled authority to determine who should be admitted to be a shareholder of the company.

There are other instances whereby equity hasn’t provided the fairest outcome, in

Re Fry[22] the court of appeal and Romer J. “expressed regret …the rule in Re Rose” [23]

Having said that there has been a steady inclination to perfect imperfect transactions, employing methods such as the ‘every effort’ mechanism[24]  From Rose we understand the circumstances where a transaction may be considered a ‘gift’.[25]

As a means of ensuring equity is achieved, the every effort mechanism acts as the exception to the general rule[26]. A good case to parallel this is Re Fry where the donor had not made every effort [27].

The court of appeal later reaffirmed the principle in Re Rose and even built upon it[28]. It was said: “there can be no comprehensive list ….evaluation of all the considerations”[29]. 

The decision made has been subject to scrutiny, the Court of Appeal “unconscionable for the donor to recall the gift once the donee had agreed to become a director”.[30] This coupled with the notion of uncertainty creates an adverse outcome and does not promote a universal law. The case of Pennington differs to Re Rose in a sense that “Ada had not done everything in her power to perfect the gift… point uncertain”.[31] Having said that Arden J’s decision can be discern as per Haliwell [32] pointing towards a consensus between judges. Garton calls for a reform of the rule in Re Rose, and that Pennington is a good place to start. [33]. Therefore, this may alter perceptions in regards to how equity does not always perfect imperfect transactions, verified specifically by the case of Pennington. Whereby common law was seen to protect formality over consciousness.

This feeds in nicely with the next point, the notion of unconscionsability, first laid down by the Privy Council in Choithram whereby “the trust was perfectly created”[34].There has been however, disapproval from the decision. Haliwell states, “The Court of Appeals analysis of the Choithram case was wrong”.[35] Clarke L.J, further weighed in “the conclusion fell afoul of the principle that the court will not convert an imperfect gift into a declaration of trust” Clarke also dissected the contradictory relationship between maxims i.e. equity will not aid a volunteer and the maxim that it will not strive officiously to defeat a gift.[36] Despite this, the gift was given effect which is what Ada intended to begin with.

There is a rife lack of consensus, this becomes apparent when considering the range of different possible outcomes to the case. Further clarity is provided by Garton indicating “Pennington flies in the face of recent attempts to ensure that unconscionability is controlled by strict principles rather than individual notions of justice”[37], highlighting an area of control thatr equity has over trict legal principles.

The role of equity as guardians of conscience is challenged further in the case of Strong v  Bird[38] which is an exception to the general rule “where there is an intention to make an immediate gift and that intention continues until the death of the donor, then the appointment of the donee as executor perfects the gift”[39]. As Megarry J. said in a rather different context: “Normally the mere existence … To yearn is not to transfer”[40]. However Jenkins L. J. said: “… the principle of Strong v Bird is directed to perfecting gifts … but the mere formality of transfer…”.[41] This statement appears to suggest that the donor does not need to comply with the requisite formalities thus inferring the view mere intention will be sufficient. In terms of assessing equity’s role as guardian of conscience, Jaconelli provides further clarity stating “the evolution of the rule … illustrates how… judge made law is capable … its own internal logic.” The view expressed by Jaconelli infers equity’s flexibility and control over strict legal certainty.

The case of Re Ralli’s[42] provides contrasting views, highlighting how “trust can be … not intended by the settlor”.[43] This differs from “Strong v Bird[44] as there is “no need for a continued intention on the part of the donor”[45], therefore there are doubts whether the Re Ralli’s case is good law as this concept could create too much uncertainty thus restricting equity’s role as guardian of conscience.

There are various Inter vivos property transactions such as Section 53(1)(c)[46] which have contributed to equity’s development within the English legal system. Section 53 (1) (c)[47] highlights “a disposition of an equitable interest … lawfully authorised in writing or by will”.[48] In contrast, secret trusts are held to be flexible and allows changes and future dispositions to be made without changes to the Wills Acts 1837 [49], nor the strict formalities of s 53 (1) (c). Watt provides “the whole theory of the … has nothing to do with the matter”.[50] However, if secret trusts are held to be express trusts, surely such trusts should be in writing and comply by s53 (1) (b) LPA[51]. Ramjon provides clarity stating “Ottaway v Norman 1972 suggests writing is not required  … by the Wills Act 1837”.[52] Thus it is said to be binding without the formalities of the Wills Act demonstrating equity’s flexibility in finding fairness in contrast with the rigidity of common law. 

