The Application of the Maxims of Equity in the Context of Trusts - Essay Example

The application of the maxims of equity in the context of trusts Introduction In the book, Equity & Trusts written in 2014 by Alastair Hudson, equity is a primary source of modern law; it has considerably retained the characteristics and features of infusing elements of justice or fairness into the justice system in entirety by the mitigation process of stringent legal rules. Therefore, it appears that if properly understood, maxims of equity constitute aspects for the judicial determination between unconscionable and conscionable conduct (Pearce and Barr, 2015). On the other hand, the trust is an exceptional establishment of the common law, as well as one of its most multipurpose concepts. Under trust, the trustee is a person appointed by law to hold the property on behalf of the beneficiary (Clements and Abass, 2009). In so doing, the trustee is under obligation or submitting to a form of legal obligation mainly referred to as the English law. Moreover, a trustee may be bound by onerous responsibilities, mainly those imposed by the statute, by general principles of equity, or by the trust instrument (Oakley, Parker and Mellows, 2008). What is important is that there are severe costs awaiting trustees, particularly those who neglect their duties or violate the terms and conditions of the trust. Essentially, thus, there must be certainty and clarity when setting up a trust. It is important to be clear that the trustee is bound by the trust and as such, may not make use of the property in his personal capacity (Moffat, Bean and Probert 2009). Likewise, the beneficiary’s rights must be established with clarity and certainty so that they are in a position to enforce the trust in the case the trustee has failed to observe the terms set out. The above-quoted dictum or maxim of His Lordship will form the context for examining how principles of equity are applied in the context of trusts. In maxims of equity and trust, there is no wrong without a remedy. As Moffat (2009) holds, it is the responsibility of the court of law to offer a consideration or remedy for a plaintiff even in the case where none has been provided in the statute book. This is because, as stipulated in the ubi jus ibi remedium, a remedy exists where there is a right (McFarlane, Hopkins and Nield, 2012). Suffice to say, this underlies the entire concept of equity because, until now, the common law courts completely refuse to provide sufficient remedies in certain circumstances. For instance, when it comes to the institution of trust, common law does not wholesomely recognize the beneficiary’s rights, but such rights are recognized under equity (Pettit, 2012). With this, the beneficiary can enforce the right against the trustee and against any third party who has handled the trust property, unless he or she is a bona fide buyer. As Judge Griffith stated: The maxim now means this: It is not necessary that some exact precedent must be found for extending relief in a given situation, if the case be such that under the established law of the land some relief is clearly requisite and a practical remedy consonant with established principles of procedure may be applied, — such a remedy is not to be denied merely because it cannot be found that the remedy was ever before applied in just that manner to that exact state of case. Under the operation of the maxim, modern equity is not authorized to create a substantive right where none such exists in the law of the land, nor to invent a distinctly new procedure to fit the case, beyond or outside of the procedural methods already established. (Griffith, 1950, p. 38).  In short, a remedy is offered only if the effect of action is brought to the court of law within the set time, failure to which there will be no remedy. The doctrine of equity provides that equity follows the law. As Martin (2008) indicates, the doctrines of equity were developed with one intention: to supplement the common law rules, although sometimes they are used to mitigate the principles of common law. They were not developed to override the law lest it would be inconceivable to take advantage of the set laws. In this situation, equity mainly comes in when certain rights are disregarded by the law, although it is not free to reject or accept any provisions of the statute. Equity also follows the law (Bray, 2012). Therefore, the court of equity is considered just as it is entirely bound by a statute just like a court under the common law. As has been observed, justice is the extent or degree to which equity follows the established law. Thus, equity may come in situations where injustice is occasioned by the law. In Uzoma v. Asodike [(2009) LPELR-CA/PH/188/2007], after the material consideration, the appellant received and signed a document with the motive to divest himself of the property’s title in favour of the respondent. The court later established that the form that was signed on was inappropriate. In this case, therefore, the court looked at two things: the substance and the intention to execute the document. According to the court: Equity follows the law. Moreover, it looks not at the form but substance. Equity also interceeds in personam, takes as accomplished that which needs to be accomplished. Hence, the court will hold a party to his bargain in the case where it is made known that the party executed a document, notwithstanding wrongly as Appellant is signifying, by which he has, upon material consideration received, and divested himself of the time of the property in favour of another. (Okechukwu Uzoma V. Victor Asodike, 2009) Where the equities are equal, the law prevails. As Hayton (2008) indicates, this maxim of equity governs the priority of competing or rival interests in