Remembering Equity and its Role in Property Relationships

1. Remembering Equity and its Role in Property Relationships Associate Professor Cameron Stewart Division of Law

2. The Blind Men and the Elephant • John Godfrey Saxe

3. The Anglo-Saxon Invasions c500AD

4. The Battle of Hastings 1066

5. Sovereignty Absolute beneficial title Reception of laws Conquering Settling; Cessession Feudalism Norman Reorganisation

6. Curia Regis General Eyre and Assizes Assize of Clarendon 1166 – 12 freemen from the hundred and 4 from the town Henry, Richard Coeur-de-Lion and John Lackland Henry II – the Father of the Common law

7. The Church Courts The benefit of the clergy A’Beckett’s Legacy

8. Parliament begins 1275 The use of statute as opposed to ordinance Nisi Prius Quia Emptores Edward Longshanks Hammer of the Scots

9. Curia Regis – embryonic courts • Court of Exchequer – revenue • Court of Common Pleas – civil actions • Court of King’s bench – crime • Remaining Council functions split into King’s Council later Concilium Regis and then Privy Council

10. The Writ System • Bureacracy • Organisation of wrongs • Remedies • Popularity • Recording • Stare Decisis • Common law

11. What’s the common law meant to do? • Persons & Property • Quick, efficient, fair and effective • Real property – real actions- real relief • Seisin • Remedies – return the seisin, pay monetary damages • Contract and tort

12. What goes wrong?

13. Around since Norman times Keeper of the King’s Conscience Cleric and Keeper of the Great Seal Member of Lords, Judge and Church The Office of the Lord Chancellor

14. Chancery as a Court • Around the 15th century • Function to repair the failings of Common law • Principles of Christian fairness/conscience • Maxims of equity • Substance not form • Does not assist a volunteer • Equity follows the law • Clean hands • Discretion and the Chancellor’s foot • The two streams – law and equity

15. What does Equity do? Parkinson: (i) the exploitation of vulnerability or weakness, as exemplified in principles relating to unconscionable dealing and undue influence; (ii) the abuse of positions of trust or confidence, as exemplified in the law of trusts and fiduciary obligations generally; (iii) the insistence upon rights in circumstances which make such insistence harsh or oppressive as exemplified in relief from penalties and forfeiture, the law of equitable set-off, and the refusal of specific performance on the discretionary ground of hardship; (iv) the inequitable denial of obligations, as exemplified in the doctrine of part performance and the principle of equitable estoppel; (v) the unjust retention of property, as exemplified in certain constructive trusts and principles of subrogation

16. James VI of Scotland The rise of protestantism Absolutism of sovereign – Divine Right of Kings or King-in-parliament? Bacon & Ellesmere: Earl of Oxford’s case The relationship between CL and Eq

17. Earl of Oxford’s case • The Office of the Chancellor is to correct Men’s consciences for Frauds, Breach of Trusts, Wrongs and oppressions, of what Nature soever they be, and to soften and mollify the Extremity of the Law ... [W]hen a Judgment is obtained by Oppression, Wrong and a hard Conscience, the Chancellor will frustrate and set it aside, not for any error or Defect in the Judgment, but for the hard Conscience of the Party.

18. The legalisation of equity • The Civil War – equity nearly destroyed • Lord Nottingham (1673-82)– father of equity • Lord Eldon – (1801-27) modern rules • Precedent and fixation • Appointment of VC • Poor administration • Infamous delay – record 16 years and still interlocutory

19. 19th Century reforms • Bentham and the ‘dog law’ • Judicature Acts 1870s – 1970s • The two streams in one courtWindeyer J in Felton v Mulligan (1971) 124 CLR 367 at 392; [1972] ALR 33 at 46 • Fusion fallacies • Salt v Cooper (1880) 16 ChD 545 at 549, Jessel MR said of the effect of the Act: • It has been sometimes inaccurately called 'the fusion of Law and Equity'; but it was not any fusion, or anything of that kind; it was the vesting in one tribunal the administration of Law and Equity in every cause, action, or dispute which should come before that tribunal. … To carry that out, the Legislature did not create a new jurisdiction, but simply transferred the old jurisdictions of the Courts of Law and Equity to the new tribunal, and then gave directions to the new tribunal as to the mode in which it should administer the combined jurisdictions.