 There are various equitable rights and remedies that are granted without the need for strict legal formalities, these are available in the absence of a common law remedy. Lord Browne Wilkinson established four principles which derived from Westdeutsche Landesbank Girozentrale v Islington BC.[53] Wilkinson believed “the operation of equity in relation to trust worked on the conscience of the legal owner”.[54] However, one school of thought highlights how “a person can never become a trustee until he knows, or ought to have known, of the facts that give rise to the trust, because, until such time, his conscience must be unaffected”.[55] However, Lord Browne Wilkinson respectfully submitted “he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience”.[56]  In terms of assessing equity’s flexibility, it is vital to address the potential problems Wilkinson failed to highlight. “It leaves the beneficial interest floating in the air till the transferee’s conscience is affected”.[57] Therefore, Wilkinson highlighted the potential problematic areas of equity which may not be considered advantageous over strict legal certainty.

When considering equitable remedies, Watt stated “equity is only concerned to remedy one type of wrongdoing, namely ‘unconscionable’ reliance to common law”.[58] Therefore “equity will not remedy a wrong unless the wrong is recognised as such in law”[59]. In assessing the assertion, perhaps the ‘flexibility’ of equity is restricted by the mere fact common law will always prevail.  This is most readily discussed by Talagala who noted “some judges have departed from strict law and precedent in favour of fairness”.[60] Therefore, there is a question whether common law facilitates fairness, perhaps to a degree equity’s flexibility to cater for fairness.

One notable difference between common law and equitable rights is the concept of trust. According to Wilkie, the “concept of trust has been the vehicle for much creative activity on the part of the courts of equity”.[61] Thus, it has recognized trust when common law had refused to, therefore highlighting equity’s advantage over common law. According to Sir Nathan Write LJ in Lord Dudley and Ward v Lady Dudley; “equity represent a later development of law, …, provides an adequate remedy”[62] reaffirming equity’s flexibility over the common law.

Another equitable remedy without the need for the strict formality is known as rescission. Rescission has been described as “one of the most common and natural occasions for the exercise of equitable jurisdiction”.[63] Rescission is seen to be guiding principle to allow equity to express its flexibility and thus allowing the “courts to be more flexible than former times”[64]. “For equity will relieve wherever it can do what is practically just…before the contract was made”.[65]

 Estoppel is another form of a beneficial interest under a trust without the need for strict legal certainty. Halliwell has rightly quoted “the function of estoppel is to restrain injustice arising from unconscionable conduct”.[66] Therefore, estoppel operates to prevent the assertion of a party’s strict legal rights in circumstances where it would be unconscionable for the party to rely on such rights. Further clarity is provided by Leigh who states “estoppel cannot be subjected to fixed and settled rules of universal application”.[67] Thus conferring estoppel needs to be flexible in order for equity to prosper unlike the strict rigidness of the common law. Sheridan also adds light to the statement stating “there are results from estoppel in equity which do not result from estoppel at common law.”[68] Once again confirming equity’s flexibility over strict legal certainty.

In conclusion, equity’s role as ‘guardian of conscience’ has indeed influenced the common law in many aspects with a number of “detached doctrines one namely the trust”.[69] It has certainly added to the legal system and conscience has proven it can be advantageous over strict legal certainty. This is most notably seen in secret trusts. When assessing the assertion it is wise to consider that “the function of equity … was to fulfil the common law: not so much as to correct it as to perfect it”.[70] Hayton acknowledges equity’s ultimate role was to cater for common law, however, we must be vary equity may sometimes lead to detrimental results such as inconsistency as highlighted in Re Fry. Furthermore, Denning adds clarity stating “every unjust decision is a reproach to the law … equity should be called upon to remedy itself.”[71] Denning reaffirms the view that the flexibility of equity is important within the English legal system. There are various schools of thought, Burrows expresses equity and the common law should run separately in order for the law to develop whereas Atkins reaffirms the view perhaps “the waters of the confluent streams of law and equity have surely mingled”[72] thus indicating equity is now part of the common law.

