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TOPIC 1 – ORIGIN AND NATURE OF EQUITY AND ITS RELATIONSHIP WITH THE COMMON LAW

Equity and Justice

Aristotle

• ‘Equity is a species of justice which is superior to legal justice because of its function as a

‘rectification’ of the law.’

• Equity is superior to the universal form of justice because it can cater for the individual. It is not better

than absolute justice but better than the error that arises from the ‘absoluteness of that statement’.

• Equal justice and distributive (i.e., proportional) justice:

o “For it makes no difference whether a good man has defrauded a bad man or a bad man a

good one, nor whether it is a good or a bad man that has committed adultery; the law . . . treats

the parties as equal.”

Distributive justice:

• Merit: simple "humanity" is not enough

• “Awards should be "according to merit"; for all men agree that what is just in distribution must be

according to merit in some sense, though they do not all specify the same sort of merit…

• The problem of distributive justice is to divide the distributable honour or reward into parts, which are

to one another as are the merits of the persons who are to participate.

o If A (first person): B (second person): C (first portion): D (second portion), … this, then is

what the just is—the proportional; the unjust is what violates the proportion.”

• Are equality and proportionality entirely different varieties of justice?

Epieikeia = “equity.”

• Iliad Book 23 concerning the proper burial for Patroclos

o Supplemental prize to a rider who came in last in the chariot contest because it was understood

by all that this was not the place for him

• Athenian democracy

• Thomas Hobbes reading Aristotle’s Rhetoric:

o “Those actions which though the written law command not, yet, being interpreted reasonably

and supplied, seems to require our hands.”

• Tension between Law (Dike) and Equity

• A critique of epieikeia with respect to lenity to debtors

• Athenian political arrangement – democracy over oligarchy

o Equity [epieikeia] is justice that goes beyond the written law.

o Omissions occur either willingly or unwilling in respect to the legislators.

o The omissions are unwilling if the legislators overlooked the omission, but are willing when

they could not distinguish [the matter] generally, but were compelled to speak as if [the things

in question] were universal, even though they were not, but were in fact true most of the time.

o And such is the case whenever it is not easy to generally determine a matter on account of an

infinite number of cases, such as, “wounding with an iron instrument” – but how large and of

what kind?

o There would not be any life left if one should try to count them all.

▪ Thus if a matter cannot be defined more precisely, but there be a need for legislation

about it, it is necessary to speak broadly.

▪ And so if a man wearing a ring were to raise his hand or actually strike [another], he is

liable according to the written law [concerning wounding with an iron instrument] and

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has committed an injustice, but he has not committed an injustice according to what is

true [aletheia], and this is equity [epieikeia].

o If equity [epieikeia] is what has been said, it is manifest what kinds of things are equitable

[epieikeia] and what not, and what men are not equitable.

▪ And it is equitable to excuse things characteristically human.

▪ And to look not to the law but toward the lawgiver; and not to the letter of the law, but

to the intention of the lawgiver; and not to the action but to the purpose; and not to the

part but to the whole; not to how someone is now, but to how he was, either always or

most of the time; and to remember being treated well rather than badly, and the good

received rather than done.

▪ And to be patient though being wronged.

▪ And to prefer to be judged by reason [logos] over deeds. And to prefer to go to

arbitration rather than court.

o For the arbitrator sees the equitable, but the citizenjuror only the law. And it was because of

this that the arbitrator was invented, so that epieikeia [the equitable] might prevail

Four Readings of Aristotle on Epieikeia

1. An ethos that actual Athenian litigants adopt

2. Pathos appeal

3. Logical point about the connection between the general law and specific cases to the personal virtue

of making this connection

4. Starting from the actual norms of society, but is moving beyond them

What is Equity? – 5 Stages

1. The introduction of the common law theory of binding precedents and resulting case-law equity;

2. As a legitimate consequence, the crystallization of equity culminating under Lord Eldon;

3. The adoption of equitable actions and equitable defenses in the common law;

4. The conjunction of legal and equitable jurisdiction in the same courts, so general in America; and

5. The abolition of the distinction between law and equity in procedure and the resulting power of courts

to administer both or either in the same action

Nature of Equity

Equity as a Body of Law and Correcting the Law

• Equity now represents a structured body of law: a source of legal obligation rather than a notion of

justice.

