Equitable Remedies in the Australian Legal System - Essay Example

Student’s Name: Grade course: Tutor’s Name: Date: Equity “Equitable remedies seek to prevent or redress harm caused by the breach of equitable and legal principles. Unlike common law remedy of damages, they are not punitive in either nature or intent” Introduction Equitable remedies in the Australian legal system, just as is the case in British law are awarded as settlement to disputes in equity. By their very nature, disputes in equity do not seek monetary damages or relief, hence making common law unable to satisfy adequate remedies to the party seeking relief. Equity courts often rule on such disputes based on community norms, rules of conduct, fairness, principles of equity, and above all, the presiding judge’s conscience (Carper, McKinsey and West 129). In equity cases, the power to decide on the remedy solely rests on the judge. This is so because such suits are not heard by a jury. The judge uses general rules commonly referred to as “Equitable Maxims”, which guide him when considering the facts presented to him and when issuing remedies. The maxims are identified by Latimer as: “Equity acts on conscience; equity aids the vigilant; equity does nothing in vain; equity follows the law; equity never wants a trustee; equity will not assist a volunteer; one who comes into equity must come with clean hands; one who seeks equity must do equity; and where the equities are equal, the first in time prevails” (5). The most common equitable remedies as cited by Carper et al. include specific performance, rescission and injunction (129). Historically, monetary remedies were not awarded in equity cases. This was mainly because money as a remedy was either found to be inadequate, or the offender could not afford the amount of money needed to fully remedy the damages caused to the other party. With the changing times however, Carper et al. note that equity courts are increasingly awarding monetary remedies as relief to the aggrieved party when it is deemed appropriate (129). After a review of the three remedies as stipulated herein, this essay fully agrees with the above assertion and hence declares that equitable remedies are not punitive either in nature or in intent. Rescission Rescission in law is defined as an action seeking to cancel, undo or recall a contract, thus placing the non-breaching parties to the position they were before a transaction occurred (Miller & Jentz 246). According to Hudson, rescission amounts to a complete avoidance or termination of a contract (933). Rescission is usually considered as an equitable remedy if the law finds that one of the parties involved in a contract was a victim of a mistake, fraud, misrepresentation, equitable wrongs such as undue influence or duress (Hudson 933). In law, one party has the right to rescind a contract if indeed it feels that the other party is not performing as agreed in the contract. Before a rescission is made however, the rescinding party has an obligation to give advance notice to the other party. According to Miller and Jentz, rescission as an equitable remedy is often administered together with restitution, in which case parties involved are ordered to make restitution to each other (246). This means that each party gets to return funds, goods or property conferred to them by the other party. In cases where goods or property have already been sold, an estimated worth of the same must be returned in money form. If the case presented before the courts suggests that one party fraudulently misrepresented facts in order to benefit from a contract, a decision to rescind the contract is done by the courts in order to prevent the offender from benefiting from the offence. This usually happens if the courts establish that one party, which was expected to act in good faith failed to do so by failing do disclose some of the information vital for the existence of a contract. According to Mulchahy and Tillotson however, the complainant must prove to the court that the decision to rescind on the contract is sought because the accused had misrepresented facts (114). The 1977 Wandinger v. Lake and others case in Canada serves as an ideal example where rescission was applied successfully. In the case, the complainants were encouraged to purchase a restaurant and a motel having been told that the establishment made $10,000 annually. Upon the completion of the transaction, the complainant realised that the restaurant and motel made significantly much less revenue. Delivering the rescission ruling, the court argued that the complainant had a right to rescind the transaction, in which case he would be restored to his former position since the signing of the contract was motivated by false and fraudulent misrepresentations. Additionally, the court must be satisfied that the complainant sought rescission as soon as they realised that facts had been misrepresented (Smith 285). In cases where the court establishes that the complainant knew of the deception or misrepresentation but continued being part of the contract only to seek remedies later, the court may argue that the complainant affirmed the validity of the contract by his or her continued participation in the same despite the realization that some facts had been misrepresented. In cases where unconscionable bargains were conducted, usually as a result of undue influence, which in turn led to one party entering a contract under induction, then the court can rule that a rescission is the best way to award the unwilling party equitable remedies (Hudson 933). The same case applies to material mistakes made by parties in a contract. This is applicable where both parties have misrepresented the facts or laws guiding contract formation. Gauging the principles guiding rescission as an equitable remedy, it is quite apparent that rescinding a contract is neither intended to be unfair nor punitive. Instead, it is meant to restore parties who were engaged in a voidable contract to their former states before they entered the contract. According to Hudson, rescission is only applicable in voidable contracts, in which case parties involved in the contract must affirm that the contract does indeed exist (934). Further, the law of equity establishes that parties are entitled to the freedom of getting into contracts. However, the law only interferes with this freedom if