Equity and Trust - Assignment Example

Equity and trust Summary: The trust is a legal instrument which serves to ensure that proceeds of an e business are fairly and equitable administered. With the passage of the Trustee Act of 20011 which includes expansion of the function of the trustee and enhanced provision for judicial review of cases involving properties administered by a trust, there is increased scope for fairness and equitable treatment for all parties concerned. However, the invention of the Trust cannot in itself, be viewed as the ultimate achievement, since there is a long history of established principles of equity that have been responsible for setting up the ideological framework of the law. Starting from Plato and Aristotle, through Roman Preatorship and further into English Common law and the incorporation of equity, a set of rules and principles have been established by precedent laid out through the dictates of conscience of past adjudicators which have been the guiding principles of law down the ages and have made a much more valuable contribution in the legal arena. Introduction: Irish courts have often adopted an innovative approach to trust law by enabling an aggrieved party to obtain fair recompense through a principle that was described by Lord Denning as “Justice and good conscience” 2 ( ). When the property of one person is held in trust by a third party on behalf of a beneficiary who may be incapable, for one reason or the other to administer it, there are issues of rights and wishes of the owners, which the trustees must strictly adhere to in performing their duties on behalf of the beneficiaries. However, there are also instances when the designated wishes of the owner, as conveyed to the trustee, may in themselves be inequitable to his/her heirs and in rare instances the Courts have stepped in to correct the imbalances on the grounds of fairness. For example in the case of Kelly v Cahill3, a testator had originally designated his estate to be divided in a certain proportion between two separate beneficiaries but later revised his will to include the first beneficiary as the sole heir to his assets. But while arranging for the first beneficiary to be included as the designated person to whom his assets would pass, some property which was included in a separate portfolio was not taken into account. Later, in administering the trust, the trustee approached the Court for direction on whether the second beneficiary was a constructive trustee on behalf of the first beneficiary. The Court held that the second beneficiary was obliged to transfer his interests to the first beneficiary – the decision being geared towards preventing unjust enrichment through the misuse of trusts. The new trust that aims to prevent unjust enrichment was articulated in the case of HKN Invest OY v Incotrade PVT Ltd4, wherein the Court held that this was a special kind of trust that “comes into existence irrespective of the will of the parties and arises by operation of law. The principle is that where a person holds property in circumstances which in equity and good conscience should not be held or enjoyed by another, he will be compelled to hold the property in trust for another.” Therefore, such cases are a boon to parties, especially children and mentally disabled persons for example, who may not be in a position to prevent misuse of their assets and mis-appropriation of their resources by unscrupulous parties. The rationale behind such decisions by judicial authorities has been one purely motivated by considerations of fairness and equity, as described by Lord Denning5. However, the judicial prerogative to make provision for justice where loopholes exist in the law and to ensure that estates are administered in accordance with fairness , is not merely the result of the invention of the trust, it is only a manifestation of a ground work of equity that has been laid for many years. Equity in Ireland: William Blackstone has identified the independence of Ireland from Britain, yet there was general agreement as far as their laws are concerned6. King John deemed that Ireland should be ruled according to the laws of England7, but Irish judges known as Brehons8, administered their own brand of law which has been described as follows: “a rule of right unwritten, but delivered by tradition from one to another, in which oftentimes there appeared great show of equity in determining the right between party and party…”9 Northern Ireland, operating independently of Britain, administered justice through the Dáil Courts, which enacted the Constitution of the Irish Free State Act of 1922. However, in later years, the decisions of the Dáil Courts were held to be void in law10. The laws of Ireland were largely administered on the lines of English common law, so that all the advances in equity that were initiated in English law were also followed in Ireland. But after Ireland was established as a republic in 1948, it framed its own written Constitution and an enhanced Bill of Rights which aimed to provide equal rights to