HISTORY AND NATURE OF EQUITY
Origins of equity
! Common law courts developed causes of action that
deal with issues society deals with
! Originally you needed to bring a writ
! Conflict between chancellor/courts
» CL courts read writes narrowly, and to get a
remedy you needed to fit within one of these
established categories
» CL courts became rigid in their application of
justice
» To obtain a remedy if you did not fit into these
categories, you needed to petition the King
! Chancellor would exercise administrative
power (not the law), as they felt they did not
need to administer any body of substantive
rules that differed from the ordinary law of the
land
! Too many applications, so the Chancellor
itself became a body of law; eventually we
ended up with two courts
Judicature Act 1873
! Abolished old courts and established English High
Court
» One court ordering and applying CL/equitable
principles, remedies, defences
» The administration of justice fused
Nature of equity
! The principle that underlines much of equity’s
jurisdiction is said to be the prevention of
unconscionable conduct or unconscionability.
! Focuses on close relationships
! Unique aspects of equity
» Equitable maxims
» Remedies are discretionary
» Flexibility
Modern relationship of equity and the CL
Remedial fusion
! Is a CL remedy available for breach of a purely
equitable right and vice-versa
Case examples
! Seager v Copydex [1967] 1 WLR 923
» English CoA awarded CL damages for breach of
confidence
! Digital Pulse v Harris (2002) 40 ALSR 487 (NSWSC);
Harris v Digital Pulse (2003) 56 NSWLR 298
(NSWCA)
» Breach of fiduciary duty, and the issue was
whether they had access to equitable remedies,
as judge awarded exemplary damages despite
these only being available at CL.
! NSWCA said no:
! Integrity of equity as a body of law is not well
served by adopting a CL remedy in a different
remedial context on a different conceptual
foundation
! As breach of a FD is analogous to contract,
court should not award exemplary damages
as that remedy is not available for breach of
contract
! No basis for equity providing a remedy on the
sole basis of punishment
Equitable interests
! Equitable interests are best described rather than
defined:
» Must be enforceable against third parties
» Capable of disposition
Case examples
! DKLR Holding Co (No 2) v Commissioner of Stamp
Duties [1980] 1 NSWLR 510 (NSWCA)
» Equity is not inconsistent with legal title
» Equitable interests attach to legal title
! May limit the exercise of rights compared to
other people without equitable obligations
! Official Receiver in Bankruptcy v Schultz (1990) 170
CLR 306 (HCA)
» Mrs P died, left her house to Mrs S (Mr P to live
in house and then goes to S). Mrs S is bankrupt
at time of death. Mr P brought an action against
the estate, and ORB claims the property back to
pay Mrs S’s creditors.
! Mr P entitled to a life interest so there was a
remainder interest (issue was whether Mrs S
or ORB entitled to remainder)
! Before property is transferred, estate must be
administered.
! Mrs S did not have an equitable interest in the
property but in having the will administered
according to the testatrix’s wishes.
! This right is assignable and transferrable so it
was transferred to the ORB
! DISTINGUISH an equitable proprietary
interest in specific property and an equitable
proprietary interest in respect of specific
property (latter in this case)
! Gross v Lewis Hillman [1970] Ch 445
» Vendor misrepresentation to the purchaser, who
then transferred it to a related company X. Issue
was whether X could rescind the contract against
V, in that the right to rescind was transferable
with the land?
! It was not, as the right to rescind was a purely
personal right and only purchaser could
enforce that right
! Dickinson v Burrell (1866) Lr 1 Eq 337
» Purchaser exerted undue influence on Vendor so
that V transferred the land to P. V transferred the
land to P but transferred all remaining rights to X.
Issue was whether X could bring an action on the
basis of undue influence
! Could not rescind the contract as the right to
rescind was a proprietary right
FIDUCIARY OBLIGATIONS
Structure for exam
! 1. Establish fiduciary relationship
» a. Is it an established category
» b. Can we establish one on the facts?
