The Nature and Development of Equity and Trusts - Essay Example

Historically, common law principles operated in a vacuum of inflexible applications of procedural formalities. For example, the only originating process available was by way of writ which could be dismissed by the court at first instance if it contained an error or if it merely offended a single guideline relating to form. In other words an action could be decided notwithstanding the merits of the claim contained in a writ. Eventually citizens were permitted to turn to the king’s Chancellor whom they could petition for justice in situations where the Common Law courts were ineffective. It is important to note here that the common law courts would not entertain writs where damages were not an adequate remedy. Moreover, the Common Law courts did not recognize trusts and as a result did not enforce them. Third parties were also without remedy before the Common Law courts. In 1474, the king’s Chancellor heard his first case and what followed was a rapid development of his case load. The Chancellor was regarded by and large as a legal forum of conscience and a court of last resort. Semple Piggot Rochez notes that ‘To a large extent the law of equity still reflects the approach taken originally by the Chancery, in that, the whole emphasis is generally on fairness, justice and equality. Inevitably, the development of the law of equity through time has resulted in some changes to that approach but on the whole the underlying ethos remains largely unaltered.’1 Over the years that followed, it became apparent that the court of Chancery had no fixed system for the creation and development of precedents and it was difficult for the Chancellor to make binding and consistent decisions. In Gee v Pritchard, a case decided in the court of Chancery, Lord Eldon observed that ’the doctrines of this court ought to be as well settled and made as uniform almost as those of the common law, laying down fixed principles...’2 Lord Eldon also commented on the inconsistencies inherent in the developing court of Chancery and was obviously determined to see some adhesiveness. He said, ‘Nothing would inflict on me greater pain in quitting this place than the recollection that I had done anything to justify the reproach that the equity of this court varies like the length of the Chancellor’s foot.’3 Although for the most part the courts of Chancery and the Common Law courts operated and co-existed without much disparity. But as was to be expected a number of conflicting decisions began to emerge and Earl of Oxford’s Case (1615) the Chancery court implied that where there was a conflict between Common Law and the rules of Equity, Equity would prevail.4 Adhering to this principle the Judicature Act 1873 was implemented.5 The Judicature Act 1873, had the effect of abolishing the old court system replacing them with a single system which had a dual purpose. That purpose was the administration of both principles of equity and common law. ‘The Act created the Supreme Court of Judicature, which consisted of the High Court of Justice, the Crown Court and the Court of Appeal. All the courts were to administer both common law and equity but the Act did provide that, in cases of conflict, the rules of equity were to prevail.’6 The Judicature Act, for all intents and purposes appears to have fused together the administration of Common Law and Equity. This perhaps accounts for the argument that ‘Equity is parasitical upon the common law. More specifically, the invention and evolution of the trust is attributable to the historical and ongoing deficiencies of the common law.’ In 2000, Sir Richard Scott VC went as far as to say, ‘I do not, for my part, think that it matters one jot whether the duty is expressed as a common law duty or as a duty in equity. The result is the same.’7 Be that as it may, there is no getting away from the fact that the trust device is a creature of Equity. The Common Law does not recognize the trust device and understanding the distinction between Common Law and Equity is the key to understanding the trust. The law of Trust itself survives simply because it presupposes a distinction between equitable and legal principles. Unquestionably, legal ownership can be and is distinguished from equitable ownership. Previously, only absolute title was recognized and enforced at Common Law. For obvious reasons, the law of Trust could not and did not have a place at Common Law.8 Sir Nathan Wright attempted to put the principles enshrined in the evolution of the trust in to perspective when he said that ‘equity is no part of the law, but a moral virtue, which qualifies, moderates, and reforms the rigour, hardness and edge of the law, and is a universal truth; it does also assist the law where it is defective and weak ... and defends the law from crafty evasions, delusions, and new subtleties, invented and contrived to evade and delude the common law, whereby such as have undoubted right are made remediless...’ 9 The modern trust takes its origins from the creation of the term ‘use’. In the original Court of Chancery, the term ‘use’ operated to create a gap in legal ownership. For instance, a land owner might settle his property on ‘A’ for a term of years, for the ‘use’ of b until such time as ‘B’ attained the age of 30 at which time, ‘B’ would own the fee simple estate. ‘A’ would be what was originally known as the ‘feoffee’ and ‘B’ became what was known as the ‘feoffer’.10 This was a necessary invention because at common law the ‘feoffer’ would have had no remedy at Common Law. The implementation of the Statute of Uses 1535 codified the vehicle whereby land could be held by one party to the use of another. ‘The express aim of the statute was to limit the scope of the use by providing that the use be ‘executed’. This meant that the legal estate would shift automatically to the beneficiary and the feoffees would disappear from the picture.’11 The Statute of Uses was limited in its scope and range. While the feoffee might have two uses under the statute, one where by he was compelled to perhaps collect the rents and profits of land to the use of the feoffer, he had a duty to hold the same to the use of the feoffer. The Statute of Uses only recognized and enforced the first use. The second use, which became known as the trust was recognized and enforced by the Court of Chancery.12 Over the years the Trust at Equity has evolved with a number of maxims which reflect the moral virtues