Adapting Equity to Modern Challenges

Equity is still arguably relevant and has the ability to do equity. Lord Denning, hence, observed, that “Equity is not past the age of childbearing”. Equity has its role in situation of injustice without legal remedies. However, Equity has more to offer than just equity. It has far reaching impact and that may be the reason why the philosophical foundation of equity is remote to the philosophical foundation of Equity. This may be the reason why there is a lack of a single normative concept that underlies all of Equity. The body of Equity and its doctrines and principles cover varied and wide range of matters, spread across the entire system of private law. There are multiple normative principles, which may sometime be similar or identical with those applied by common law and the civil law, for example in enforcement of promises and protecting reliance.

In modern time, equity has key remedial functions and acts as a source of supplemental law. This expands the common law reach and also facilitates renewal of private law. Due to this extensive relevance of equity, it calls for developing a suitable interpretative theory of equity. The concerned question here is whether the functionalities of equity are still relevant or applicable in remedying the law and not just supplementing the law. This question in turn raises the question of whether equity has past the age of childbearing as Lord Denning observed. Suggestively, there may be doubt over whether equity still has the capability to create new rights in modern society. It may, though, have within the framework of established principles. Lord Greene MR suitably observed in the case of Re Diplock that just because justice is required in a case, it is not sufficient to create new equity jurisdiction. It must instead be shown that a claim in equity has source to history and practice, and court precedents administering equity jurisdiction. Equity principles have shown adaptability and development subject to existing circumstances of a case. They have been established from time to time. The relevant doctrines are progressive and refined and to understand the doctrines, modern cases are to be referred. However, opposite views also prevail that take equity rules are fixed and immutable and acquires same nature as that of the common law. They hold that judicial law making may be treated severely limited. This view is supported by Meggary J in Western Fish Products v Penwith BC, where he stated that “creation of new rights and remedies is a matter for Parliament, not the judges”. Further limitation of application of equitable rules is found in Cowcher v Cowcher, where Bagnall J cautioned about the undesirable consequences of unrestrained extension of equitable rules and principles. He stated that in determining individual rights such as property rights, the only justice is through law and established and definite principles. However, this does not mean or indicate that “equity is past childbearing; simply that its progeny must be legitimate – by precedent out of principle”. An alternative view is found in the statement of Lord Denning in Eves v Eves that called for creating a constructive trust of a new model, however, courts overruled this new model and there were instead development of equitable principles within the restrictive confines of law. For instance, the law of “search” orders that authorise the claimant to enter the premises of the defendant and view and also make copies of documents relevant to the claimant’s case with the reasoning that the defendant may likely destroy the documents. New developments, in terms of new matters and relevant law, will always need equity and new equitable doctrines. This has been the nature of equity since a long time and equity keeps on developing new doctrines as per the new situation remedying as well as supplementing law. Courts have major role to play and it cannot be just left to the Parliament to create new rights and remedies. The intervention of judiciary over the centuries is demonstrated by the establishment and application of equity maxims, for instance, “Equity wiil not suffer a wrong to be without a remedy”; “Equity follows the law”; “Where there is equal equity, the law prevails”; and many more. Affirmatively, Lord Denning rightly observed that “equity is not past the age of childbearing”.

British courts adopt a broad approach towards determining equitable liability of third party to a trust or a fiduciary relationship, who participates in a breach of the trust or the fiduciary duty, but without necessarily receiving any trust property. Lord Nicholls in the case of Royal Brunei Airlines SdnBhd, reformulated this broad principle as a loss based “accessory liability” applicable to the third party, who either procures or assists in the breach of trust by the fiduciary. For being liable, the defendant should have shown “dishonestly”. Equity defines an accessory as the person who “induces, procures or assists with a breach of trust or fiduciary obligations”. Equity bases its reasoning on dishonesty to curtail liability whereas tort relies on “common design”. The defendant’s participation in the wrongdoing must be more than minimal to be liable, and that it needs a mental element.

The broad approach could be seen where third party participation are itself divided into two groups. Firstly, there is a range of types of participation. In this group, the first set of participants at whatever level of involvement in the primary wrongdoing derive certain benefits from this wrongdoing, and not just professional remuneration. In such case, the participants assume all participatory liabilities. The second set of participants actively procures the primary wrong. For instance, a solicitor is liable for breach of trust if he knowingly induces an unsuspecting trustee client to invest trust fund in one of his client, who owes him money. The third set of participants actively facilitated the primary breach, without necessarily procuring the breach. This occurred in Mayor of Salford v Lever, where D bribed F in return for F to ensure C signed a contract for supply of coal by D. The fourth set of participants passively facilitates the primary wrong. This is seen the case of Cook v Deeks, where A company is controlled by B. A took an opportunity that B diverted funds from the principle company, C in breach of its fiduciary duties. So, in this first group, the equity participatory liability cases cover procurement, facilitation, and participation in wrongdoings. Secondly, this group of participants are “pure agents”, who are third parties rendering agency services to the principal wrongdoer and they facilitate equitable wrong. These agents do not receive any direct benefits but may be generous remuneration.