Bibliography

Websites

• Alastair Hudson, ‘What is Equity’ (www.alastairhudson.com) accessed 18 December 14
• <http://cw.routledge.com/textbooks/9780415497718/podcasts/podcast00.pdf.> accessed 18 December 14
• Chamila S. Talagala, ‘Principle of conscience in the Equity courts’ (Academia) accessed 22 December 14
• <http://www.academia.edu/1762654/Principle_of_Conscience_in_the_Equity_Courts> accessed 22 December 14

Books

• Atkins S, Equity and Trust (1st, Routledge, Oxon 2013)
• Davies P, Virgo G, Equity & Trusts: Text, Cases, and Materials (1st, Oxford University Press, Oxford 2013)
• Duddington J Law Express, Equity and Trust (5th, Pearson Education Limited, London 2015)
• Fridman, G.H.L The Law of Contracts in Canada (1st, Carswell Thomson Professional Publishing, Scarborough, Ontario 1999) 866
• McGhee J, Snell’s Equity (32nd, Sweet and Maxwell, London 2000)
• Moffat G, Trusts Law (5th, Cambridge University Press, Cambridge 2009)
• Maitland F, Chaytor A.H, Whiitaker W J, Equity and the Forms of Actions at Common Law (1st, Cambridge University Press, Cambridge 1932)
• Haley M, Equity and Trust (7th, Sweet and Maxwell, London 2007)
• Haley, M Equity and Trust (9th, Sweet and Maxwell, London 2010)
• Hudson A, Equity And Trusts (8th, Routledge, New York 2015) Hudson A, understanding equity and trust (5th, Routledge, London 2015)
• Hepburn S, Principles of Equity and Trust (2nd, Cavendish Publishing, London e.g. 2005)
• Hornby, A S., Oxford Advanced Learner’s Dictionary of Current English, (7th ed.)Oxford: Oxford University Press, 2005
• Leigh, A, T ‘The Triumph of Equity: Equitable Estoppel in Modern Litigation’ The Review of Litigation 27.3, [2008]
• Story J, ‘Nature of Equity’ in (eds), Commentaries on Equity’s Jurispudence (2nd, Maxwell, London 1839)
• Sheridan L. A, Modern Law Review (1st, Wiley, 1952)
• Ramjohn M Q& A Equity and Trust (5th, e.g. Maxwell, Oxon 2009)
• Wilkie M, Malcolm P and Luxton R, Equity and Trust (8th, Oxford University Press, Oxford 2014)
• Warner Reed E, Equity and Trust (1st, Pearson Education Limited, London 2011)
• Watt G, Trust and Equity (6th, Oxford University Press, Oxford 2014)

Cases

• Choithram (T) International SA v Pagarani [2001] 1 WLR 1; [2001] 2 All ER 491
• Earl of Oxford [1615] 1 CH 21 485 (ER)
• Fry, Re [1946] Ch 312
• Lord Dudley v Lady Dudley (1705) Prec Ch 241, 244
• Lord Dudley v Lady Dudley (1705) Prec Ch 241, 244
• Milroy v Lord (1862) 4De GF & J 264
• Rose, Re [1952] 1 All ER 1221
• Pennington v Waine [2002] EWCA Civ 227
• Ralli’s Will Trusts, Re [1964] 1 Ch 288; [1964] 2 WLR 144
• Rose, Re; Midland Bank Executor and Trustee Co v Rose [1949] Ch 78
• Strong v Bird (1874) LR 18 Eq 315
• Vandervell’s Trusts (No.2), Re [1974] Ch. 269 at 294B-C
• Westdeutsche v Islington London Borough Council [1996] Ac 699

Table of legislation

• Law of Property Act 1925 s 53(1)(c)
• Wills Act 1873 s (9)