• Equity has a discretionary operation: it operates to meet the demands of individual circumstances and

does not abide by generalised, formal doctrine.

• This requirement is summarised in the famous words by St German’s doctor:

o In some cases it is necessary to leave the words of the law, and to follow that which reason

and justice requireth, and to that intent equity is ordained, that is to say, to temper and mitigate

the rigour of the law.

Form and Substance

• In operating as a form of corrective justice, equity gives effect to the spirit and intent of the law.

• Equity ensures that the written word of the law is construed according to reason and spirit rather than

according to the precise interpretation and limitation of the word. Mr Justice Blackstone in his famous

commentaries alludes to this:

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o Equity, in its true and genuine meaning, is the soul and spirit of all law; positive law is

construed, and rational law is made by it.

o In this, equity is synonymous with justice in that, to the true and sound interpretation of the

rule.

• In its function as a corrective jurisdiction, equity interprets the law according to substance rather than

form.

• Consideration is given to the underlying intent of the law rather than its strict form.

Standards of Conduct

• Most equitable principles are concerned with prescribing standards of conduct; these standards are

based upon the basic precepts of good faith, honesty and generosity

o Whether consideration is being given to a behavioural, relational or proprietary matter, equity

imposes broad-based standards, which form the foundation for an examination of the

circumstances in issue

• Equity does not apply defined rules

o Evaluates specific conduct; this requires flexibility and discretion

• Most equitable principles are based on discretionary standards of conduct rather than definitive and

formally 'realisable rules'

o These standards usually stem from the basic precepts of good faith, honesty, generosity and

fair dealing

o Courts are required to balance the nature of the alleged unfairness with the circumstances in

which it occurred and compare it with existing social, domestic and commercial norms

• Courts exercising equitable jurisdictions must assess the relational fairness b/w the applicant’s

• Courts have shown considerable reluctance to extend equitable relief to areas related to commercial

regulation because of the importance of certainty in such areas

Unconscionability

• One of the most fundamental themes of equitable intervention is the concept of unconscionability

o Unconscionability is a modern derivation of the doctrine of equitable fraud. As outlined by

Owen J in The Bell Group Ltd (in liq) v Westpac Banking Corp [2008] WASC 239 at

[4845], ‘fraud is abhorrent to the good conscience on which the principles of equity are

based.’

• Some commentators note that avoiding unconscionability may be the central tenant informing the idea

of equity

• It needs to be proven that the circumstances are such that it would be against the conscience of a court

of equity to refuse relief

• Behaviour coming within the notion of 'unconsionability' standard may include:

o Abusing a position or r/s of trust or confidence

o Exploiting a recognized vulnerability or weakness

o Unfair refusal to perform legal obligations

• None of the categories to which unconscionability has been applied is fixed or static

• Conduct can however only be characterized as unconscionable where a clear injustice is established

and the court determines that it would be against the 'conscience' of a court of equity to deny relief in

the circumstances

• Traditionally, the Chancery jurisdiction was concerned with fraud, accident and things of confidence.

The concept and application of equitable fraud has gradually expanded

• Equitable fraud has traditionally applied a notion of preventive rather than remedial justice.

• In this sense it adopts a constructive approach so that it protects not only moral fraud in the ordinary

sense, but also acts which have an unfair or unjust result.

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o As Viscount Haldane LC stated in Nocton v Lord Ashburton [1914] AC 932 at 954:

▪ A man may misconceive the extent of the obligation which a Court of Equity imposes

on him.

▪ His fault is that he has violated, however innocently because of his ignorance, an

obligation which he must be taken by the Court to have known, and his conduct has in

that sense always been called fraudulent, even in such a case as a technical fraud on a

power.