property, one being equitable and the other being legal. According to Gardner (2011), if there are interests that are competing in the eyes of the law, normally, the legal interest is favored over the equitable interest. For instance, in Orumwense v. Amu [(2008) Vol. 41 WRN 154)] the appellant with an equitable interest over the property entered into an agreement to purchase the land; however, the respondent as well possessed a permissible right over the same property by not just executing the assignment, but also to obtain consent from the Governor. Whilst giving consideration to the respondent, as he had a legal interest, the judge said: Before obtaining consent from the Governor, the priority was actually in favor of the grant from the appellant as being first in time, however, after the consent from the Governor, which imposed legal title on the respondent, their document had acquired priority. (Orumwense v. Amu 2008) Where the equities are equal, the first in time prevails. According to Hudson (2014), this simply means that in the case of a question of priority arising between competing equitable interests, then the first depending with time is given priority over the other. In Cave v. Cave [(1880) 15 Ch D 639.], the trustee under the marriage settlement was as well a lawyer. The lawyer and a family member falsely used the money in question to buy the freehold, upon which he managed to raise a legal mortgage. This was followed by a several equitable mortgages. Upon discovering the deal, the acquired house only managed to raise less money compared to claims on it, yet the issue was part of the order in which all claimants were to be settled (Fry 1996, para. 4). When making the decision, the judge took many things into consideration. For instance, the first mortgagee occurred without having any notice of the beneficiary’s interest under the marriage settlement, primarily as a bona fide buyer of the legal estate for value without any notice. In this case, the judge held that "Where there is equal equity, the law shall prevail" (Turner 2013). This is because the first mortgagee did not have any notice; there was equal equity between him and the beneficiaries. In the subsequent mortgagees, there were only equitable estates, which, even though they too lacked notice of the rights of beneficiaries, took effect or subject to the prior rights. In this case, the judge applied the equitable maxim: "Where the equities are equal, the first in time shall prevail." In Olumide v. Ajayi (1997), the plaintiff, by being the first to register the deed of conveyance, became the first to have an impartial interest over the property. Whilst in respect of the same property, the defendant as well registered the deed of conveyance, with the full knowledge about the interest of the plaintiff over the property. The court held inter alia that: It is a renowned rule that where equities are equivalent, what prevails is the first one. There is no equity in favor of the defendant in the case at hand, which he can count on to press the former interests that were registered in the plaintiff’s identity. (Olumide v. Ajayi 1997) He who seeks equity must do equity. This means that the complainant wishing to obtain a remedy or an equitable relief must be ready to do what is just and fair towards the individual against whom the complainant is seeking such a remedy or equitable relief. Failure to which equity may not be realized (Atkins 2013). In Cheese v Thomas involving a business deal in which Cheese contributed close to 43,000 pounds towards the 83,000-pound purchase price of a house. Aubrey Thomas, the defendant, had bought the house on the agreement that the plaintiff should occupy it for life, but should revert to the owner in the case of undue influence. However, both parties are supposed to share the loss of the value of the property proportionate with their sum contributed. In 1993, the house was sold for just 55,400 pounds ( Barrister, 1993). Basing on the principle that “He who seeks equity must do equity,” the appellate court dismissed an appeal by the plaintiff, and held that the parties should share the loss between them in similar proportions as they had contributed initially. In Lodge v. National Union Investment Co. Ltd., B borrowed some money from M through mortgaging some securities to him. In the process, it was discovered that M was a moneylender, though not registered. Under the 1990 Moneylenders’ Act in Canada, the contract was unlawful and therefore, void. Eventually, B sued M claiming that he returns the securities. However, the court of law declined to make an order apart from the terms that B needed to repay the money he had received (Ramjohn, 2008). Under sec 19-A of the Contract Act, in Canadian constitution, if any contract becomes voidable and ultimately, the party bound by it violates the agreement; he has to return all the contractual benefits. Equity looks on that as done which ought to be done. As Akkouh and Webb (2011) this maxim mainly lies at the base of equitable doctrines that govern mortgages. Generally, in the process of creating equitable mortgage, there has always been the readiness of the court of law to administer intentions even if not all appropriate legal formalities have not been satisfied. Normally, this maxim only applies in favour of an individual or a person who is actually entitled to execute the contract. In Attorney‐General for Hong Kong v Reid [1993] Charles Warwick Reid a New Zealand national as well as the Hong Kong Deputy Crown Prosecutor entered in a fiduciary association with the government of Hong Kong. Reid took bribes in order to block prosecution of some criminal activities, and utilized some of the money to purchase land in New Zealand (McDonald and Street, 2014). His wife kept some amount and the remaining