Journals

• Burrows, A, ‘Oxford J Legal Studies, We Do This At Common Law But That In Equity’ [March 2002]

• Hayes, D, ‘The development of equity and the “good person” philosophy in common law systems’ [2012] Conveyancer and Property Lawyer

• Halliwell, M, ‘Perfecting Imperfect gifts and trusts: have we reached the end of the Chancellor’s foot?’ [2003], 3

• Garton, J, ‘The role of the trust mechanism in the rule in Re Rose’ [2003] 1, 2

• Law Society Gazette > 1988 > Issue 36, October > Articles > TRUSTS – ‘Purpose trusts’: how close to ‘Quistclose’? – (1988) LS Gaz, 5 Oct, 85 (14

• Jaconelli, J, ‘Conveyancer and Property Lawyer, Problems in the rule in Strong v Bird ‘ [2006]

• William, L (1999) 9 JIBFL 373, 1 October 1999, European Initiatives for On-Line Financial Services Part 2 — Financial Services And The Electronic Commerce Directive, Solicitor1, Journal of International Banking and Financial Law

[1]Alastair Hudson, ‘What is Equity’ (www.alastairhudson.com ) accessed 18 December 14

[2]Ibid

[3]A. S. Hornby, Oxford Advanced Learner’s Dictionary of Current English, (7th ed.)Oxford: Oxford University Press, 2005 at p.322.

[4]Chamila S. Talagala, ‘Principle of conscience in the Equity courts’ (Academia ) accessed 22 December 14

[5]Earl of Oxford [

1615] 1 CH 21 485 (ER)

[6]Ibid

[7] Lord Dudley v Lady Dudley (1705) Prec Ch 241, 244

[8] J Story, ‘Nature of Equity’ in (eds), Commentaries on Equity’s Jurispudence (2nd, Maxwell, London 1839).p 15

[9]Westdeutsche v Islington London Borough Council [1996] Ac 699 at p 705.

[10]Milroy v Lord (1862) 4De GF & J 264

[11] Wilkie, Malcolm and Luxton, Equity and Trust (8th, Oxford University Press, Oxford 2014) 36

[12]Fry, Re [1946] Ch 312

[13]  Rose, Re [1952] 1 All ER 1221

[14] Alastair Hudson, Equity And Trusts (8th, Routledge, New York 2015) p 259

[15]Fry, Re [1946] Ch 312

[16]Jonathan Garton, ‘The role of the trust mechanism in the rule in Re Rose’ [2003] 1, 2

[17] Fry, Re [1946] Ch 312

[18] Ibid.

[19] P Davies, G Virgo, Equity & Trusts: Text, Cases, and Materials (1st, Oxford University Press, Oxford 2013) p152

[20] Rose, Re; Midland Bank Executor and Trustee Co v Rose [1949] Ch 78

[21] Rose, Re; [1952] 1 All ER 1221

[22] Fry, Re [1946] Ch 312

[23] J Garton, ‘The role of the trust mechanism in the rule in Re Rose’ [2003] Conveyancer and Property Lawyer,

[24] Re Rose 1952 Ch 499 (CA)

[25] Wilkie, Malcolm and Luxton, Equity and Trust (8th, Oxford University Press, Oxford 2014) 36

[26] Michael Haley, Equity and Trust (7th, Sweet and Maxwell, London 2007) 37

[27] Michael Haley, Equity and Trust (9th, Sweet and Maxwell, London 2010) 45

[28]Pennington v Waine [2002] EWCA Civ 227

[29] Pennington v Waine [2002] EWCA Civ 227 

[30] Michael Haley, Equity and Trust (7th, Sweet and Maxwell, London 2007) 38

[31] Emma Warner Reed, Equity and Trust (1st, Pearson Education Limited, London 2011) 58

[32] M Halliwell, ‘Perfecting Imperfect gifts and trusts: have we reached the end of the Chancellor’s foot?’ [2003], 3

[33] Jonathan Garton, ‘The role of the trust mechanism in the rule in Re Rose’ [2003], p6