all its citizens. The development of Equity: The term “equity” as used in law and jurisprudence suggests principles of fairness, equality, mercy and judgment. It is also used to connote the bypassing of the law in some instances where matters of conscience, humanity and natural justice are at issue and where judgment has to be given in accordance with the spirit of the law rather than the letter of the law. Therefore equity suggests that the law as established may not be perfect and that the enforcement of rights may fall short of justice, since conflicts could arise between conventional justice and justice according to conscience. Plato established the basis of equity in an unwritten divine law, which a legislator is morally bound to uphold. Plato defines this as the “law of our forefathers” which “mankind at large” defines as the “unwritten law” which if judiciously followed in practice, will serve as an effective shield for the statutes that are committed to writing.11 According to Aristotle, it is cases that need to be treated with leniency are candidates for equity, where the cause of action is misfortune, error or human weakness in which case, the intent of the legislator should be examined rather than the letter of the law12. In England, the development of equity came about during the reign of the Normans when the followers of King William organized courts to administer justice according to common law, which was conceived of by the Romans as jus gentium – “the sum of the common ingredients in the customs of the old Italian tribes” 13. These courts exercised their discretion in the interest of fairness and sometimes also modified the law where necessary. When the expansion of common law was stopped in the fourteenth century, the office of the Chancellor was born to continue to uphold the principles of equity in the interpretation of the law, since the Chancellor was generally a cleric. Where common law was deemed to be inadequate, equity could be sought as a remedy in the interest of fairness and justice and in his decisions, the Chancellor was guided by his conscience rather than strict observance of the letter of the law. Thus the essential distinction between civil law and equity can be distinguished as ad personem in the case of equity where the facts of a particular case are taken into consideration and decisions made that sometimes over shot the limits prescribed by civil or common law14. On the other hand, ad rem was the application of the law in the majority of cases where there was no extenuating circumstance that necessitated the consideration of equity. Therefore, from the above, it may be noted that the principles of equity and fairness have been around for a long time. In modern times, the principles of equity were incorporated into the framework of the law, and the need to constantly reform the law through judicial precedents is an indication that the need for equity is being recognized. While the reformation is not necessarily classified on clear moral issues of conscience of the judicial authorities, nevertheless the measures that are being taken to reform the law , it is in fact dictated by equity, in order to become more responsive to the moral demands of society. For example, many of the reforms which are designated as secular or democratic measures - such as protecting victims of fraud, enforcing the rights of married women, avoiding the technicality of the law in the interest of upholding the intent of the law which seeks to be responsive to the moral core of society – are all in fact, the framework of equity that has been laid out over the centuries to enforce a measure of equality, fairness and justice, even when such provision does not specifically exist within the written form of the law.15 In fact, it is the principles of moral discretion and the need for responsiveness to the issues of equality and fairness that have elevated the status of Trust law. But the foundation for these cases have been laid by cases such as those detailed below. The legacy of equity in Ireland: Ireland has a time tested legacy of attempting to enforce equity into its judicial decisions based upon moral conscience, based upon the “unwritten” or divine law, which has prevailed since the time of the Brehons. In fact, those who have tried to justify equity on the basis of natural rights which are not dependent upon a belief in God, have not succeeded. For example, J.M.Finnis proposes a theory of practical reasonableness, whereby people grasp the thing what is good and which needs to be pursued as well as being good in itself16. However, this argument cannot be applied to trust law, since it is the same elements of fairness and equity dictated by conscience that underlie the decisions that seek to make the law equitable even to weaker parties. In issues involving property law, the application of principles of equity have ensured that the cause of justice and fairness is served, even where there was no issue of trust establishment to resolve the rights of the parties involved in a property dispute. For