Equity and Trusts

Scott Atkins

• Publisher: Routledge
• Year: 2015
• Print ISBN: 9781138830219
• eBook ISBN: 9781317569831
• Topic: Law
• Subtopic: Estates & Trusts Law
• Index: Law

Equity and Trusts is an ideal choice for all undergraduate and GDL students looking for a comprehensive yet accessible textbook on this complex area of law. The author's clear writing style, plentiful explanations and focus on modern case law demystify difficult concepts and help to bring the subject to life. Equity and Trusts is shown to be a live, growing and developing subject, with an important historical underpinning that ensures students gain a sound grasp of key material and understand both its history and current application.

Clearly written and easy to use, Equity and Trusts enables students to fully engage with the topic and gain a profound understanding of this fundamental area.

The Routledge Spotlights series brings a modern, contemporary approach to the core curriculum for the LLB and GDL which will help students

• Move beyond an understanding of the law

• Refine and develop the key skills of problem-solving, evaluation and critical reasoning which are essential to exam success
• Discover sources and suggestions for taking your study further

By focusing on recent case law and real-world examples, Routledge Spotlights will help you shed light on the law, understand how it operates in practice and gain a unique appreciation of the contemporary context of the subject.

Companion Website

www.routledge.com/cw/spotlights

This book is supported by a range of online resources developed to support your learning, keep you up-to-date and to help you prepare for assessments.

1

Chapter 1

Equity: Its meaning, history and maxims

This chapter deals with the very essence of equity: what it is, how it came about, its development over the centuries and the guiding principles that govern its operation today. This chapter contains the foundations upon which your study of equity will be built, so it is essential that you have a good understanding of its contents.

As You Read

Look out for the following key issues:

• How equity developed over the years, how it became discredited in the nineteenth century but how it escaped the jaws of defeat through the Supreme Court of Judicature Acts 1873 and 1875 to become even more important than ever before;
• What the term ‘equity’ means – how initially it might appear to be a vague concept involving fairness, justice and doing what is right according to good conscience but appreciate how such concepts have solidified over the centuries into principles applied today; and
• What those guiding principles – or ‘maxims’ – of equity entail and how they operate.

1.1 ‘Equity’ – What is it?

The word ‘Equity’ has different meanings to different people. In the wider world, people talk of ‘the equity in their homes’ as meaning the surplus of money that is their own in their houses after the sum borrowed on mortgage from their lender has been repaid. In recessionary times, if the sum borrowed from the lender is more than the actual overall value of the house itself, then there is no surplus or ‘equity’ in the house, thus giving rise to the phrase ‘negative equity’. Another meaning of ‘equity’ would be Equity as the trade union that represents performers and artists.

In this book, however, ‘equity’ is considered in a different light entirely. ‘Equity’ in our sense is derived from the Latin phrase Aequitas Equitas which means fairness or justice. Equity means something that might generally be considered to be positive. It means acting fairly, in good conscience or perhaps doing what would generally be thought of as right. Doing what is ‘equitable’ is commonly understood to mean doing what is fair.

A common misconception amongst people is that the law in general does what is morally right. That is not necessarily the case. The law largely provides functionality to situations ensuring, for instance, that contracts are entered into and upheld or that people are punished after committing a criminal offence. Morality may or may not be part of the law as a whole, but it forms part of equity.

Applying the Law

Take an example of equity’s operation in the real world. There are today two key instances of where equity operates:

(i) The trust; and

(ii) in offering bespoke remedies to the legal system.¹

Suppose you enter into a contract to buy a new house. You then change your mind and decide not to proceed with the purchase itself. The law provides that if you fail to pay for the property under a contract in which you have promised to pay for it, you can be sued by the person to whom you owe money. In our example, this is the house-builder. The common law gives the builder the right to sue you for damages, not because it feels that it is morally right to give him that right but more so because, in general terms, the law should be seen to be enforcing contracts. Contracts are freely made and should be upheld. In practical terms, the builder would sue you for his loss: the difference between what you had agreed to pay for the house and the amount the builder could now get from selling the house to someone else.

The common law gives the builder a remedy. In reality, though, it might not be that useful a remedy to the builder. He is the entirely innocent party. To sue you for damages, he will need to remarket the house and sue you only for the difference between the amount he would have received from you had you proceeded with the purchase and the (lower) amount he actually achieved on another sale after you had pulled out. The builder can only sue you for the main loss he has sustained together with other, subsidiary, consequential losses.

It seems unfair that the builder should have to remarket the property again and wait another period until he can receive his money given that he has done nothing wrong.

In this case, equity may come to the assistance of the builder. Equity can provide another remedy to the builder: that of specific performance.

The equitable remedy of specific performance will mean that the court can compel you to buy the house from the builder. The builder asks the court for an order that you must specifically perform the contract. If such an order is given, then you must go ahead and buy the property.