20. Property in CL • Universalized, reified, fetishized – the materialization of the common law • Formality • Creation • Transfer • Rights recognised in contract and tort – breach of contract, trespass, negligence • Remedies for breach of property rights – damages • CL makes orders about the property not the people

21. Property in Eq • Substance • Conscience • Power • Responsibility – lunacy, infants, married woman • Trust and confidence • BUT through the logic of precedent not unfettered discretion • Rights recognised through doctrines of equity – misrepresentation, undue influence, duress, unconscionability, fiduciary relationships, part performance, equitable estoppel, breach of confidence • Remedies – injunctions, specific performance, constructive trusts, personal orders • Equity makes orders about the people not the property

22. Property in Eq • Equitable property or interest (equitable fee simple, mortgages, covenants etc) • Personal Equities (Gill v Gill) • Mere Equities (Latec)

23. Case study 1: When contracts go bad • A (vendor) exchanges contracts with B (purchaser) • A gets a better offer from C (he knows about B’s offer) and completes the sale to C before B knows • Common law approach? Breach and damages – no property held by B • Equitable approach: breach and specific performance • But what about the property interests?

24. Case study 1: When contracts go bad In common law B is not the owner as the contract has not been completed so the property cannot be returned In equity, the rule in Lysaght v Edwards says that B gets an equitable interest from the exchange and that it is a form of constructive trust, which can be enforced against C (when he knows about B)

25. Henry and the purse strings Taxation in Tudor England – feudal tenures Primogeniture Devising land by will The legal remainder rules Case Study 2: Fat Henry and the problem of trusts

26. The use A --------------------------B --------------------C (Landowner) (feoffee to use ) (cestui que use) Legal estate Beneficial estate CL Equitable

27. The Statute of Uses 1535 • Collapse the use • Springing uses • The use on the use • Equity creates property where there was none before……

28. Case study 2: Part performance and the equitable ‘impersonation’ • A Lease for a factory – an agreement to create a deed • Or a mortgage created by deposit of title deeds • Or a promise to give a life interest if cared for in dotage…

29. The requirements for writing 23BAssurances of land to be by deed • No assurance of land shall be valid to pass an interest at law unless made by deed. 23CInstruments required to be in writing • Subject to the provisions of this Act with respect to the creation of interests in land by parol: (a)  no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of law, ….

30. The requirements for writing 54AContracts for sale etc of land to be in writing • No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged… CL says no deal

31. Part performance • Equity looks to substance not form • Was there an agreement? • Did a party act under that agreement and performed an act to their detriment which relates solely to the agreement? • Is the agreement one which a court of equity would order specific performance? • If yes to all then equity creates an interest which is an equitable impersonation or copy of the common law interest being claimed

32. Legal interest v legal interest • When two or more legal interests in the land conflict the main principle is that a person cannot convey an interest which he or she does not have (“nemo dat quod non habet”) • Partial eg where A leases to B – A then sells to C – C ‘s interest is taken subject to the lease • Wholly inconsistent – A sells to B and then sells to C: C receives nothing

33. Equitable interest v equitable interest • General rule : the earlier interest has the better claim, if everyone has acted in good conscience • NOTE: no nemo dat equivalent – equity is a court of conscience – many exceptions to the general principle – first in time principle is a last resort

34. Equitable interest v equitable interest • Who has the best equity? • Heid v Reliance Finance Corporation Ltd – the better equity depends on the circumstances – • look to the conduct of the parties • the question of negligence on the part of the prior claimant • the effect of any representations made by the prior claimant which may give rise to an estoppel • did the conduct of the prior claimant enable such a representation to be made?

