Two Jurisdictions of Law and Equity

The debate as to whether the two jurisdictions of law and equity have been fused stems from the enactment of the Judicature Act [1] which amalgamated the Chancery and Law courts into one Supreme Court.

The enactment itself demonstrates the two jurisdictions were not fused [2] but rather the vesting in one tribunal of the administration of the jurisdictions in all actions. [3] Traditionally the administration of equity was dealt with in a separate court [4] to that of common law. [5] The law was bound by strict rules of precedents [6] which created injustices and hardship [7] whereas equity’s principles developed according to the Chancellor’s discretion [8] which did not replace the law [9] but assisted it [10] by mitigating the rigors of strict law. [11] The Judicature Act [12] recognised the two sets of principles and reaffirmed the ruling by King James I; where cases of equity and law conflicted, equity was to prevail. [13] Equity was and still is a ‘gloss’ [14] on common law because it acknowledges the law [15] and supplements it where necessary, [16] illustrating they do not mingle. [17] The Supreme Court Act [18] also implies equity and law remain separate bodies by “re-enacting the provisions of the Judicature Act.” [19]

The evolvement of equity gave persons equitable interests as well as legal interests, especially with regards to property [20] and trusts. [21] Legal interests are a right whereas equitable interests are dependent on the distinct set of discretionary rules known as maxims. The maxims are not specific rules of law, but guidelines to be borne in mind when reaching a decision [22] which supports the argument in favour of no fusion. The maxim, equity looks to the intent rather than the form [23] concentrates on what the parties impliedly [24] or expressly [25] intended regardless of the common law legal formalities; coinciding with the maxims: equity follows the law, [26] looks on that as done which ought to be done [27] and will not suffer a wrong to be without a remedy [28] which all corroborate anti-fusion. Equitable maxims only apply to persons seeking equitable relief; therefore equitable remedies cannot be used as a defence, [29] highlighting distinctions. Common law’s only remedy was ordering a defendant to pay a sum of money to the claimant by way of compensation referred to as damages. To solve this problem, equity introduced new remedies, the most notable being: an injunction, which orders a defendant to do or not do something; [30] specific performance, which compels a party to fulfil a previous agreement [31] and promissory estoppel; which prevents a person from going back on a promise which was intended to create legal relations, despite lack of consideration. [32] These equitable remedies met the required needs of a wronged party where damages were inappropriate. [33] Equitable remedies, unlike damages, cannot be claimed as a right; they are completely discretionary and will not be granted if damages are sufficient [34] or hardship bestows the defendant. [35] Equity also acts in personam; [36] meaning it operates on the conscience [37] of the party against whom the relief is sought, as opposed to common law operating in rem; [38] concluding the subject matter of the dispute need not be within the jurisdiction [39] only the person; hence two separate systems. [40]

Prior to the amalgamation of the courts, persons seeking both equitable and common law remedies were obliged to take two separation actions. The problem was partially solved by the Chancery Amendment Act [41] which enabled the Chancery to award damages in lieu of an equitable remedy [42] and the Common Law Procedure Act [43] gave a limited amount of power to the Law Courts to issue equitable remedies. In light of this, and the courts merging it became apparent “judges had the tools to break down historical barriers and mindsets” [44] because the Judicature Act [45] itself also implied fusion had occurred; [46] culminating towards pro-fusion. [47] Respective judges therefore concluded various interpretations of the enactment [48] and these conflicting views are the upshot of different approaches taken. Some judges are of the opinion there is no distinction between law and equity, [49] whilst others steadfastly to the contrary. [50] The debate was heightened when damages were awarded for an equitable claim of breach of confidence [51] because the CAA did not give the Chancery power to award common law damages [52] only equitable compensation. [53] However, the previous misinterpretation of the CAA [54] remains, [55] thus strengthening the fusion fallacy.