and when one of the parties in a contract is engaged in unconscionable behaviour that breaches commercial ethics as stipulated in common law. In business law, Soley, Georgehead and Gwin observe that the complainant can petition the court to redraw a contract that is the subject of a rescission order (164). If the court agrees, then a rescission cannot be offered. Instead, a reformation remedy is offered in which case the contract is redrawn in order to reflect the cleared understanding between the two parties. Again, such an action is not punitive but rather meant to prevent continued misrepresentation or fraud, which may end up benefiting one of the parties. Specific Performance Specific performance is defined as “an equitable remedy allowing a buyer to get possession and title to real property and to goods that are unique when the seller refuses to deliver under a valid sales contract” (Carper et al. 129). This means that under remedies of specific performance, the aggrieved party is awarded the promises that breaching party promised in a contract. According to Miller and Jentz, specific performance remedies are usually appealing to aggrieved parties since it provides them with the exact bargain that they would have derived from the contract if the breaching party kept his/her words (246). When such happens, the two parties continue working together as long as the court’s judgement is adhered to. This then means that the aggrieved party does not have to go looking for another contract. More to this, the aggrieved party is able to derive benefits, which he would otherwise be unable to get from monetary remedies. As noted by Miller and Jentz however, specific performance remedies are only awarded by an equity court if monetary damages are not deemed as enough compensation to the cost that the aggrieved party incurred when the breaching party failed to meet their obligations as stipulated in the contract (246). An example where specific performance was issued in Nutbrown v Thomton (1804) as the court declared that damages could not be a sufficient substitute for the defendant’s failure to supply machinery as agreed in an earlier contract. This was especially the case because the agreed machinery could not be obtained from any other supplier. One of the ways through which specific performance retains its non-punitive nature is by requiring the party found guilty of flouting contract obligations to attend specifically to the obligations it flouted and nothing more (Hudson 906). This ensures fairness on both the complainant as well as the defendant. The judgement on whether circumstances brought before an equity court qualify for specific performance remedies is made based on two considerations namely: 1) whether cash damages would be used as sufficient remedies for the non-performed bargain; and 2) whether the equity court would be able to oversee the performance obligation it issues to the defendant. The latter consideration is especially important in matters involving personal skills, where the court considers if indeed it would distinguish between deliberate bad performance, or genuine under par performance by the defendant (Gillies (a) 23; Hudson 908). To further ensure fairness and that no party suffers punishment where retribution is not warranted, Hepburn and Hepburn observe a court can refuse to issue specific performance remedy if an agreement or bargain in the contract is tainted by frivolous behaviour especially where the complainant is the source of questionable actions (120). Injunction This is defined as “an order of a court of equity to someone to do or not do some act” (Carper et al. 129). Hepburn and Hepburn on the other hand define injunction as an equitable remedy that is awarded by a court in order to restrain the disclosure of use of information in a manner that breaches the terms disclosure as stipulated in a contract (113). Overall however, injunctions are a type of equitable relief provided by an equity court by ordering the defendant to undertake some action or refrain from doing a specific thing. The former is known as mandatory injunction, while the latter is known as negative or prohibitive injunction. An example of the latter is the 1852 Lumley v Wagner case, in which the plaintiff had accused the defendant of going against their terms of contract by agreeing to sing for a better paying third party, while still working with the plaintiff in a contract that stipulated that the defendant could not sing in other establishment for the duration of the contract. In the ruling, the court stated that it had no powers to force the defendant to continue singing for the defendant. However, it could prevent her from singing for the better paying third party by issuing her with an injunction. According to Fischer, injunctions are meant to coerce people into complying with identified legal principles, failure to which a person may be held in contempt of court (5). In addition to this, injunctions are sought by complainants when they feel that their legitimate legal positions may be altered by actions taken by the defendant. In such a case, the courts issue a preventative injunction. The courts may also issue an injunction that intends to restore a complainant to a former position he or she occupied before the defendant acted in a wrong manner. In such a case, the court issues a reparative injunction, with the aim to undo the regular effects of the defendant’s wrongful conduction (Blanchard 22; Fischer 5; Gillies (b) 234). In business tort, injunctions are the most common sought-after equitable remedy (Soley, Georgehead & Gwin 255). This is mainly because they prevent further infliction of injury to the complainant. Notably however, whenever tort is involved, injunctive relief can only be temporary and is hence usually sought at the start of a case. In order for the complainant to be awarded an injunctive relief in tort cases, the court usually considers the merits of arguments presented before the court; the nature of the injury (note that irreparable injuries stand a higher chance of being granted injunctions); the effect of preliminary relief on both parties; and public interest (Brophy1- 2; Serving History 1; Soley et al. 257). Observations In Australia’s context, the legal system has its foundation on the Supreme Law (Davis 277l; Latimer & CCH Australia Limited 5). This means that equitable remedies