WHAT IS EQUITY?

INTRODUCTION

Discussing what is good conscience, is just as wide as considering what is law. This is a vast environment of rules through which doctrines and principles are all rooted. The paper begins by attempting to define good conscience. It argues that the "key-stone of the whole arch" is that equity is fairness and good conscience. Therefore in order to answer this question this paper will first critically discuss equity as a parallel system to law. It does this to explain to the reader how equity was developed and how today equity has redeveloped from how it started many hundreds of years ago. This paper will then argue the doctrine of unconscionability or good conscience is what the courts see when considering equity. It will critically highlight some examples of the courts use of unconscionability in law of incomplete gifts. This paper will then question whether the concept of unconscionability, (that we have argued supersedes equity) can be encompassed into one unifying concept? This paper will then go on to provide a conclusion of its findings, followed by a annotated bibliography.

WHAT IS EQUITY?

The philosophical idea of Equity can be traced back to Aristotelian ethics, wherein Aristotle questioned how fixed laws would be able to resolve unknown situations. The theory behind equity is that in order to find justice one must seek to do fairly unto one another and when the law is in conflict with acting equitable then equity should be the first priority. Aristole argued "When the law speaks universally, then, and a case arises on it which is not covered by the universal statement, then it is right, where the legislator fails us and has erred by oversimplicity, to correct the omission-to say what the legislator himself would have said had he been present, and would have put into his law if he had known. Hence the equitable is just, and better than one kind of justice-not better than absolute justice but better than the error that arises from the absoluteness of the statement".[1] Aristotelian equity has been defined more precisely throughout history to come to represent what the equity courts of Britain which deal primarily in recompense for unjust enrichment. "It is well-known that the source of one version of ‘equity’ is the concept of επιεκεια found in Aristotle’s Nichomachean Ethics, where the idea is explained in terms of the difficulty of making general definite rules cover the indefinite range of possible factual situations. ‘Equity’ is then like the lead ruler allegedly invented in ancient Lesbos, which adapts the fixed measurements (the terms of the law) to the irregular stone (the particular situation)."[2] The increasing use of currency in the late 1300s forced contracts and courts to adjust the way that equity was decided in order to transform immeasurable values into monetary awards.[3] Even in disagreements between judicial theorists of the 1600s the focus was still on equity. While Thomas Hobbes believed that judges should have a mostly free hand for finding equity when it is at odds with the law (or no law exists) Jeremy Bentham argued that equity could be found through an amending process for the law. Here we see the split between those who believe there is natural law and utilitarian theorists and shows in the way they believe judges should act.[4] The jurisdiction of equity has expanded over time to include new classes of individuals to protect but ultimately still asks whether the weaker party has full knowledge of the agreement they are entering into.[5] What we can conclude from this is what Snell argues, that the overarching thread through equity is "Equity suffers no wrong without a remedy.”[6]

EQUITY IS A PARALLEL SYSTEM OF LAW

In English law there did at one time exist two parallel systems in the courts, namely the common law courts and the equitable or chancery courts. Whenever a dispute arose it would be allocated to the suitable court dependent on the dispute it concerned. This dual system developed over many hundred years. The general consensus was that the common law courts were not seen to be doing justice. There was a time in legal history where the courts became rigid, very artificial, and the court would follow strict precedents and did not consider the real justice of the given case. It was thought at one time equity was part of a larger framework of jurisprudence centred around who or what had power over an individual's body.[7] Practice emerged of claimants appealing to the Lord Chancellor who acted on behalf of the Crown. The custom that emerged was that the Lord Chancellor could overrule and dispel the decisions of the courts. These two systems of the common law and equity courts were fused over 150 years ago, in 1862. But still you find in English law the legacy of this traditional division – the legacy is that some rules of law are derived from the law dispensed in the common law courts, while other parts of the law derive from the law originally dispensed in the Chancery courts. This is the technical distinction between common law and equity. Today the common law and equity are both dispensed by all courts, and all courts will apply the rules wherever they have been derived. In fact these days the distinction has become blurred and the origin of these laws has ceased to be of any great importance. The significance of this is controversial because we see through writing a debate around whether this distinction should be preserved.[8]