Another example of pro-fusion is Tinsley v Milligan [56] which concerned rights to property and the issue of illegality. At common law, persons could acquire rights to property under illegal transactions if they could make their claim without relying on the illegality. [57] Equity however would not tolerate this. [58] It either barred persons [59] or prevented an equitable remedy [60] provided the impropriety was specific to the claim [61] and referred to past conduct only [62] relying on the “unclean hands” maxim that; “no court will lend its aid to a man who founds his cause of action upon an illegal act”. [63] In Tinsley v Milligan, [64] notwithstanding the illegality issue, the court held the defendant had a “right in law to assert her equitable ownership” [65] based on a resulting trust; [66] confirming “the two strands of authority were moulded” [67] and “should be viewed as a consistent whole as there was no logic in making a distinction.” [68] This decision was viewed as merging the “unclean hands” maxim [69] into the common law rule. [70] In contrast, those opposing this view actually agreed with the outcome but on the basis that the resulting trust could not be rebutted [71] because the impropriety occurred after the creation of the trust. Indicating equity relied on the intention rather than the form, [72] safeguarding the “unclean hands” maxim; [73] and reinforcing the two substantive systems of law and equity are not fused. [74] Nonetheless, the opinion that this equitable principle has become fused with the common law rule has been further substantiated [75] enabling the remedy available both at common law and equity. As a consequence some academic writers believe “equitable doctrines should now take their proper place as part of a unified system of judge made law alongside and integrated with common law and statute”; [76] whilst others suggest its time they were fully integrated because it is not only equity that exercises discretion. [77]

It is fair to say that common law also exercises a degree of discretion [78] by applying the “reasonable foreseeability” test. [79] This indicates that the law has “caught up with equity and it is therefore not possible to contrast the two”. [80] However the discretion applied in law is an” objective test” [81] as opposed to the “subjective test” [82] in equity which applies the equitable maxims. The variance in the discretions, preserve that law and equity remain completely and separately unconnected.

Equity’s greatest contribution to law is the “trust” formerly known as the “use”. [83] A trust occurs when a person [84] holds property for the use of another. [85] It created beneficial interests in land [86] which did not exist in common law [87] by splitting rights into legal and equitable interests, which is a prime example of anti-fusion. Legal interests were only recognised and enforced by law providing the appropriate formalities were applied; [88] whereas equity was able to establish new equitable propriety rights in the absence of formalities [89] because it concentrated on the substance of the transaction [90] as opposed to the form. [91] Even though trusts were born from equity, they too are now the subject of legal formalities. [92] Any shortcomings in the formalities, the trust will cease to exist at common law. [93] Nonetheless, and in comparison to the law; equity can imply a trust [94] based on the presumption of the true intentions of the parties, [95] or infer a common intention from the general conduct of the parties; [96] exemplifying law and equity are indeed detached. If fusion had occurred, trusts would be ineffective as they are the tools of ensuring trustees hold property for beneficiaries, [97] which the common law refuses to acknowledge. [98] In essence trustees would be the absolute owner generating injustices and hardship; the very reason why equity came into existence. The trust is “equity’s most significant feature and is primarily about money and the preservation of wealth;” [99] which was primarily land. As society evolved so too did the trust, to incorporate the preservation of wealth in any form; which has had a great influence in the development of mortgages. [100]

Common law treated mortgages like contracts; hence any failure to discharge the loan by a specified date would result in the mortgaged property being forfeited to the lender under the common law “doctrine of forfeiture” [101] despite the borrower still being liable for the debt. The doctrine “equity of redemption” softened the harshness of the law by restricting the use of forfeiture and limiting the lender’s rights to the loan and interest only. [102] This enabled the borrower to keep the property even though the contractual date for repayment had lapsed, providing the loan and interest were repaid. [103] Unfortunately it has been criticised [104] that the equitable duties of mortgagees have been fused with the common law duty of care [105] but this fallacy was put to bed [106] and reiterated [107] extinguishing this fusion argument.