example, in the case of the First National Building Society v Eamonn Ring and Adrienne Ring17, the second defendant – the wife of the first defendant, was in a position where she would have been rendered homeless and in difficulty if the Court had ordered for sale of the mortgaged premises. Since she was an innocent party in the suit while her husband was in hospital, the Court ordered against the sale of the property and dispossession from the second defendant. Similarly in the case of Pesca Valentia v The ministry for Fisheries and Forestry, Ireland and the Attorney General18, the decision of the Court was such that it was able to take into account the rights of the Plaintiff while simultaneously acknowledging the need to uphold the rights of the defendants to take action according to the provisions of the law. It is this issue of discretion that must be applied on a case by case basis that arises time and again in the judgment of the Courts, where strict application of the law may sometimes have to be modified such that the cause of equity is served. For example, the Courts have also defined their function; as follows: “Basically, its jurisdiction exists to ensure that an abuse of the process of the courts does not take place. So, if the proceedings are frivolous or vexatious they will be stayed”19. In the case of Ennis v Butterfly20, the claim of the plaintiff for breach of a cohabitation contract was disallowed by the Court on the grounds that given the special place of marriage under the Irish constitution, relying upon the decision in in Windeler v. Whitehall21 wherein Millett J stated: “…The courts possess neither a statutory nor an inherent jurisdiction to disturb existing rights of property on the termination of an extramarital relationship, however long established the relationship and however deserving the claimant.” In this case therefore, the courts have exercised its discretion in such a manner that the rights of the individuals are balanced against the common norms of society. Judicial discretion in enforcing the principles of equity may also be noted in cases involving stipulations of time in contracts. When there is a time limit specified in a contract, the Courts have generally been lenient in applying these provisions based upon a reasonable time period whereby a deviation from the time frame stipulated in contracts may be permissible in certain extenuating circumstances22. However, when a purchaser or vendor who are parties to the contract are liable to be affected by the delay, the Courts have held that “…the fact that time had not been declared to be of the essence does not mean that the express date for completion could be supplanted by the courts treating it as a mere target date and, in effect, enabling the defaulting party to insert into the contractual provision some such words as ... or within a reasonable time thereafter”23. According to the Judicature (Ireland) Act24 it is considerations of equity that will determine whether or not stipulations of time in contracts will be viewed leniently or strictly by the Courts. For example in the case of Maye v Morrison,25 Hamilton J stated (at page 19) “Though the plaintiff’s claim herein is a claim at common law for damages of breach of contract…..I must approach this case….and the stipulation as to time in the contract on the same basis as if it were a claim for equitable relief.” This clearly demonstrates that in the application of the law, it is not the structure of the law or the trust itself that is the deciding factor in ensuring efficacy of equity, rather it is the manner of exercise of the law that will achieve this aim. While the judicial exercise strives to protect the weaker elements of society and ensure fairness in the law, the prime mover in achieving this fairness is in fact based upon abstract concepts such as responsiveness to moral conscience and the exercise of individual discretion by the judges as may be relevant in the particular circumstances of every case. The same discretion has been exercised by the Courts in cases that concern trusts. There is no special advantage that has accrued to the cause of equity merely through the formal construction of the trust. While the intent of formulation of trusts may be to enhance the efficacy of equity, it is in the manner of implementation that trust law can truly achieve this goal. For example in the case of Kelly v Cahill26, a strict adherence to the structure of the trust that was constructed at first, would have mandated a distribution of the estate to the second defendant as well. However, in the circumstances of the case where the testator had changed his will and his intent was clear to the trustee and the Courts, justice and fairness could be ensured only by the mode of the constructive trust. The Succession Act of 1965 in Ireland is often invoked where descendants of a deceased person have disputes in reference to the apportionment of property and in the interpretation of the terms and conditions that are specified in the trust. For example in the case of Thomas N. O’Byrne