Remembering Equity and
its Role in Property
Relationships
Associate Professor Cameron Stewart
Division of Law
The Blind Men and the Elephant
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John Godfrey Saxe
The Anglo-Saxon Invasions c500AD
The Battle of Hastings 1066
Norman Reorganisation
Sovereignty
 Absolute beneficial
title
 Reception of laws
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 Conquering
 Settling;
 Cessession
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Feudalism
Henry II – the Father of the
Common law
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Curia Regis
General Eyre and
Assizes
Assize of Clarendon
1166 – 12 freemen from
the hundred and 4 from
the town
Henry, Richard Coeurde-Lion and John
Lackland
A’Beckett’s Legacy
The Church Courts
The benefit of the
clergy
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Edward Longshanks Hammer of the
Scots
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Parliament begins 1275
The use of statute as
opposed to ordinance
Nisi Prius
Quia Emptores
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
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The Writ System
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Bureacracy
Organisation of wrongs
Remedies
Popularity
Recording
Stare Decisis
Common law
What’s the common law meant to
do?
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Persons & Property
Quick, efficient, fair and effective
Real property – real actions- real relief
Seisin
Remedies – return the seisin, pay monetary
damages
Contract and tort
What goes wrong?
The Office of the Lord
Chancellor
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Around since Norman
times
Keeper of the King’s
Conscience
Cleric and Keeper of the
Great Seal
Member of Lords, Judge
and Church
Chancery as a Court
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Around the 15th century
Function to repair the failings of Common law
Principles of Christian fairness/conscience
Maxims of equity
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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
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
The relationship between CL and Eq
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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
Earl of Oxford’s case
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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.
The legalisation of equity
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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
th
19
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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.
Property in CL
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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
Property in Eq
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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
Property in Eq
Equitable property or interest (equitable fee
simple, mortgages, covenants etc)
 Personal Equities (Gill v Gill)
 Mere Equities (Latec)
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Case study 1: When contracts go bad
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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?
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)
Case Study 2: Fat Henry and the
problem of trusts
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Henry and the purse
strings
Taxation in Tudor
England – feudal tenures
Primogeniture
Devising land by will
The legal remainder rules
The use
A --------------------------B --------------------C
(Landowner)
(feoffee to use )
(cestui que use)
Legal estate Beneficial estate
CL
Equitable
The Statute of Uses 1535
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Collapse the use
Springing uses
The use on the use
Equity creates property where there was none
before……
Case study 2: Part performance and
the equitable ‘impersonation’
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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…
The requirements for writing
23B Assurances of land to be by deed
(1)
No assurance of land shall be valid to pass an interest at law
unless made by deed.
23C Instruments required to be in writing
(1)
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, ….
The requirements for writing
54A Contracts for sale etc of land to be in writing
(1) 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
Part performance
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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
Legal interest v legal interest
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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
Equitable interest v equitable interest
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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
Equitable interest v equitable interest
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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?
Equitable interest v equitable interest
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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
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
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Equitable interest v equitable interest
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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 noticeHence Clary’s interest is superior
See Rice v Rice (1853) 61 ER 646
Equitable interest v equitable interest
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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
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Shropshire Union Railways and Canal Company v The
Queen
Equitable interest v equitable interest
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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
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Walker v Linom
Mere Equities
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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
Mere Equities
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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 fullblown equitable interest that was taken without notice
Exception: tacking
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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
Prior legal interest v equitable interest
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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
Prior legal interest v equitable interest
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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
Prior legal interest v equitable interest
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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
Prior legal interest v equitable interest
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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
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
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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
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
Registration Systems
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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
Registration Systems
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1817- Gov Macquarie – Fraudulent against a
bona fide purchaser for value
1825 – Registration Act – substantially amended
over time and then repealed in 1984 and sections
transferred into the Conveyancing Act
Conveyancing Act and the Register of
Deeds
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Section 184C – general register of deeds
Open to public inspection – s 199
Deliver original and copy to the Registrar –
registered with a number – copy kept on file
Any instrument affecting land or not can be
registered – not necessarily a “deed” as such
Conveyancing Act and the Register of
Deeds
The effect of registration?
 (a) Validity of the document – some instruments must be
registered to have legal force eg short form of mortgage
discharge, appointment of new trustee, powers of attorney
 Registration for priority – s 184G – instruments affecting
land, executed bona fide and for valuable consideration
take priority over earlier instruments
 Effect – earlier legal interest will be defeated by later legal
interest upon registration of later interest and so on
 However it only affects priority – will not perfect a
fraudulent transaction, mistake or forgery
Unregistered interests in the Torrens system
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Section 41(1) – unregistered instruments not effective to
pass any estate or interest in land until registered
RPA does recognize unregistered interests but not the
instruments: Barry v Heider(1914) 19 CLR 197 – the
instrument does not create an interest in land but the
agreement between the parties brings into being an
equitable interest which is then enforceable
Hence unregistered interests are said to be in the nature
of equitable interests in the Torrens system, even if they
are in writing (remember the Statute of Frauds!!)
Priorities between registered and unregistered
interests
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Unregistered interests are extinguished by
registered interests (unless caveats or
exceptions to indefeasibility: see below)
Priorities between unregistered interests
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Priority is determined by general common law
principles: however some unregistered
interests never have to be registered and hence
are “legal” eg short term leases and adverse
possession, mortgage by deposit of title deeds
Priorities between unregistered interests
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So generally we got back to the principles –
where the broad idea is “First in time has the
better equity” but the main principle is “Who
has the better equity?”
Look to conduct: inaction or postponing
conduct, failure to lodge a caveat to protect
the interest
Exceptions to indefeasibility
- Fraud
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A person who acquires a registered interest
through fraud has a defeasible interest: RPA ss
42, 43, 124
Eg their interest can be set aside.
The requirements for setting aside such an
interest are:
the registered proprietor’s interest must have
been acquired through implication in the
fraud; and
the implication may be personal or through
the acts of an agent.
Exceptions to indefeasibility
- Fraud
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General principle: unless the fraud can be
brought home to the registered proprietor,
registration will confer indefeasibility.
Definition of fraud: actual dishonesty, which
can be attached to the registered proprietor’s
title (Assets Co Ltd v Mere Roihi [1905] AC 176)
Sometimes said to be “moral turpitude”
Exceptions to indefeasibility
- Rights in personam
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While registration of an interest may extinguish
other unregistered interests personal rights of action
can still survive – sometimes called “personal
equities”
Examples:
Right of specific performance in a sale of land
contract;
Right of beneficiary to call on performance of trust;
Right to rectify a mistake in a contract which has
bestowed title on the wrong party.
The personal equity must rest on a legal or equitable
cause of action
Exceptions to indefeasibility
- Rights in personam
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Bahr v Nicolay (No 2) 1988) 62 ALJR 268.
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The registered proprietor (R) was bound by a
personal equity where R knew of an
unregistered interest and had purchased the
property on the basis that R would recognise and
be bound by that unregistered interest.