Another area of controversy is that equity will not perfect an imperfect gift, [108] nor will it come to the aid of a volunteer; [109] unless the donor does everything in their power to complete the transfer. [110] There are other exceptions [111] but the controversy arose where a gift was rendered perfect, contradicting the Re: Rose [112] exception [113] based on the fact that; “although equity would not assist a volunteer, [114] it would not strive to officiously defeat it” [115] because, it is “better viewed as a complete gift without waiting for registration of the transfer. [116] It can be argued that these decisions illustrate the courts have departed from the said equitable principles; [117] but in hindsight it is just another exception to the rule “that equity will not assist a volunteer, unless it is unconscionable not to do so.” [118] Realistically, equity has veneered an alternative method to fulfil its purpose. [119] This concurs that equity is “not past the age of childbearing;” [120] and can create new concepts in law [121] or resurrect old ones, [122] further supporting the anti-fusion argument.

As previously mentioned, [123] most theories for fusion derive from academics [124] “who call on lawyers to take fusion seriously”. [125] The jurisdiction of New Zealand are of the opinion that equity and common law are merged, believing “the law imposes a duty to provide a full range of remedies as appropriate, no matter whether they originated in common law, equity or statute.“ [126] Even, “Australia’s judicial legal historian [127] is of the opinion that the law is now a single composite body;” [128] but the majority view of judges in Harris [129] believe “it may take time before the waters of two confluent streams are thoroughly intermixed; therefore equity remains a distinct form of authority”. [130] The fusion fallacy also stems from judges integrating the use of remedies [131] to ensure justice is done. [132] There is no doubt that both law and equity work side by side and even complement one another [133] but they remain separate entities. [134]

The separate divisions of the High Court reiterate that law and equity remain separate entities. The Chancery deals primarily with matters involving equitable rights and remedies, whereas the Queen’s Bench deals primarily with matters involving rights and remedies at common law; [135] ratifying the Judicature Act, [136] which was intended to “achieve procedural improvements in the administration of the law and equity, not to transform equitable interests into legal titles or to sweep away the rules of common law. [137] The equitable defence of “Laches” [138] is another pivotal example of anti-fusion. Prior to any proceedings, the courts will ascertain when the breached occurred. Any delay in bringing an action will fail [139] due to the strict time limits in place. [140] The statutory provisions did not apply to equitable claims, [141] therefore equity followed the law; hence “Latches;” [142] enabling a defendant to rely on the doctrine if a claimant unreasonably delays bringing an action. [143]

In conclusion, there are illustrations of fusion occurring [144] however it does not mean it has come to fruition. [145] The courts have recently reverted back to the old equitable principle of “unconscionability” [146] despite it contradicting other principles. [147] This in itself emphasis the fact that equity stands alone from common law and the principle of proprietary estoppel is yet another prime example that the nature of equity is completely separate to common law. [148]

After much research, the author of this thesis is of the opinion that the “role of equity is a mechanism to keep the power of common law in check” [149] based upon the above evidence; and therefore does not agree with the proposition that the two jurisdictions of law and equity have been fused.

BIBLOGRPAHY

Books:

Snell’s Equity (2005) 31st Ed, McGhee J, Q.C.

Modern Equity (2009) 18th Ed, Martin J, Hanbury & Martin.

The Law of Trusts and Equitable Obligations (1993) 4th Ed, Pearce R, Stevens J.

Essentials of Equity and Trust Law (2006), Duddington J.

Equity (2003), Worthing S.

What is Equity About – Butterworths (1970), Everton A.

Equity and Trusts – Texts, Cases and Material (2009) Clements R, Abass A.

Trusts (2006) 2nd Ed, Gary Watt.

Legal Journals:

Mason K. “Fusion: Fallacy, Future of Finished?” (2004) Supreme Court: Lawlink NSW.

Martin J, “Fusion, fallacy and confusion; a comparative study” (1994) Conveyancer and Property Lawyer 13.

Burrows, A. “We do this at Common Law but that in Equity” (2002) OJLS Vo l22. No. 1.

Mason A, “The place of equity and remedies in the contemporary common law world” (1994) LQR 238.

Duggan A.J, “Is