v Michael Davoren and Anne Coughlan,27 three questions were raised about the trust in question, of which one of them was whether the bequest failed for uncertainty, which was answered in the positive. This raises the issue of tests to be applied to determine the validity of an imperative trust vis a vis the discretionary trust, which were held to be the same in the House of Lords Decision in the case of In Re Baden’s Deed Trusts28, therefore a trust was to be held valid if it could be said with certainty that a particular individual was or was not a member of the class of people identified as beneficiaries in the trust in question. Budd J, in the case of Kilroy v. Parker29 said (at page 318) “….an imperative trust for the division of income between such members of the class as the trustees may select is invalid unless the whole class of potential beneficiaries can be ascertained.” He went on further to elucidate the role of the judiciary; “Where it is possible to give a meaning, we should give it, that the will of the testator may be operative; and where two or more meanings are presented for consideration, we must be well assured that there is no sort of argument in favour of one view rather than another, before we reject the whole.”30 This further illustrates the fact that there is an element of abstract responsiveness and interpretation that is required to ensure equity. While the Judge’s role is supervisory and prohibitive and he is required to provide the analysis and interpretation that will be deemed to be fair and equitable in every case, which sometimes cannot be determined solely from the structure of the trust in question. Section 117 of the Succession Act of 1965 also allows a wide range of discretion to the Courts in approaching the application of trust and the individual structure of the trust in order to determine the rights of children to a share in the deceased’s property. While the legal rights of the deceased’s spouse’s share are not affected, it is possible for a successor who has not been adequately provided for in a deceased parent’s estate, to approach the Courts for a just and equitable remedy, without affecting the rights of the spouse. The Court’s role is especially important because there is no requirement that a personal representative is obliged to inform a child of his/her rights under Section 117, while a spouse mandatorily receives notification of his/her rights. Hence this Section clearly establishes the discretionary role that is assigned to the judges to assess each individual case and apply the dictates of moral conscience to achieve equality and fairness. Conclusion: The contribution of equity in establishing the fairness and applicability of law to all persons cannot be under-estimated. In the case of trusts, it is difficult to secure the agreement of all parties which would invalidate the need for the existence of a trust. In ensuring that the needs of all parties are met and that justice is administered on an equitable basis, it may sometimes be necessary for the Courts to even designate new model, constructive trust, irrespective of the will of the party concerned31. Ultimately it is not the trust itself that ensures equity and therefore it cannot occupy the position at the pinnacle of equity. Rather, it is the application of principles of equity that have been in existence for years, conditioned by the individual discretion of judicial elements according to the dictates of their consciences and the values prevailing in society, which are the true foundations upon which equity in law can flourish. References: Blackstone, Sir William. (1765) Commentaries on the Laws of England. Oxford: Clarendon Press., Introduction, Section 4. 4 Inst 358. Edm. Spenser’s State of Ireland, p 1513, edition Hughes. Vaugh 294. 2 Pryn. Rec 85. 7 Rep 23 Plato “The Laws” translation. A. E. Taylor (London, 1934). Allen, Carleton Kemp. “Law in the Making”, 6th ed. (Oxford, 1958). Aristotle The “Art” of Rhetoric, trans. John Henry Freese, Loeb Classical Library (London and Cambridge, Mass., 1926) Maine, Henry. “Ancient Law” (London, 1861), Ch. III. Maitland, F.W. “Equity: A course of lectures.” Mahoney, Conor (2002). “The failings of practical reasonableness: Another look at Finnis” Cork Online Law review, 2004 edition Cases: Kelly v Cahill (2001 IR 56) HKN Invest OY v Incotrade PVT Ltd (in liq.) (1993 3 IR 152) R (Kelly) v Maguire [1923] 2 I.R. 58. First National Building Society v Eamonn Ring and Adrienne Ring, (1992 1 IR 375) Pesca Valentia v The ministry for Fisheries and Forestry, Ireland and the Attorney General, (1985) IESC 2 Buckley L.J. in Goodson v. Grierson [1908] 1 K.B. 761 at 765) Bernadette Ennis v Colm Butterfly (1997) 1 ILRM 28 Windeler v. Whitehall [1990] 2 F.L.R. 505 Hynes v Independent Newspapers Ltd 1980 IR 204 Raineri v Miles (1980) 2 All ER 145 at p 155 Maye v Morrison (High Court, Unreported, February 1980 Thomas N. O’Byrne v Michael Davoren and Anne Coughlan (1994 IEHC 3; 1992 No: 889 SP In Re Baden’s Deed Trusts, [1971] AC. 424 Kilroy v. Parker [1966] I.R. 309 Read More