THE ROLE OF CONSCIENCE AND UNCONSCIONABILITY

The foundation of Equity can be reduced to 11 maxims. The goal in all cases is to make sure that no one is wronged without a remedy. Due to the historical construction of equity and it's nature within common law there is no one way to resolve questions of equity, just guidelines for resolving individual conflicts. Snell argues "Each maxim often contains by implication what belongs to another. The cause of this incapability of logical division lies in the history of equity—that it arose not as one harmonious whole, the creation of one mind or one and the same period, but gradually developed in the course of five centuries, out of an idea vague and indefinite at first, to a comprehensive and admirable science."[9] One argument that can be raised is that equity is based on maxims which are lose and flexible concepts. The maxims are discretionary and judges may wish to apply them or not. Thus the shortcoming is that they do not provide certainty in the law, something more is needed. Lord Nottingham, Lord Keeper and Lord Chancellor from 1673 to 1682 are considered the father of modern equity law, developing a more specific interpretation of conscience for purposes of identifying intent as well as the different between public conscience and private conscience.[10] Peter Millett in Article ‘Equity - The Road Ahead’ when describing the relationship of common law and equity remarked: “The common law provides redress for breach of contract, and in order to do justice it may imply terms into existing contracts and even imply the existence of a contract; but Equity’s approach is different. It is called into play, not by breach of contract express or implied, but by unconscionable conduct, and the duties which it enforces are those which it considers to be inherent in the relationship of the parties.”[11] He is indentifying unconscionable conduct as the trigger that will open the equitable determination. The central focus of equity is distinct from common law in that the consent of the weaker party is not the focus of equity law which instead focuses on the powerful party's intention. Peter Millet asserts "The equitable doctrine differs significantly from the common law remedy for economic duress, with which it may be usefully be compared. The common law remedy looks at the means by which the consent of the weaker party was obtained; equity looks to the conduct of the stronger party to see if the transaction is one which he can maintain good conscience."[12] What is certain is the unconscionability concept is at the root of equity judgments and is the provision by which equity supersedes standard judicial decision-making.[13]

EXAMPLES OF UNCONSCIONABILITY

A case in which unconscionability is prominent is in the case of Pennington & Breen v. Waine & others.[14] In this case the courts chose not to give effect the equitable maxim equity will not perfect an imperfect gift. Contrastingly it can be said the courts in this case allowed equity to extend the doctrine that exists to do justice in a case at the cost of certainty. The facts of Pennington are Ada Crampton wished to bestow 400 shares on her nephew, Harold. She wanted to do this because she wanted him to sit as a director on the board, for which he needed to be a shareholder. She told Mr. Pennington, the company auditor, to execute a stock transfer form in respect of the shares, she wished to bestow. Ada told her nephew about the proposed transfer. Mr. Pennington in turn wrote to Harold and enclosed a 288A form and told Harold about the transfer 400 shares to him. Mr Pennington did nothing further and in the meantime Ada passed away. Harold argued even though legal title to the shares was not transferred to him, title in equity of the shares passed to him. Harold approached the courts for recourse and relied on the doctrine in Re Rose[15]. Lord Evershed MR in Re Rose expressed the doctrine as: “…the settlor did everything which, according to the nature of the property comprised in the settlement, was necessary to be done by him in order to transfer the property- the result necessarily negatives the conclusion that, pending registration, the settlor was a trustee of the legal interest for the transferee”. This means if a donor has done everything within their power to vest the legal interest in the shares to the donee, then this will be sufficient effort for the gift to pass. At first instance judge Howarth found in support for the donee Harold. There was no authority that Re Rose applied in such circumstances. What becomes apparent is that the judges are applying equitable principles without really having an understanding of the context in which Re Rose was created. The judge has done the opposite of what the equitable maxim says, equity will not perfect an imperfect gift. Pennington then came before the Court of Appeal on the grounds that trial Judge had erred.