▪ It was thus that the expression ‘constructive fraud’ came into existence ... What is

really meant in this connection is, not moral fraud in the ordinary sense, but breach of

the sort of obligation which is enforced by a Court that from the beginning regarded

itself as a Court of conscience

Distrusts of Equity

• It has taken a long time for equity to be recognized and validated as a body of law existing alongside

the common law

• The equitable jurisdiction has been shrouded in suspicion and distrust

o Largely a product of the fact that unlike the CL, equitable principles are essentially

discretionary and retrospective and outcomes can be unexpected

• Even today, whilst equitable principles clearly form a major component of our legal system, an

essential ‘distrust’ of the jurisdiction remains.

o This suspicion stems largely from the discretionary operation of equity

o The courts, particularly the early common-law courts which were nurtured on doctrinal

predictability, found the uncertainty of the equitable jurisdiction somewhat dubious

• Claims that the application of the equitable jurisdiction depended ‘upon the length of the Chancellor’s

foot’ were widespread and produced a clear demarcation between common law and equitable

jurisdictions

• Common lawyers feared the encroachment of the equitable jurisdiction on established legal doctrines

and were generally scathing of any equitable developments

o From the perspective of many common law judges, equity rep 'uncontrolled discretion and

needless delay and expense' whereas the CL applied rules in an orderly, consistent and

predictable manner

• Other points

o Uncertain, amorphous concepts

o Strong influence of religious principles in the evolution of equity

o Fear of religious absolutism

o Exploitation of discretion – uncertainty regarding scope of remedy can generate commercial

difficulties.

o Fact based analysis – too individualized

Equitable Relief is Discretionary

• As a result of the historical approach to the determination of bills brought before it, the equitable

jurisdiction assumed a characteristically discretionary approach when awarding relief.

• There are two different levels to this discretion:

o On the first level, the court has discretion to determine whether or not the particular

circumstances warrant any relief at all

▪ Consider whether CL if applicable is adequate or not and whether it would be against

the conscience of the court to deny such relief

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o On the secondary level, once it has been determined that relief is capable of being issued, the

court has discretion to determine the type or measure of relief to be granted

• A range of different considerations may be taken into account when exercising the discretion

o E.g. hardships on the D, laches or delay, overall conduct of the parties, the adequacy of CL

relief

• Discretionary operation of equity is fundamentally different from the CL where every P has the right

to relief once a cause of action can be est.

• Equitable relief will only be granted where CL relief is deemed inadequate and the circumstances

demand 'equity'

o Underlying objdctive of the eq. jurisdiction are to mitigate hardships, balance needs and

promote fairness in conflict resolution

Equitable Maxims

• With the evolution of equity as a body of law, a set of structured maxims that assists in the

interpretation of the discretionary jurisdiction have emerged

• These maxims represent the accumulated insight and wisdom of the early courts of equity and were

often used as a guidance in the application of equitable principles

• Their utility today lies in their role as generalized edicts

Equity follows the

law: supplements

does not overrule

Equity never overrules or invalidates the common law and always,

where possible, attempts to follow it.

If the common law is defective, equity may provide an

alternative cause of action but it cannot actually overrule or invalidate

a legal principle.

Equity may prevent a legal right being asserted where the

holder has acted unconscionably or the assertion itself would be

unconscionable. Apart from these situations, any claim requiring

equity to overrule or contradict the law will be rejected

Reflects the role that equity operates as a corrective principle

rather than an independent source of law. Does not act as an

independent source of the law

Equity is equality:

equity tries to

balance out

transactions in the

form of relief granted

Equity will try to act with a balanced and equal perspective

Attempts as far as possible to grant relief which is proportionate to the

loss suffered or the unfairness involved

Once the relief has been granted there is an assumption that the

distribution has been equal

Equity assists only

those with clean

hands - must be

‘equitable’ to seek

equity

This maxim refers to the quality of the plaintiff’s conduct.

When a plaintiff whose conduct has been improper in a transaction

seeks relief in equity, such relief is generally refused at the discretion

of the court.

Needs to be est. that a P's conduct has been improper and is

connected to the equity sought

Based on the principle that any party who desires the

assistance of equity will receive no help unless it can be proven that

they are free of inequity themselves

Impropriety or 'uncleanliness' needed to generate the maxim is

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generally constituted by some sort of fraud or improper behaviour on

the part of the P. Mere breach of a legal duty is insufficient in this

regard

Equity deems that to

be done which ought

to be done

Equity will attempt, where fair and possible, to enforce all

transactions which were agreed upon. For example, equity may

enforce an agreement pursuant to an order for specific performance.