[34] Choithram (T) International SA v Pagarani [2001] 1 WLR 1; [2001] 2 All ER 491

[35] M Halliwell, ‘Perfecting Imperfect gifts and trusts: have we reached the end of the Chancellor’s foot?’ [2003], 6

[36] Ibid

[37] Jonathan Garton, ‘The role of the trust mechanism in the rule in Re Rose’ [2003], p5

[38] Strong v Bird (1874) LR 18 Eq 315

[39] J Duddington, Law Express, Equity and Trust (5th, Pearson Education Limited, London 2015) 76

[40]Vandervell’s Trusts (No.2), Re [1974] Ch. 269 at 294B-C

[41]J Jaconelli, ‘Conveyancer and Property Lawyer, Problems  in the rule in Strong v Bird ‘ [2006]

[42]Ralli’s Will Trusts, Re [1964] 1 Ch 288; [1964] 2 WLR 144

[43]J Duddington, Law Express, Equity and Trust (5th, Pearson Education Limited, London 2015) 75

[44]Strong v Bird (1874) LR 18 Eq 315

[45] Duddington, Law Express, Equity and Trust (5th, Pearson Education Limited, London 2015) 49

[46]Law of Property Act 1925 s 53(1)(c)

[47] Ibid

[48] (1999) 9 JIBFL 373, 1 October 1999, European Initiatives For On-Line Financial Services Part 2 — Financial Services And The Electronic Commerce Directive, William Long, Solicitor1, Journal of International Banking and Financial Law

[49]Wills Act 1873 s 9

[50]G Watt, Trust and Equity (6th, Oxford University Press, Oxford 2014) p176

[51]Law of Property Act 1925 s 53(1)(b)

[52] M Ramjohn, Q& A Equity and Trust (5th, e.g. Maxwell, Oxon 2009) 36

[53] Westdeutsche Landesbank Girozentrale v Islington BC [1996] 2 2 WLR 802 (AC 699)

[54] Wilkie, Malcolm and Luxton, Equity and Trust (8th, Oxford University Press, Oxford 2014) p15

[55] G Watt, Trust and Equity (6th, Oxford University Press, Oxford 2014) p144

[56] P Davies, G Virgo, Equity & Trusts: Text, Cases, and Materials (1st, Oxford University Press, Oxford 2013) p28

[57] G Watt, Trust and Equity (6th, Oxford University Press, Oxford 2014) p145

[58] Ibid p527.

[59] Ibid 527

[60] Chamila S. Talagala, ‘Principle of conscience in the Equity courts’ (Academia ) accessed 28 December 14

[61] Wilkie, Malcolm and Luxton, Equity and Trust (8th, Oxford University Press, Oxford 2014) p16

[62]Lord Dudley v Lady Dudley (1705) Prec Ch 241, 244

[63] Alastair Hudson, Equity And Trusts (8th, Routledge, New York 2015) p 557 

[64] G.H.L. Fridman , The Law of Contracts in Canada (1st, Carswell Thomson Professional Publishing, Scarborough, Ontario 1999) 866,86

[65] J McGhee, Snell’s Equity (30th, Sweet and Maxwell, London 2000) 688

[66] M Halliwell, ‘Perfecting Imperfect gifts and trusts: have we reached the end of the Chancellor’s foot?’ [2003], 3

[67] A T Leigh, ‘The Triumph of Equity: Equitable Estoppel in Modern Litigation’ The Review of Litigation 27.3, [2008] , 377

[68] L. A Sheridan, Modern Law Review (1st, Wiley, 1952) 326

[69] F Maitland, A. H Chaytor, W.J Whiitaker, Equity and the Forms of Actions at Common Law (1st, Cambridge University Press, Cambridge 1932) 22

[70] David Hayton, ‘The development of equity and the “good person” philosophy in common law systems’ [2012] Conveyancer and Property Lawyer

[71] S Atkins, Equity and Trust (1st, Routledge, Oxon 2013) 109

[72] S Hepburn, Principles of Equity and Trust (2nd, Cavendish Publishing, London e.g. 2005) 32