Clarke LJ the minority in the Court of Appeal dismissed the appeal and felt the gift was valid and effective, without the donee having knowledge of the gift. Clarke LJ felt the delivery of share certificate or transfer form was not a precursor to the operation of the doctrine laid down in Re Rose. This view suggests equity will perfect the imperfect gift and transfer is not a prerequisite. The line of reasoning taken by Clarke LJ can be criticized because the decision means a merely completed transfer form will amount to an equitable assignment of shares. This suggests a disposition of legal interest can become satisfied by a valid disposition of the equitable interest. This has the effect of no longer leaving distinction. This is a broad application of Re Rose. This analysis ignores the principle in Milroy v. Lord[16]which laid down three modes of making a voluntary settlement: (i) by transferring property directly to beneficiary, (ii) by transferring property to trustee to hold on trust; and (iii) by the settlor declaring himself the trustee. It is only when one of these methods is used and the gift fails that Re Rose can be employed. It is then you can ask the court to give effect to the gift by allowing assignment of the legal interest as a trust or constructive trust. It is argued the reason Clarke LJ erred in his approach was because he was applying a broad principle, the intricacies of which are hard to understand.

The majority Arden LJJ and Schiemann LJ came to the same conclusion through different analysis. They reasoned that the principle is “the donor will not be permitted to change his or her mind if it would be unconscionable, in the eyes of equity, vis a vis the donee to do so”. This introduced the concept of unconscionability. This concept is used to highlight that it would be unfair and unreasonable for Ada to have changed her mind and revoke the transfer of the shares to Harold. This seems quite artificial, because this is never what Ada intended to do and the courts are using what she has not done (go back on her word) to perfect the gift. Moreover, she would not have been able to go back on her word because she had died. Professor Oakley refers to the addition of unconscionability into the reasoning as a “wholly novel proposition”. He goes on to say “this decision seems to have been based on a complete misunderstanding of the decision of the Privy Council in Choithram v Pagarani” which held where a settlor is also a co-trustee his declaration of trust if not properly constituted remains effectual. The reasoning in Choithram sits in line with both Re Rose and Milroy v. Lord.

UNIFYING THE CONCEPT IN EQUITY

Other areas where unconscionability arises is areas where there is inequality. Examples include undue influence, where there is evidence there has been coercion over the weaker party.[17] Alternatively we can see the presence of unconscionability in the idea of going back on one word, in the development of the common intention constructive trust.[18] It also long been debated (along with unjust enrichment) to be a key feature in the emergence of a constructive trust.[19]There are many cases where the courts have raised the concept of conscience and the prevention of unconscionablity.[20] The next logical question then is whether unconscionability is a consistent and unified concept. There has been a discussion over whether doctrines such as undue influence and unconscionable bargain-making can be combined into one common doctrine. Ultimately, the only major difference is whether the intention of the more powerful party was to take advantage of their relationship.[21] Halliwell argues that unconscionability is a hinge on which many equitable doctrines are triggered. She feels that unconscionability as a tool for the courts would be better utilized if it is understood as a principle on which equity operates. In turn she believes that unifying unconscionability will prove worthless and what is better is to understand how the doctrine can be better used as a basis for equitable activity.[22] It is believed by some that forming a system by which equity judgements would be made, would destroy the purpose of equity law, however if equity is formalized only as a relational system, wherein the individual situation is the most important thing to evaluate then there is no risk of inequitable action happening as a result of the ruling. Dunn endorses this notion of unconscionability as providing a move toward a broad principle and away "rigid definitions". She feels this is the right tool for the modern age.[23]Dunn goes on to argues "For equity to develop in a meaningful way, the recognition of an organising principle of unconscionability, if accepted, cannot take place as before in a vacuum. The survival of equity depends not so much upon re-conceptualising past mistakes, as it does upon a re-evaluationof the legal system as a whole." [24] Dunn argues the danger of equity doctrine is in the interpretation, once ideas like unconscionability become defined then all the things which qualify as unconscionable must be defined as well. Then the question arises as to whether an action is unconscionable in all situations. Ultimately the flexible method which equity offers enables it to provide justice in all situations.[25]

CONCLUSION

This paper has provided different views of leading academics and can conclude that the development of equity has been gradual and spanned over 150 years. Equity cannot be determined without having reference to hinges such as conscience, unconscionability, unjust enrichment. These concepts are import in doing justice in each individual case and cannot ignored when determining the question what is equity? Thus the question should be a wider one and that is can all of these concepts be unified under the heading of equity? The answer is no they cannot. All of the evidence suggests the concepts need to be left open and not formalized into a body of rules. Otherwise judges will be bound by them and this defeats the whole purpose for which equity was created and that is to do justice in each individual case.

