Remembering Equity and its Role in Property Relationships Associate Professor Cameron Stewart Division of Law The Blind Men and the Elephant John Godfrey Saxe The Anglo-Saxon Invasions c500AD The Battle of Hastings 1066 Norman Reorganisation Sovereignty Absolute beneficial title Reception of laws Conquering Settling; Cessession Feudalism Henry II – the Father of the Common law 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 Edward Longshanks Hammer of the Scots 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 The Writ System Bureacracy Organisation of wrongs Remedies Popularity Recording Stare Decisis Common law 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 What goes wrong? The Office of the Lord Chancellor 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 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 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 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 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 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 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;  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 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 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) 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? 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 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 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’ 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 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 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 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 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 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 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 noticeHence Clary’s interest is superior See Rice v Rice (1853) 61 ER 646 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 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 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 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 fullblown equitable interest that was taken without notice 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 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 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 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 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 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 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 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 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 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 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 Unregistered interests are extinguished by registered interests (unless caveats or exceptions to indefeasibility: see below) Priorities between unregistered interests 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 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 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 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  AC 176) Sometimes said to be “moral turpitude” Exceptions to indefeasibility - Rights in personam 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 Bahr v Nicolay (No 2) 1988) 62 ALJR 268. 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.