As outlined by Young CJ in Takemura v National Australia Bank Ltd

[2003] NSWSC 339 at [17], ‘The equity to grant specific performance

comes from the maxim that equity looks on that as done which ought

to be done

Equity ensures that any transaction or arrangement which has

been fairly and honestly agreed upon is also properly performed

The maxim is often associated with the related maxim that

equity looks to substance rather than form

If however the circumstances have arisen to make such

performance impossible, the maxim cannot have effect. Equity can

only enforce performance of an agreement where the agreement is

capable of being carried out in accordance with est. legal or equitable

principles

Equity only deems a thing to be done where it is very clear from the

circumstances that it ought to be done

Equity looks to intent

rather than form

Reflects one of the most basic precepts of the equitable

jurisdiction

When considering the circumstances and law applicable to a

particular case, equity will not regard itself as being found by

formality

If equity finds that by insisting on a particular form, the

substance of the issue is overwhelmed, it will such insistence to be

inequitable

Equity Acts in

Personam

Equity acts against the individual: it does not impose

generalised relief and its aim is to prevent individual injustice from

continuing: in this sense it is in personam.

Issues relief to a defendant personally to prevent an identifiable justice

from continuing

Courts of equity were concerned with the impropriety of a

particular circumstance; where the circumstance was found to be

unconscionable, a court of equity would accordingly restrain the D fro

asserting or relying upon it

Relates to the essential functioning as a correction of the

universal law; equity acts in personam so that it can better relieve the

defects of an absolute rule

Equity does not

assist a volunteer

Equity only intervenes and applies relief if there is some valid

reason to bind a promisor's conscience

Under CL, a voluntary promise does not constitute a

contractual r/s involving the conferral of binding legal obligations.

Hence, equity does not regard a voluntary promise as binding on the

conscience of a promisor and will thus withold its assistance from a

volunteer

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No relief if damages

are adequate

If damages are adequate relief, equity will not overwhelm the

common law by imposing an equitable form of relief. This is a well-

entrenched principle

Origins and Historical Evolution of Equity

Medieval Period (13th – 15th centuries)

• During the 13th to the 15th centuries, equity was in an embryonic period. The Chancellor was only

just receiving power from the great Council of the Kind to administer ‘additional’ justice, over and

above that being administered under existing common-law courts. Equity was very much a creature of

the Chancellor’s whim

• Inflexible procedures surrounding common law writs – form of action prescribed every aspect of the

case.

• If an action did not correspond common law not available and an applicant would petition to the King

for divine justice

• These petitions/bills first dealt with by Kings Council but during 14th century a practice developed of

delegating these matters to the Chancellor (this practice proclaimed in 1349)

• Chancellor was the keeper of the great seal and head of Chancery

o King's seal was required for all writs bringing an action in one of the courts of law

• Usually at this point Chancellor was also a bishop or an archbishop and knew canon law

o Usually ecclesiastically trained persons

• First Chancellor not exercising a judicial function but rather – an executive function

o No formal adjudication b/w the two sides

o Chancellor would simply hear the P's application and make a determination

o Writs if issued were only temporarily enforceable

• Chancellor could use his power to develop special writs – to correct the law

o Happened as the admin functions of the Chancery increased and more

o Judicially orientated

o Assumed residual power to grant justice in individual cases

o Chancellor had the option of ordering a party to appear and make a determination on the

validity of the claim (procedure known as 'bills') or by creating a new writ which was liable to

be quashed by a court of law

Equity and Precedent

• One thing was clearly established during this period: the Chancellors did not consider themselves

bound by precedent.

o This is indicated by the fact that reports of cases go back no further than 1557, and even

during this period, the reporting was very light.

o There was really no need for equity to follow precedent because it acted as a correction of the

law; it did not, at this point, actually constitute a body of law itself

o Also did not follow precedent as Chancellors were still in the process of forming their own

practices and procedures for dealing with individual petitions

• As the equitable jurisdiction gradually increased and an accumulated body of decisions emerged -->

practice of following previous decisions became more usual

o Only natural that with growing number of decisions that courts would seek to est. some

consistency in their decision making

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o In Gee v Pritchard noted that the doctrines of the Court of Equity 'ought to be as well settled

and made as uniform almost as those of the CL, laying down fixed principles'

Formative Period (16th-17th Centuries)

• The 16th and 17th centuries were periods of great development and change for the equity jurisdiction

• Equitable principles started to emerge and clash with common law

• Earl of Oxfords Case: 1615 – established that Chancery could set aside judgments at common law

where they were against conscience and affirmed that equity prevails in conflict.