Arguably, this equitable remedy of specific performance is fairer to the builder. It is probably objectively fairer to the entire situation too since it is right that you are made to go ahead with a contract into which you freely entered.

What this example shows is that:

• The remedy equity provides can give a fairer result than the law;
• Equity is far more flexible than the law and its remedies are capable of tailoring themselves to specific situations. The common law is comparatively inflexible, taking more of a broad brush approach to all situations. Damages in this example will suffice for the builder as, after all, they do give him a remedy. But equity is more akin to a made-to-measure suit than the answer that the law gives, which is more off-the-peg in that it will fit the vast majority of situations before it. Specific performance in our example is a bespoke remedy that is capable of giving the innocent party exactly what they want whilst making sure the defaulting party is no worse off than under the original agreement that they entered into; and
• Equity can be seen to be grafted upon the law. More than this, it takes precedence over the law in certain situations. The remedy the law gives is similar to watching a movie in 3-D without the special glasses on. You will still see the ‘gist’ of the movie but you will not really understand it or see it all. Equity is the equivalent of putting the glasses on. Suddenly a more rounded view is brought into focus. It enables you to see everything clearly and takes into account all the subtleties in the film. It is the same with equity: equity can take into account the subtleties in the case and award an appropriate remedy.

To understand why equity in our context means fairness and why it is capable of providing bespoke remedies, it must be understood how equity developed into such an important legal concept.

1.2 Our civil court system in the twenty-first century

The court system in England and Wales has been shaken up in recent years. The Constitutional Reform Act 2005 created a new Supreme Court for the United Kingdom.²

This new court heard its first case in October 2009 and replaced the House of Lords as the highest appellate court.

Making Connections

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One of the reasons for abolishing the House of Lords (as the forerunner of the Supreme Court) was that not only did its members decide important cases which had reached the highest appellate court but those same Law Lords could also take part in debates that led to the enactment of legislation.³ There was, therefore, a potential conflict of interest between having the same set of people both making the law and deciding on its interpretation. This arguably offended the separation of powers of the legislature and the judiciary.

Although by convention the Law Lords did not take part in political debates in the House of Lords during its law-making processes, they were permitted to speak out on matters if giving their own personal views.

To avoid any possible conflicts of interests of the Law Lords being involved in the law-making process and thereafter potentially hearing a case on the law(s) they had made, the government decided to establish an entirely separate final court of appeal, called the ‘Supreme Court.’ The Law Lords would hear final appeals in that court and no longer take part in debates in the House of Lords.

Below the Supreme Court, the Court of Appeal retains its appellate jurisdiction, hearing civil appeals from the county court and the High Court. These last two are, of course, courts of first instance.

What is important for our purposes, however, is the system of law that the courts currently apply. As seen in the example with the building contract,⁴ the courts apply both law and equity to determine the outcome of cases. Ultimately equity can take precedence over the law. Yet the important point remains that nowadays we have one combined system of ‘law’ in general terms comprising both common law and equity. The courts apply whichever system gives the most appropriate result.

This combined system of the court being able to apply principles of law and equity in order to give the most suitable result is a relatively recent development. In order to understand how the courts have this ability, we need to take a look back at the historical development of equity.

1.3 History of equity

1.3.1 Stepping back in time – the development of the common law

1066. The year, for most people, is significant as being the year in which William of Normandy defeated King Harold at the battle of Hastings. What happened in the years following the battle was the spread of what is known as the ‘common law’.

Explaining the Law

Students traditionally nowadays think of the phrase ‘common law’ as meaning law made by the judges i.e. law which is not made by Parliament.

Originally, however, ‘common law’ meant law which was common across the country. Common law was encouraged by William the Conqueror as a means of ensuring that all the country was subject to the same laws. It was a way of unifying the country and ensuring that control was kept over the country by the monarch.

The development of the court structure through the Middle Ages cannot be set out precisely. It is hard to pin down exactly when each court was set up since ‘court’ is not an easily definabl...

Table of contents

• Cover
• Half title
• Title
• Copyright
• Contents
• Preface to the Second Edition
• Guide to the Spotlights Series
• Guide to the Website
• Table of Cases
• Table of UK Legislation
• Table of Statutory Instruments
• Table of European and International Legislation
• 1 Equity: Its meaning, history and maxims
• 2 Classification of trusts and powers
• 3 Implied trusts
• 4 Trust formation: Capacity and formalities
• 5 Trust formation: The three certainties
• 6 Trust formation: The beneficiary principle
• 7 Constitution of a trust
• 8 Trustees’ appointment and removal; trustees’ fiduciary duties
• 9 Trustees’ non-fiduciary duties and powers
• 10 Variation of a trust; Setting a trust aside
• 11 Secret trusts and half-secret trusts: Mutual wills
• 12 Remedies for breach of trust against trustees
• 13 Tracing; actions against strangers to the trust
• 14 Trusts of the family home
• 15 Charities
• 16 Cy-près
• 17 Equitable remedies; proprietary estoppel
• Index