BIBLIOGRAPHY

Aristotle, Nicomachean Ethics (W.D. Ross tr. 1st edn, Alex Catalogue 2000) 58

The history of Equity can be traced back to Aristotelian ethics, wherein Aristotle questioned how fixed laws would be able to resolve unknown situations.

Charles Dickens’s Bleak House, Penguin Books, 1971

Dickens had experience as a court reporter and witnessed legal practices first hand and depicted the struggle between common law and equity.

Dennis R. Klinck 'Lord Nottingham and the Conscience of Equity' (2006) 67(1) Journal of the History of Ideas 123 , 124-125

This was to look at the historical development of equity and the conscience.

Dewar, John L., The Development of the Remedial Constructive Trust, (1982-1984) 6 Est. & Tr. Q. 312

The principle of “unjust enrichment” has played a significant role in the development of this equitable remedy.

Dunn, A. ‘Equity is Dead: Long Live Equity!’ Vol 62 (1999) Modern Law Review 140-150

Dunn argues that equity need to be understood not in a vacuum. Unconscionability is a part of the development of the traditional boundaries between law and equity.

E.H.T. Snell & J.R. Griffith, The Principles of Equity: Intended for the Use of Students and the Profession (2nd edition Stevens & Haynes 1872)

The foundation of Equity can be reduced to 11 maxims which are just guidelines for resolving individual conflicts.

Giovanni Ceccarelli 'Risky Business: Theological and Canonical Thought on Insurance from the Thirteenth to the Seventeenth Century' (2001) 31(3) Journal of Medieval and Early Modern Studies 607 617

this showed the increasing use of currency and the way equity was used to determine immesurable values.

James E. Crimmins 'Bentham and Hobbes: An Issue of Influence' (2002) 63(4) Journal of the History of Ideas 677 , 689

This looked at judicial theorists of the 1600s the focus was still on equity and how judges should act.

Jensen, D. ‘Reining in the Constructive Trust’ Vol 32 (87) (2010) Sydney Law Review 87-112

This concern critical analysis of the constructive trust and how its use is to wide without judges fully understanding it limits and uses.

Margaret Halliwell, Equity and Good Conscience in a Contemporary Context, London: Old Bailey Press, 1997

She provides a good insight into conscience and equity in modern context.

Mike Macnair, 'Equity and Conscience' (2007) 27(4) Oxford Journal of Legal Studies 659 , 660-661

this was used to draw an example between Aristotelian equity and the equity in courts of Britain which deal primarily in unjust enrichment.

Pawlowski, Mark, Unconscionability as a Unifying Concept in Equity; (2001-2003) 16 Denning L.J. 79

He looks at unconscionable bargains, undue influence, duress, Estoppel, knowing receipt, and to ask if they can all be unified inone concept.

Peter Millett (Lord Millett) ‘Equity - The Road Ahead’ [1995] 9 Trust Law International 35

He argues the central focus of equity law is distinct from common law in that the consent of the weaker party is not the focus of equity law which instead focuses on the powerful party's intention.

Oakley, A.J., Parker and Mellows: The Modern Law of Trusts (9th edn.) (London: Sweet & Maxwell, 2008)

He argues addition of unconscionability is a new feature in the law and case have applied it inconsistently.

Virpi Mäkinen & Heikki Pihlajamäki 'The Individualization of Crime in Medieval Canon Law' (2004) 65(4) Journal of the History of Ideas 525 528

This was used to look at what role Equity played at the time of Henry III.

CASES

Choithram International SA v Pagarani [2001] 1 WLR 1

This case established where a settlor is also a co-trustee his declaration of trust if not properly constituted remains effectual.

Gissing v Gissing [1971] AC 886

This is an early example of when the court's confusion in the demarcation between constructive and resulting trusts.

Lloyds Bank Plc. v Rosset and Another [1991] 1 AC 107

This is one of the leading cases in which Lord Bridge established the Common Intention Constructive Trust.