• Lord Ellesmere: ‘The office of 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....’

• By 2nd half of the 15th century, power of the Chancellor extended to issuing a decree on his own

without reference to the King's Council

• Appointment of ecclesiastical Chancellor's became less common

o Appointment leaned towards Chancellor's who were legally trained

• Common law judges began to feel threatened by the accumulation of power in the Chancery Courts

and were extremely protective of their own jurisdiction

• Power of the Chancery to issue a common injunction did not mean that equity acquired any

superiority over CL injunctive relief

o Equitable injunctive relief where granted was to be directed personally against the parties in

circumstances where it would be inequitable for a CL judgment to be enforced

Period of Systemisation (17th-19th Centuries)

• The third historical period of evolution for the equity jurisdiction is from the 17th century right up

until the inception of the Judicature Act in 1873 in the UK (and its Australian equivalents)

• Systemisation was the period, which truly changed equity from a concept into a tangible body of law

and important equitable principles began to emerge including the use—the modern equivalent being

the trust.

o Creation of the use and emergence of an organized body of principles dealing with the

implementation of the use and its associated duties

• First time equity prevailed as an independent, systemized body of law alongside CL

• Equity deemed a real challenge to the CL by the latter form of judges

o In reality whole purpose of equity was to work with the CL to achieve a more individualistic

justice

o But judges feared it as an encroachment on CL and widespread fear of the exact r/s that equity

with the CL prevailed

• Equitable jurisdiction became increasingly bothered by jurisdictional delays and admin problems

o Also sprit of equity waned - presence of corruption, decadence and delay characterised the

Equitable jurisdiction according to Burns

Relationship between Common Law and Equity

Exclusive Jurisdiction

• Key points -

o Principles only recognized by equity and therefore only supported by equitable remedies.

o Common law remedies not available to support an exclusive action

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▪ For example, breach of confidence – common law damages not available but equitable

compensation is available – different remedy

• The exclusive jurisdiction applies to all equitable principles and remedies exclusively developed and

recognised by the equitable such as trusts and fiduciary relationships.

o Where a principle is exclusively recognised by equity, it may only be enforced by an equitable

remedy; common law relief is inapplicable.

• Prior to the introduction of the Judicature Act, the CL did not provide relief for equitable claims

• Typical examples of the exclusive jurisdiction of equity included:

o Trusts, principles on fiduciary relationships and various transactional fairness principles

Concurrent Jurisdiction

• The concurrent jurisdiction will apply to situations where both equity and the common law recognise

the unfairness and are prepared to apply relief

o When equity provides the same sort of relief as would have been issued at law, it is also said

that equity is exercising a 'concurrent jurisdiction'

o Though under the Judicature system - one court is capable of enforcing both legal and

equitable principles

• The equitable jurisdiction aims to supplement the deficiencies of the common law therefore it can

only provide relief concurrently with the common law where it is established that the relief under

common law would be inadequate.

o A classic example of this is the award of specific performance for the enforcement of a

contract particularly where CL damages would be inadequate

o Another common example is the situation where the person holding the legal right has either

lost the right to enforce it or the relief that is available at law is inadequate

• Therefore;

o Concurrent Jurisdiction: Equity ‘concurrently’ recognises that a remedy should be available

but will only provide it where it can be established that the common law relief, which is

concurrently available, is inadequate on the facts.

o For example: a breach of a contract for the sale of land may attract the decree of specific

performance

• This situation can arise where a single set of facts gives rise to both legal and equitable actions

Auxiliary Jurisdiction

• The auxiliary jurisdiction is an additional, ancillary jurisdiction in equity to provide assistance for the

enforcement of legal rights and includes the award of injunctive relief

• This jurisdiction basically covers equitable principles which support the bringing of a legal action. A

classic example is the the doctrine of discovery of documents which originated in equity.