! i. Capacity of alleged fiduciary to exercise
unilaterally power or discretion in a way which
ma adversely affect a party who is
correspondingly vulnerable (Hodgkinson v
Simms);
! ii. Whether trust and confidence has been
reposed in the alleged fiduciary; and
! iii. Has there been an undertaking or
agreement to act in the interests of the
beneficiary (Hospital Products; Galambos v
Perez)
! 2. What is the scope of the fiduciary relationship
» a. Generally only protect economic interests of
principals, and the obligations which arise can
only come from those aspects of the relationship
which exhibited the characteristics of trust,
confidence and vulnerability that typify the
fiduciary relationship (Breen v Williams)
! 3. Has the fiduciary breached their duty
» a. The fiduciary must not allow himself to be put
in his personal interests or may conflict with the
interests of the principal (Moss v Moss; Chan v
Zacharia); and
» b. The fiduciary must not use their position or
opportunities or knowledge arising from it in order
to obtain a benefit or private advantage (Chan v
Zacharia)
! 4. Do any defences apply?
» a. Consent
» B. Contributory negligence
! 5. What remedies are available
Fiduciary notion
! Obligation imposed on F to act in another’s interest to
the exclusion of one’s own
! Breen v Williams (1996) 186 CLR 71 (HCA)
» B was patient of R. Claimed a legal right to
reasonable access to medical records and to
inspect them as part of a class action.
! Need to establish subject matter over which
the fiduciary duty would extend, and none
could be pointed to in this case (Brennan CJ)
! Was an established category of fiduciary
relationships but would not extend to all
conduct as most of it is covered by contract or
tort (Dawson and Toohey JJ)
! No duty to act in utmost good faith and loyalty
(Dawson and Toohey JJ)
! To claim a fiduciary relationship existed you
would need to demonstrate (i) conflict of duty
and self-interest; and (ii) profit from the
position (Gaudron and McHugh JJ)
! Fiduciary duties are proscriptive as opposed
to prescriptive (does not impose positive
obligations but rather prohibits what you
cannot do) (Gaudron and McHugh JJ)
! Hospital Products v United States Surgical
Corporation (1984) 156 CLR 41 (HCA)
» B was executive of USSC. He entered into
contract were he would distribute their product in
Australia. He was not an agent and could make a
profit for himself. He set up a company
manufacturing these goods and took over the
market
» Majority:
! Clear breach of contract
! No breach of fiduciary duty as arms length
commercial relationship does not give rise to
fiduciary obligations
! B was acting in his own self-interest
» Minority (Mason J) – indicia of fiduciary
relationship
! A relationship of trust and confidence
! Agrees or undertakes to act for the other
party’s interests
! Exercises the power to affect other’s legal or
practical interests
! Here, B had goodwill over the product and
power over their market so had capacity to
destroy the market
! Galambos v Perez [2009] 3 SCR 247 (Supreme Court
of Canada)
» Does one party entitled to an expectation that the
fiduciary will act in principal’s best interests
» Mutual understanding and circumstances of the
case is how you assess whether principal entitled
to that expectation
Fiduciary obligations
Presumptive fiduciary relationships
! Trustees
» Keech v Sandford (1726) 25 ER 223
! Trustee renewed lease in own name when the
lessor had refused to renew the lease to the
trust.
o A trustee must not use his position as
trustee to make a gain for himself
o Did not matter that the landlord would
not renew the lease to trustee
o Lease held on constructive trust for
beneficiary
! Company directors
» Regal (Hastings) v Gulliver [1967] 2 AC 134
(HoL)
! Directors made a profit for the company and
also for themselves
o Was a breach of fiduciary
relationship, and it did not matter that
(i) the directors had acted honestly
and in what they thought was best for
the company; and (ii) the principal
could not take up the benefit
» Glavanics v Brunninghausen (1996) 19 ACSR
204 (NSWSC) (perhaps contain to its facts)
! G and B were brother in law, but B did all the
work for the company. G wanted to sell his
shares (at what would be a price well below
what the third party had offered). B bought
G’s shares and made a profit, but did not
disclose that a third party had offered to buy
the company’s assets
o Breach of fiduciary duty as the duty of
the director is owed to shareholders
and not the company
o Cannot profit by G’s ignorance and
exploiting his lack of knowledge.
