Introduction to Trusts

What is equity and the origins of equity?

⇒ Equity ‘mitigates the rigour of the common law’ (Earl of Oxford’s Case (1615))

⇒ Equity is underpinned by the notion of conscionability (Westdeustsche Land v Islington

LBC [1996]). Conscionability, in short, means 'fairness'.

⇒ Equity, like the law, depends on precedent and is NOT discretionary i.e. the judges
make decisions based on previous decisions

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Fusion of the two jurisdictions

⇒ Historically, equity and the common law were two separate jurisdictions

⇒ However, they were influential upon each other e.g. the common law courts began to
apply equitable rules and recognise trusts

Winch v Keeley (1787) (1 T.R. 619 at 622-3; 91 E.R. 1284 at 1286) demonstrates
the common law’s increasing recognition of the trust and willingness to enforce and
uphold trusts

⇒ Ultimately, the two jurisdictions were fused together in the Supreme Court of
Judicature Acts in the 19th Century

⇒ If, in any case, there is a conflict between common law and equity, equity shall prevail
(s25(11) of the Supreme Court of Judicature Act 1873)

For example, in the case of Walsh v Lonsdale there was a clash between a failure
to comply with a common law rule as to the proper creation of a lease (which would
made lease unenforceable) and the equitable doctrine of specific performance of
contracts. It was held that the equitable principle of specific performance gave effect
to the agreement to provide a lease. In other words, equity prevailed.

What is Conscionability?
⇒ Conscionability is about holding the defendant up to an objective standard of good
conscience

⇒ Conscionability may be invoked by fraud, dishonesty, misrepresentation, mistake,

breach of duty, breach of trust/confidence, conflict of interest, abuse of position, etc

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 So any of these matters may be examples of the defendant acting unconscionably

Equitable Maxims

These are not binding rules, but guiding principles (Tinsley v Milligan [1993])

Equity will not suffer a wrong to be without a remedy

⇒ Where the common law fails (or damages is inadequate) equity has developed a
number of equitable remedies to address the situation. These include injunctions.

In that sense, equity will not allow a wrong to be committed without there being
some sort of remedy to address it
Thus, equity will intervene in circumstances in which there is no apparent remedy
but where the court is of the view that justice demands that there be some remedy
made available to the complainant (Seddon v Commercial Salt 1925)
E.g. under a trust, a beneficiary has no right at common law to have the terms of the
trust enforced, but the court will nevertheless require the trustee to carry out those
terms to prevent her committing what would be in effect a wrong against that
beneficiary

Equity follows the law

⇒ Equity cannot overrule statute; and equity will not overrule common law unless there is
unconscionability. But, where there is a conflict equity prevails: Supreme Court of
Judicature Acts 1873 s.25(11)

Where there is equal equity, the law shall prevail

⇒ In a situation in which there is no clear distinction to be drawn between parties as to

which of them has the better claim in equity, the common law principle which best fits the
case is applied

⇒ In that sense, where the equitable doctrines produce an equal result, then the common
law prevails

E.g. where 2 people purchase goods from a fraudulent vendor for the same price,
neither of them would have a better claim to the goods in equity. Therefore, the
ordinary common law rules of commercial law would be applied in that context

Where the equities are equal, the first in time shall prevail

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⇒ Where two claimants have equally strong cases, equity will favour the person who
acquired their rights first → so the first in time prevails

Delay defeats equity

⇒ Too much delay will prevent access to an equitable remedy (the equitable doctrine of
laches)

⇒ However, as equity follows the law, the Limitation Act 1980 prevails

So the limitation act will normally apply to time bar actions, but if there is no
limitation then the equitable doctrine of laches will apply

He who seeks equity must do equity

⇒ A Claimant will not receive court’s support unless she has acted fairly herself e.g.
Equity will not favour someone who has committed an illegal act (Nesson v Clarkson
(1845))

He who comes to equity must come with clean hands

⇒ In other words, an applicant for an equitable remedy will not receive that remedy
where he has not acted equitably herself (Jones v Lenthal (1669)

Equality is equity
⇒ Where both parties have an equitable interest, there is a presumption that the interests
are equal, in the absence of reasons otherwise e.g. where there is a trust of a family
home, there will be a presumption that the shares are equal.