Milroy v Lord [1862] 45 ER 1185

This case states the three modes of voluntary settlement are: (i) transfer of property directly to beneficiary, (ii) transfer of property to trustee on trust; and (iii) settlor declaring himself trustee.

Pennington v Waine [2002] 1 WLR 2075

In this case the courts chose not to give effect the equitable maxim equity will not perfect an imperfect gift. Contrastingly it can be said the courts in this case allowed equity to extend the doctrine that exists to do justice in a case at the cost of certainty.

Pettitt v Pettitt [1970] AC 777

This is an early example of when the court's confusion in the demarcation between constructive and resulting trusts.

Re Rose [1952] Ch 499

This case established if a donor has done everything within their power to vest the legal interest to the donee, then this will be sufficient for the gift to pass.

FOOTNOTES

[1] Aristotle, Nicomachean Ethics (W.D. Ross tr. 1st edn, Alex Catalogue 2000) 58 [2] Mike Macnair, 'Equity and Conscience' (2007) 27(4) Oxford Journal of Legal Studies 659, 660-661 [3] Giovanni Ceccarelli 'Risky Business: Theological and Canonical Thought on Insurance from the Thirteenth to the Seventeenth Century' (2001) 31(3) Journal of Medieval and Early Modern Studies 607 617 [4] James E. Crimmins 'Bentham and Hobbes: An Issue of Influence' (2002) 63(4) Journal of the History of Ideas 677 , 689 [5] Pawlowski, Mark, Unconscionability as a Unifying Concept in Equity; (2001-2003) 16 Denning L.J. 79 , 80 [6] E.H.T. Snell & J.R. Griffith, The Principles of Equity: Intended for the Use of Students and the Profession (2nd edition Stevens & Haynes 1872) 12 [7] Virpi Mäkinen & Heikki Pihlajamäki 'The Individualization of Crime in Medieval Canon Law' (2004) 65(4) Journal of the History of Ideas 525 528 [8] James Oldham, A Profusion of Chancery Reform, [2004] Law and History Review and also depicted in Charles Dickens’s Bleak House, Penguin Books, 1971 [9] E.H.T. Snell & J.R. Griffith, The Principles of Equity: Intended for the Use of Students and the Profession (2nd edition Stevens & Haynes 1872) 12 [10] Dennis R. Klinck 'Lord Nottingham and the Conscience of Equity' (2006) 67(1) Journal of the History of Ideas 123 , 124-125 [11] Peter Millett (Lord Millett) in his article ‘Equity - The Road Ahead’ [1995] 9 Trust Law International 35 at 37 [12] Lord Justice Millett 'Equity—The Road Ahead' (1995-1996) 6 KCLJ 1 , 5-6 [13] Pawlowski, Mark, Unconscionability as a Unifying Concept in Equity; (2001-2003) 16 Denning L.J. 79 , 81 [14] [2002] 1 WLR 2075 [15] [1952] EWCA Civ 4 [16] [1862] EWHC J78 [17] Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44 [18] Pettitt v Pettitt [1970] AC 777; Gissing v Gissing [1970] UKHL 3; Lloyds Bank plc v Rosset [1990] UKHL 14 [19] Jensen, D. ‘Reining in the Constructive Trust’ Vol 32 (87) (2010) Sydney Law Review 87-112 and Dewar, John L., The Development of the Remedial Constructive Trust, (1982-1984) 6 Est. & Tr. Q. 312 [20] Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133; Boustany v Pigott (1995) 69 P&CR 298; Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144; and Gillett v Holt (1998) The Times June 18 [21] Pawlowski, Mark, Unconscionability as a Unifying Concept in Equity; (2001-2003) 16 Denning L.J. 79 , 83-85 [22] Margaret Halliwell, Equity and Good Conscience in a Contemporary Context, London: Old Bailey Press, 1997, p 18 [23] Dunn, A. ‘Equity is Dead: Long Live Equity!’ Vol 62 (1999) Modern Law Review 140-150, p 142 [24] Dunn, A. ‘Equity is Dead: Long Live Equity!’ Vol 62 (1999) Modern Law Review 140-150, p 150 [25] Alison Dunn 'Equity is Dead. Long Life Equity!' (1999) 62(1) The Modern Law Review 140 , 144-145