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)