! Solicitors
» Farrington v Rowe McBride and Partners [1985]
1 NZLR 83 (NZCA)
! Pl won damages by winning their case. Asked
solicitor what to do with the money, and the
solicitor advised to invest in mortgages, but
did not disclose solicitors wer3 acting for the
company they had advised to invest in and
some partners had substantial shareholdings
o Breach of both elements (position of
conflict and making unauthorised
advantage)
» Boardman v Phipps [1967] 2 AC 46 (HoL)
(borderline case)
! B gave advice as a solicitor to the trustees.
The shares were not performing well, so
trustee asked B to get elected to the board.
Failed to get elected, but gained a lot of
valuable information. Told trustees to tell
beneficiaries about plans to restructure, and
they made a profit for themselves and also
the trust and beneficiaries.
o Breach of fiduciary duty as: (i) you
cannot make a profit from your
position as a fiduciary. They obtained
the profit as they attended the
meeting on the trust’s behalf (ii)
Potential conflict as trustees may
have asked solicitors whether they
should buy more shares
o Do not need to show harm
o Did not matter that B acted honestly
o Did not matter that trust could not buy
company shares
! Partners
» Chan v Zacharia (1984) 154 CLR 178 (HCA)
! Partnership dissolved and one partner
renewed the lease in his own name
o Breach of fiduciary obligation as he
got the opportunity as a partner
» Fraser Edmiston v AGT (Qld) [1988] 2 Qd R 1
(QSC)
! Landlord offered FE priority over other
premises in the same centre FE gave this
letter to AGT. After negotiations failed, AGT
returned the letter and accepted landlord’s
offer and took lease as sole lessee to FE’s
exclusion
o Was a breach of fiduciary duty
! Agents
» McKenzie v McDonald [1927] VLR 134 (VSC)
! MD was a real estate agent. Convinced MK to
sell her farm to him and that she should buy
his business. Bought farm (for lower price)
and sold business (for higher price) to
principal. MD then sold farm for a profit.
o Was a fiduciary relationship and this
was breached as he did not obtain
fully informed consent from the
principal
» Kelly v Cooper [1993] AC 205 (PC)
! K (and owner of house adjacent to K) both
instructed C to sell their house. Purchaser of
neighbour’s house offered to buy K’s house.
C did not disclose this to K.
o Was not a breach of fiduciary duty as
implied consent that C would act for
other principals and that there would
not be an expectation to disclose
confidential information of each party
» Attorney-General for Hong Kong v Reid I[1994] 1
AC 324 (PC)
Relationships that may give rise to fiduciary duties
! Financial adviser/stockbroker and client
» Hodgkinson v Simms (1995) 117 DLR (4th) 151
(Supreme Court of Canada)
! H sought advice from S. S advised H to invest
in multi-unit buildings, but failed to disclose
that he was receiving kickbacks. Their value
dropped, and H sued
o S owed H a fiduciary duty and
breached that duty by failing to
disclose his pecuniary interest in the
dealing
» Daly v Sydney Stock Exchange (1986) 160 CLR
371 (HCA)
! D sought advice from SSE. An employee
advised D that it was not a good time to invest
in shares, and hat he should place moneys on
deposit with the firm. Employee was unaware
that firm was in a precarious financial position.
o Firm owed D a fiduciary duty, and
breached this by failing to disclose
their financial position
! Joint venturers
» United Dominions Corp v Brian (1985) 157 CLR 1
(HCA)
! UDC claimed it was entitled to al proceeds of
sale due to a “collaterisation clause’ in the
mortgage. B argued this clause was in breach
of fiduciary duties
o There was a fiduciary relationship as
it was similar to a partnership
» LAC Minerals v International Corona Resources
(1989) 61 DLR (3th) 14 (Supreme Court of
Canada)
! Mining company had license over X.
Geographic surveys suggested Y had more
minerals. Mining company tried to set up JV,
and other company exploited the lease.
o No fiduciary relationship, as the
companies were well funded and
legally represented
Defences to fiduciary obligations
Consent
! Queensland Mines v Hudson (1978) 18 ALR 1 (PC)