too are guided by the rule of law. Most notably, equitable remedies’ refrain from punitive motives are further enhanced by three aspects in the rule of law, which stipulates that arbitrary power has no place in the law, and all decisions made by judges must be in line with the dictates of the law. In addition, the assertion that no one is superior to the law is also observed when determining equity cases. Finally, the requirement that courts enforce rights on behalf of citizens is also applicable in equity courts (Latimer & CCH Australia Limited 6). By its very nature a breach of contract law does not attract punitive damages unless there is a tort involved (Insite Law Magazine 8). According to Miller and Jentz, the most common remedies awarded to non-beaching parties in equity cases are either compensatory (as is the case with rescission, specific performance and injunctions), consequential, liquidated or nominal damages (251). Consequential damages are awarded to a non-breaching party who incurred other losses beyond the contract, but which must have occurred as a direct result of the breach of contract. Liquidated damages on the other hand are specified in the contract as to guard against breaching of the same by any party. However, should the contract be breached regardless of the inclusion of the liquidation clause, the non-breaching party has the right to earn the damages stated therein. But what exactly are punitive damages? According to Fischer, these are provisions in law that are designed with the sole intent of punishing an offender (6). Cross extends this definition by stating that while such damages are meant to be reproving in nature, they are not compensatory (107). As opposed to compensatory remedies such as rescission, injunctions and specific performance, punitive damages do not seek to restore a complainant to the position he or she was before the wrongful conduct of the defendant. While some scholars such as Fischer argue that compensatory damages have a punitive intent and hence should be labelled as such, a review of the different circumstances where the equitable remedies are issued by courts suggests that the remedies are not meant to be punitive (7). This however does not mean that some people who are forced by a court’s decision to act as stipulated in equitable remedies do not perceive them as chastisement. The non-punitive nature of equitable remedies is perhaps clearly stipulated by Schmertz and Meier, who argue that the power of equity remedies have a clear deterrent aspect rather than a punitive one (1). The authors arrive at this conclusion by explaining that equitable remedies are only offered to the extent which the accused enriched him or herself. Accordingly, his or her probity is not considered. Additionally, equitable remedies are limited to the actual misbegotten properties or profits that the defendant may have gained as a result of fraud or misrepresentations. Conclusion Equitable remedies are meant to appeal to the conscience of the two contending parties without punishing any of them. Punitive remedies on the other hand have little or no regard for the need to balance the interests and rights of the parties involved in a contract. Rather, punitive remedies’ sole intent is to impose a disciplinary burden on the guilty party, meant to deter it from a repeat of offences that may lead to the remedy in future. In most joint ventures in businesses, everything in the involved parties’ relationship is not adequately covered by common law. In most cases therefore, the parties rely on each other’s trust and confidence. In such scenario, each party expects that actions or information offered by the other party will benefit all parties without either of them seeking to advance his or her individual interest at the expense of the other. When such trust or confidence is broken, courts cannot evoke provisions in common law and therefore treat the complaint as being a fiduciary or equitable in nature. As discussed above, there is a distinction between damages and remedies in law. In cases of equitable nature, remedies, which are compensatory in nature, are used in court. However, while some people may think this qualifies as punishment to the defendant, this essay holds the opinion that the equitable remedies do not qualify as punitive especially because they focus on preventing undue enrichment or benefits to the party which broke trust in a business relationship. Works Cited Blanchard, John. California Remedies: Commentary, materials and Problems. New York: Routledge, 1997. Print. Brophy, Snap. “Remedies: Basic principles of Specific Equitable Remedies.” Lecture notes. 2008. Carper, Donald, McKinsey John and West Bill. Understanding the Law. London: Cengage Learning, 2007. Print. Cross, John. Civil procedure: Keyed to Yeazell, Seventh Edition. New Jersey: Aspen Publishers, 2009. Print. Davis, Gary. “The Flowering of Equitable Compensation in Australian Remedial Law: the Underrated Case of Biala PTY. LTD v. Mallina Holdings Ltd.” Loyola of Los Angeles Law Review. 42.271 (2008): 271-292. Fischer, James. Understanding Remedies. New York: Mathew Bender & Co., Inc. 1999. Print. Gillies, Peter (a). Business Law. Leichhardt NSW: Federation Press, 2004. Print. Gillies, Peter (b). Concise Contract Law. Leichhardt NSW: Federation Press, 1988. Print. Hepburn, Samantha J. & Hepburn Samantha. Principles of Equity and Trusts. New York: Routledge, 2001. Print Hudson, Alastair. Equity & Trusts. New York: Routledge, 2005. Print. Insite Law magazine. Contract text. Dec. 2009. 24 Aug. 2010. http://www.insitelawmagazine.com/ch9remedies.htm Latimer, Paul and CCH Australia Limited. 2009 Australian Business Law. Sydney: CCH Australia Limited, 2008. Print. Miller, Roger LeRoy & Jentz Gaylord. Fundamentals of Business Law: Summarised Cases. London: Cengage Learning, 2009. Print Mulcahy, Linda and Tillotson John. Contract Law in Perspective. New York: Routledge, 2004. Print. Schmertz, John and Meier Mike. “Equitable Remedies.” International Law Update. 9.10 (2003):1-5. Serving history. Equitable Remedy. Dec. 2009. 24 Aug. 2010. http://www.servinghistory.com/topics/equitable_remedy Smith, John Wilson. The Equitable remedies of Creditors. Cannon St, Charleston: BiblioBazaar, 2008. Print Soley, David, Georgehead Ann, & Gwin Robert. Business Torts Litigation. New York: American Bar Association, 2005. Print Read More