The approach of the court seems to stick to the element of dishonest assistance with elements of knowledge of the wrongdoing and conduct, both act and omission, of the defendant producing a causative impact on the primary wrong. The recurrent theme is that some degree of knowledge is required, which provides a flexible approach that could be tailored to the context of the case. This may create certain difficulty in bringing uniform application of rules. The element of “dishonestly” or dishonest assistance, as was treated necessary to make a defendant liable in the case of Royal Brunei, has been followed in many subsequent cases such as Dubai Aluminium Co Ltd v Salaam, Grupo Torras SA v Al-Sabah, Bank of Scotland v A Ltd. as well as in other jurisdictions such as Malyasia, Singapore and New Zealand.

One important question is whether a participant defendant could be fixed with liability for dishonest assistance in cases where the primary breach was committed in good faith. On this point, it would be easier to consider other elements to prove breach rather than dishonest assistance. For example, in the case of Lipkin Gorman v Karpnale Ltd, where a partner of a firm withdrew money from the firm’s account in breach of his fiduciary duty towards his fellow partners, it would be generally easier to prove that bank breached of contractual duty of care towards to customers rather than dishonesty. Further, a defendant is liable if his act or omission has a causative impact helping the principal wrongdoer in breach of fiduciary duty, otherwise not if it hampers the principal wrongdoer or if it was of marginal importance. In such situation, rather than the element of dishonesty, the causative significance must be shown. There were, though, different applications of this principle. First is the case of Heinl v Jyske Bank (Gibraltar) Ltd, where a breach of trust is established when the hidden fund could be found by the beneficiaries and those who assisted in money laundering are liable for dishonest assistance. However, a different view was observed in the case of Grupo Torras SA, where a defendant was not held to have had dishonestly assistance in misappropriation where he helped cover up company’s losses by providing misleading information to auditors and misleading accounts to shareholders of the company.

In Lloyds Bank plc v Rosset, the House of Lord held that there should be an inference of common intention where a claimant has made direct contribution to the purchase amount of a concerned property. This inference is possible where a resulting trust is presumed. The contribution is made when the claimant contributed to the purchase price, enabled the property purchased at discounted price, or increased the property value by undertaking significant improvements in the property. However, this strict test in this case where the inference is based on presumption of resulting trust now assumes a historical interest only confined within the ambit of acquisition of interests with a commercial context relevant with the purchase of a home. Now, arguably the resulting trust forms part of determination of constructive trusts. In Pettitt v Pettitt, Lord Diplock stated that approach in the context of purchase of family home should be based on determining common intention of parties, which is called the common intention constructive trust. This will be suitable to solve ownership of family home issues. The traditional strict approach to constructive trust was seen in the case of Gissing v Gissing where the House of Lords held that there should be imposition of constructive trust in case of “inequitable” denial by the owner of equitable interest of the beneficiary in land. Lord Diplock observed that the conduct of the legal owner would have justified the imposition of constructive trust and elaborated further that if “by his words or conduct he has induced the [beneficiary] to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land. Lord Denning called for creating a constructive trust of a new model to determine when he stated that “equity is not past the age of childbearing”. This model was mostly perceptible in disputes between spouses or between co-habitees with respect to family property. It was applied in Heseltine v Heseltine to deny a husband from claiming two sums of money paid beneficially by his wife. His claim would have been supported by the strict application of available law, but this would have been inequitable, as was stated by Lord Denning. The contribution of the spouse is a sufficient reason to be entitled to the fair share of the beneficial interest in the property. Similarly, a constructive trust based on general equitable principle was imposed in the case of Peffer v Rigg to pass on equitable interest to an owner of an unregistered equitable interest against the buyer of the legal title who had notice of the equitable interest. Even though the new model of constructive trust aims to protect equitable interest, it may have certain drawbacks. For instance, it raises the question of how constructive trust gives effect to remedies when there is no legal doctrine or authority to support a claimant.

The strict test principles in Rosset may create potential issues. It has led to “bright-line” development, as Gargner puts it, over numerous cases in respect of flexible and discretionary forms of equity. It has led to uncertainty while differentiating between constructive trust principles and those of proprietary estoppel. Further, the rules discussed so far rely on their own central element. For instance, the common intention constructive trust relies on common intention where parties may not have any agreement. This reaffirms the nature of equity, even in the family law sphere, that it keeps on developing new doctrines as per the new situation remedying as well as supplementing law.

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