35. Equitable interest v equitable interest • Generally: the earlier equitable interest may be postponed to the later interest where: • (a) the conduct of the earlier interest holder has led to the later interest holder acquiring an interest; • (b) in the mistaken belief that the prior interest did not exist • If the equities are equal then first in time

36. Equitable interest v equitable interest EG Able agrees to sell his land to Barb. Able gives the title deeds to barb and signs a receipt for the purchase money even though he has yet to be paid. Barb proceeds to grant an equitable mortgage over the land to Clary. How has the better interest? • Look to the equities: • Able has an equitable lien over the property • Clary has an equitable mortgage

37. Equitable interest v equitable interest • Both the equities are security interests – no real difference between them – However Able’s negligent conduct in giving the title deeds and signing the certificate means that it was his fault that Clary took his interest without notice- Hence Clary’s interest is superior • See Rice v Rice (1853) 61 ER 646

38. Equitable interest v equitable interest • Exception: in the case of land held under a trust the beneficiaries will not lose their priority because of negligent or fraudulent conduct by the trustee • Shropshire Union Railways and Canal Company v The Queen

39. Equitable interest v equitable interest • Exception doesn’t apply unless the trust is properly formed or in cases where the trustee has failed to complete the trust be receiving the trust property • Walker v Linom

40. Mere Equities • Exception: Mere equities – personal right to a remedy – proprietary in nature but less than a full equitable interest • Examples: the right to have a document rectified, right to have a conveyance set aside because of the grantee’s fraud • Latec Investments Ltd v Hotel Terrigal Pty Limited: Terrigal had granted a mortgage to Latec. Latec exercised the power of sale of the mortgage and sold it to a wholly owned subsidiary, Southern – Southern granted a further equitable interest to MLC which had no notice of the Terrigal interest

41. Mere Equities • Terrigal argued that the sale was fraudulent – not at arm’s length – both Southern and Latec had conspired to sell at a low price • What was the priority between the interest held by Terrigal and the interest held by MLC? It was held that Terrigal had a bare right to sue and have the transaction set aside – a mere equity • A prior mere equity will not prevail over a later full-blown equitable interest that was taken without notice

42. Exception: tacking • Exception: tacking – tabula in naufragio – if a later equitable interest holder purchased for value and without notice and is later able to acquire the legal estate then the later interest holder can tack its equity onto the legal estate and jump priority • EG Mortgages – If Able grants a mortgage to Bette then an equitable mortgage to Clary and then another equitable mortgage to Donna – then the order of priority will normally be B, C, D – but if Donna can later buy the land off Bette then Donna equitable interest will be tacked to the legal estate and Clary will come in last

43. Prior legal interest v equitable interest • In cases where there has been no fraud on the part of the legal estate holder the prior legal estate prevails over the later equitable estate • Where the equities are equal the law prevails

44. Prior legal interest v equitable interest • Exceptions: • Where the legal interest holder was a party to the fraud that led to the equitable interest being created Northtern Counties v Whipp • Where the legal interest holder was grossly negligent in failing to inquire after or obtain possession of the title deeds Walker v Linom

45. Prior legal interest v equitable interest • Exceptions: • Where the legal interest holder entrusted the title deeds to an agent with limited authority to raise money by using the property as a security interest, and that agent exceeds authority by borrowing more than was intended – legal interest is bound to the full extent. • Brocklesby v Temperence Permanent Building Society

46. Prior legal interest v equitable interest • Exceptions: • Where the legal holder hands over a title document which is used by a fraudster to create an equitable interest in another who takes on the faith of the document • Barry v Heider

47. Prior equitable interest v legal interest • The legal interest will prevail if it was acquired: 1. by a purchaser: • Anyone who acquire an interest for value (lessee, fee simple owner, mortgagee) 2 for value • Consideration in money – needs to be more than nominal amount but not market valu 3 in good faith • Bona fide – no hint of conspiracy or unclean hands

48. Prior equitable interest v legal interest 4. without notice of the prior equitable interest • Can be actual, constructive or imputed • Actual: knowledge of the actual facts – real knowledge • Constructive: knowledge that would have come into the person’s attention had they made reasonable inquiries eg case of land sold with a tenant in possession – purchaser should have checked the rights of the lessee - constructive notice • Must be able to find the interest – old system title allowed to go back 30 years • CAct s 164 • Imputed: at law you are regarded as having been notified eg where agent is notified by no principle

49. Prior equitable interest v legal interest The rule in Wilkes v Spooner Subsequent purchasers are in the same shoes as the legal estate holder even when the subsequent legal interest has notice or receives via gift

50. Registration Systems • Problems with fraudulent transactions in the early colony • 1800 – order of Governor King that all agreements concerning land be in writing or entered into books kept at Sydney, Parramatta and Hawkesbury • 1802 – Judge Advocate’s office