Equity looks to the intent rather than to the form

⇒ Equity will look to the intent of the parties, rather than the words used → This has been
used to create a trust where there is clear intention, even if the word 'trust' has not been
used (Paul v Constance [1977])

So you can create a trust if there is intention to do so even if the words used would
not normally be adequate to form a trust
It is a common principle of English law that the courts will seek to look through any
artifice and give effect to the substance of any transaction rather than merely to its
surface appearance (Parkin v Thorold (1852))

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 Equity looks on as done that which ought to have been done

⇒ The Court will consider something has been done if it ought to have been done e.g. in
the case of Walsh v Lonsdale, where a binding contract to grant a lease was deemed to
create an equitable lease, even though the formal requirements had not been observed

Equity imputes an intention to fulfil an obligation

⇒ Where an act is performed, though not expressed as being in fulfilment of an
obligation, equity will hold that the act is in fulfilment of that obligation (rebuttable
presumption)

For example, if a deceased woman had owed a money debt to a man before her
death, and left money to that man in her will, equity would presume that the money
left in the will was left in satisfaction of the debt owed to that man
This presumption could be rebutted by some cogent evidence to the contrary, for
example, that the money legacy had been promised long before the debt arose

Equity acts in personam

⇒ Equity’s jurisdiction always exercised against the person and the judgements bind the
defendant

The guiding principle of conscionability means that only the person whose
conscience is or should be affected is bound
Accordingly, the court's decisions could not be enforceable in rem (i.e. against the
world)
The Court of Equity therefore makes an order, based on the facts of an individual
case, to prevent that particular D from continuing to act unconscionably

⇒ This does not mean it awards purely personal rights (e.g. damages) → equity acting in
personam simply means it is concerned with the conscience of the defendant (Earl of
Oxford case)

⇒ This leads to the rule that equitable decisions are not enforceable against bona fide
purchasers for value without notice as such a person’s conscience is not affected

Equitable remedies
At Common Law, the only remedy was damages, so equity developed other remedies:
Specific Performance; Rescission; Rectification; Injunctions; Freezing Orders (Mareva);
Search Orders (Anton Piller); Account

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 Injunctions
⇒ The Court will give an injunction, on equitable principles, where the balance of
convenience requires.

For example, when the claimant claims that the defendant's product breaches the
claimant's patent, the court may, pending the actual court case to determine the
claim, grant an injunction ordering the defendant to cease selling the disputed
product.

Mareva Orders
⇒ This is an order to freeze assets in a jurisdiction as surety against possible damages.
The aim is to prevent defendants from placing his assets outside the jurisdiction and
beyond the court's reach.

In Mareva Compania Naviera v International Bulk Carriers someone had a claim

against the owners of a ship. The only asset in the jurisdiction, at that time, was the
ship itselg. The plaintiff (i.e. claimant) was concerned because as soon as the
defendant knew he was being sued he would sail the ship out of the jurisdiction. So
the claimant applied tot he court to freeze the asset in the jurisdiction. This was
granted

Anton Piller Orders

⇒ Sometimes described as a civil search warrant (though that is misleading), it is an
order of the court to allow the claimant to enter the defendant's premises and search for
evidence that will support the claimant's case.

⇒ Nowadays, the process is controlled by the court, under an independent solicitor who
is answerable to the court

⇒ An order requires an extremely strong prima facie case that the evidence exists and
that the defendant is likely to destroy it rather than disclose it in civil proceedings.

⇒ They used to be used widely used in cases involving counterfeiting and unlicensed
distribution of media.

Account
⇒ A liability to account is an equitable remedy which may be used if a person has come
into property unconscionably

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⇒ Unlike the compensatory remedies in tort law, a duty to account will hold the defendant
liable not for the loss suffered by the claimant, but for any profit gained. The remedy (i.e.
account) is available even if the claimant has suffered no financial loss (Boardman v
Phipps)

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