of equitable principles. ‘The equitable maxims are a set of general principles, which (together with the equitable doctrines) govern the way in which the rules of equity are applied. They illustrate the fact that equity is flexible and responsive to the circumstances of the case.’13 The most affective and meaningful maxim is perhaps the maxim ‘Equity looks to the intent rather than the form’. This maxim reflects the true spirit of the development of equitable principles and is a common theme that runs throughout the application of equitable remedies. The courts have demonstrated a willingness to enforce agreements and obligations notwithstanding the absence of the requisite formalities.14 Following the enactment of the Judicature Act in 1973, both common law and equity have witnessed significant developments. It is also true that developments at Common Law have been influenced by the flexibility of the application of equitable doctrines. But there remains a clear distinction between a right at Common Law and a fight at Equity.15 In Napier and Ettrick (Lord) v. Hunter, the issue for consideration was the nature of the insurance company’s subrogation right. Lord Goff having examined the root of subrogation and its implications both at law and in equity remarked that ‘no doubt our task nowadays is to see the two strands of authority, at law and in equity, moulded into a coherent whole.’16 The connection between equity and common law was exploited in Tinsley v. Milligan. The issue for the court to determine was whether an equitable interest could be adhered to even if an illegality or impropriety occurred in the actual acquisition of that equitable interest. Lord Browne-Wilkinson pointed out that both the legal and equitable interests were historically different, however ‘fusion’ necessitated the application of a single rule setting forth the correct circumstances that court was at liberty to recognize and enforce an equitable interest which was obtained by illegal or improper means. As a result the rule would be the same whether at Common Law or Equity. 17 In another case the close connection between Common Law and Equity is also obvious. In B.I.C.C. plc v. Burndy Corp. [1985] Ch. 232 it was held that set-off was a viable defence and would be available to a defendant even if the plaintiff’s claim was founded in Common Law or Equity.18 The nexus between Common Law and Equity was exploited in the context of the Statute of Limitation in Coulthard v. Disco Mix Club Ltd [2000] 1 W.L.R. 707. In this case it was held that as between a common law claim in fraud and the equitable claim based on an element of dishonesty on the part of a trustee, provided the claims were based on the same facts, there would be no distinction. The court said that ‘it would have been a blot on our jurisprudence if those self-same facts gave rise to a time bar in the common law courts but none in the court of equity.’19 It can be argued that the attitudes that have given rise to the assertion that Equity is parasitical upon the Common Law is attributed to the modern evolution of the doctrines of promissory and proprietary estoppel. These doctrines have been established without having determined whether either of these doctrines are creatures of Equity or the Common Law or perhaps both.20 Be that as it may, the doctrine of proprietary estoppel by its very nature suggests that it originated from Equity. The doctrine of proprietary estoppel functions to create new rights which can only be recognized in Equity. All other estoppels can be said to have their origins in both Common Law or Equity.21 The contemporary role of the trust within the English Legal System has obviously been to protect and enforce the rights of a person who would have other wise been denied protection at Common Law. As a result the trust concept has evolved and developed to such an extent that it has influenced the development of Common Law principles. This influence has caused many to regard equity as parasitical upon the Common Law, when all that has happened is a fusion of sorts. In the words of Lord Diplock, the two systems of law have been merged into one for hundreds of years now. ‘The innate conservatism of English lawyers may have made them slow to recognise that by the Supreme Court of Judicature Act 1873 the two systems of substantive and adjectival law formerly administered by courts of law and Courts of Chancery (as well as those administered by courts of admiralty, probate and matrimonial causes), were fused.’22 That said, there is a limit to the fusion that has taken place between the Common Law and Equity. It is unquestionably true that the Common Law has adopted Equitable principles, but the two arrears of the English Legal System remain distinct. In recent years, there has been a marked trend in British courts to distinguish between Common Law and Equity. There is a return to the familiar conscience-based dictates contained in equitable principles. What is happening in the English Courts is the unambiguous correlation of two systems of law, Common Law and Equity functioning together. This is a natural result of the development of any legal system that is structured around justice and fairness. The Common Law was too rigid to meet the needs of economic activities over the years. Equity was introduced through the King’s Chancellor to meet the challenges that necessarily accompany modernization. Bibliography Baker, P. The Relationship Between Common Law and Equity.(1977) 93 L.Q.R. 529 Barnsley, D G (1983) Rectification, trusts and overriding interests [1983] Conveyancer 361 Coulthard v. Disco Mix Club Ltd [2000] 1 W.L.R. 707 Crabb v Arun District Council [1976] Ch 179 Earl of Oxford’s Case (1615) 1 Rep Ch 1 Gee v Pritchard (1818) 2 Swan 402 Hudson, Alastair. Equity & Trusts. (2005)Cavendish publishing Limited Judicature Act 1873 Melforth v. Blake [2000] Ch. 86 Milne, P (1997) Proprietary estoppel and the element of unconscionable conduct [1997] Cambridge Law Journal 34 Napier and Ettrick (Lord) v. Hunter [1993] A.C. 713 Battersby, G (1995b) Equitable fraud committed by third parties 15 Legal Studies 35 Rochez, Semple Piggot. THE NATURE AND DEVELOPMENT OF EQUITY AND TRUSTS http://www.spr-law.com/site/lntrust1.pdf Viewed November 27, 2006 Tinsley v. Milligan [1994] 1. A.C. 340 United Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C. 904 Warburton, J (1991) Trusts, common intention, detriment and proprietary estoppel 5 Trust Law International 9 Read More