was given to his lawyer. In this case, the Hong Kong government claimed or argued that the land he had bought was being held on trust for them as he had acquired the money fraudulently. Using the principle, “Equity looks on that as done which ought to be done” the court held that fraudulent money accepted by any person particularly in a position of trust, can actually be traced into any acquired property and is held and maintained on constructive trust for those who are supposed to benefit from it ( Huws, 2014). In this case, the Privy Council strongly advised that the bribe money that was given to Reid and the acquired land thereof was constructively held on trust for the government of Hong Kong. What this means is that Reid and his wife had bought the land, were holding it on trust for the Government of Hong Kong, and needed to return it (Edwards, 2000). Generally, this was considered necessary in order to ensure that people who hold properties on trust cannot befit from any wrongdoings. In addition, had the property been invested wrongly, the fiduciary in violation of trust relations would still be under an obligation to make good the shortage. Apparently, Equity imputes an intention to fulfil an obligation. Equity takes into consideration the vague deeds of involved parties (Baron, 2013). That is, where an individual is under a duty to execute a particular act, and he preforms some work, which is competent of being measured as an act in accomplishment of his duty. For instance, in Sowden v. Sowden, a husband entered into an agreement with the trustee to pay 50,000 pounds as part of marriage settlement to be laid out in acquisition of land in a certain area (Clements and Abass, 2013). The trustee failed to pay the amount and ended up buying the land in the required area, but in his name. In the end, he died without having settled the agreement. At this point, equity courts held that he bought land as part or in fulfilment of his duty. According to Turner and Bray (2013), where someone owes certain responsibility, and does an act, which may actually not be intended as a way of fulfilling part of that duty, equity will presume the action was indeed intended. He who comes into equity must come with clean hands. According to this maxim, equity demands fairness from both the plaintiff and the defendant. It said, “He that had committed an inequity, shall not expect equity” ( Thiel, 2010). Whilst applying this principle, the law courts hold that the conduct of the plaintiff before going to court was not against conscience. For instance, in Highwaymen case, two armed robbers had entered into a partnership (Virgo, 2012). Because of the disagreement in sharing their loot, one of them filed a suit against another. Although courts of equity do give relief or remedy in case of an association, the case at hand arose from the cause of an action that was illegal in nature. Therefore, the court declined to grant them their offers. In maxim, delay defeats equities. What this maxim means is that “Equity supports the vigilant and not the lethargic” (Watt, 2013). Thus, if one is not careful enough, he is likely to lose his rights. Statutes of limitation bar legal claims, and equitable claims may as well be prevented both by limitation law and by unreasonable delay. In this case, the doctrine of laches, unreasonable delay, is a defence weapon used by the defendant against the accuser. For instance, in a Bombay case, the complainant allowed his property to be used by the defendant. In addition, the complainant agreed with this even past the agreed period of limitation (Davies, Virgo and Burn, 2013). In this case, it was decided that because the limitation period to recover possession had already elapsed, no relief or remedy could be given. In this case, the maxim will not apply either in situations where court cases are governed by statutes of limitation. In such situations, cases fall into some classes including the equitable claims to which the statute applies expressly, by analogy, or covered by normal rules of laches. In conclusion, there are different maxims of equity and each attempt to clarify the relationship between the trustee and the beneficiary. What emerges from the maxims is that when the trustee violates the contractual obligation he suffers the loss. The violation of contractual obligation may include acts such as using the property for the purpose other than the one stated in the agreement. Courts solve the situation through granting equitable relief or remedies to the injured party. The essential thing is that there are severe costs awaiting trustees, particularly those who neglect their duties or violate the terms and conditions of the trust. Essentially, thus, there must be certainty and clarity when setting up a trust. Therefore, it appears that if properly understood, maxims of equity constitute aspects for the judicial determination between unconscionable and conscionable conduct. Bibliography (1993) UKPC, [1994] 1 AC 324] (2009) LPELR-CA/PH/188/2007 Akkouh, T. and Webb, C., 2011. Trusts (2nd ed.). London: Palgrave MacMillan. Atkins, S., 2013. Equity and Trusts. New York: Routledge. Baron, J., 2013. The Financial Times guide to trusts. Harlow: FT Publishing. Barrister, P. 1993. Law Report: Transaction loss shared: Cheese v Thomas - Court of Appeal (Sir Donald Nicholls, Vice-Chancellor, Lord Justice Butler-Sloss and Lord Justice Peter Gibson), 30 July 1993. [Online] Retreived from: http://www.independent.co.uk/news/uk/law-report-transaction-loss-shared-cheese-v-thomas--court-of-appeal-sir-donald-nicholls-vicechancellor-lord-justice-butlersloss-and-lord-justice-peter-gibson-30-july-1993-1464419.html [Accessed 06 February 2015]. Bray, J., 2012. A students guide to equity and trusts. 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