• In this jurisdiction equity acts purely as an aide

• Typically the Court of Chancery did not adjudicate in these matters, but gave assistance as required to

keep matters in status quo until the rights of the parties could be determined at CL or after the

adjudication in order to confer a more complete remedy on the party who had already obtained a CL

relief This course does not examine the auxiliary function of equity

• Typical example of the auxiliary jurisdiction includes the doctrine of discovery

o Essentially a procedural doctrine whereby the parties to an action disclose to each other all

documents in their possession, custody or power which relate to the matter at hand

▪ Like the common injunction, the doctrine of discovery is used to assist the

determination of legal rights

• With the passage of the Judicature Act and other provisions - there has been a substantial reduction

for the need for the auxiliary jurisdiction of equity in this area

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The Judicature System

• English Judicature legislation or Act introduced in 1873 with the express aim or merging the

administration of the CL and equitable jurisdiction

o In Victoria s 29 of the Supreme Court Act sets out the equivalent and concurrency provisions

of the English judicature system

• Judicature system sought to eradicate the delays and inefficiencies of this system by implementing its

administrative fusion

• Primary focus of the system was the vesting in one court of the admin of law and equity in every

cause, action or dispute which should come before the Court

o Inaccurately the introduction of this merged process has been called the 'fusion of law and

equity'

• The High Court of Australia exercises its legal and equitable jurisdiction together when sitting in its

original jurisdiction: Judiciary Act 1903 (X Cth), ss 31, 31.

o In exercising its jurisdiction, the Federal Court may grant all remedies to which a party is

entitled to regarding an equitable claim properly brought forward: Federal Court of Australia

Act 1976 (Cth), s32.

• It is significant to note that in New South Wales the Judicature system was not introduced until a

much later date.

o From about 1823 until 1972 equity was administered as a body of law distinct from the

common law

o Supreme Court judges sitting at law had no jurisdiction in equity, and vice versa.

o It was not so much that there were two separate courts, but rather two separate sets of

procedures. We do not intend to consider this jurisdiction in detail but simply to note the New

South Wales variation

Concurrent Administration

• Section 24 of the English Judicature Act was the main provision conferring concurrent legal and

equitable jurisdiction on every division of the new court

• This section set out that the High Court and Court of Appeal would hold concurrent jurisdiction to

administer both law and equity

Conflict of Variance

• S 25(11) of the English Judicature Act, sets out that where there is any conflict or variance between

the rules of equity and the rules of the common law with reference to the same matter, the rules of

equity will prevail.

• S 25(11) confers superiority upon equity where there is a conflict but, as noted by Maitland, a conflict

will rarely occur because the aim of equity is to embellish, not override the common law.

Abolition of the Common Injunction

• Another important effect of the merged system of procedure was the abolition of common injunctions,

under s 24(5) of the Judicature Act.

• The common injunction was an equitable injunction, issued to restrain a judgment being obtained in

law by a plaintiff when equitable defences were available to the defendant.

• It was replaced by a new jurisdiction that gave the court power to grant an injunction in all cases

where the court feels it to be just or convenient that such an order should be made and it is capable of

being issued upon such terms and conditions as the court thinks fit.

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o The introduction of a procedurally merged administration by the JA rendered the common

injunction obsolete

o No longer a need for such an injunction in a system which provided for access, to both legal

and equitable principles in the same jurisdiction

Overview of the Judicature System

• The Act introduced a new court which had both a legal and an equitable jurisdiction

o Meant that an action with legal and equitable components no longer had to be brought in two

separate courts

• The Act introduced a single, consistent method of procedure

o Ensured that every division of the new merged jurisdiction administered a single method of

procedure

• The Act introduced concurrent jurisdiction over law and equity in all divisions

o S 29(1) SCA

• The Act abolished the common injunction and replaced it with a new jurisdiction giving the court the

right to grant an injunction in all cases where the court felt it to be just and convenient.

o S 37 SCA

Fusion

• Judicature Act UK 1873

• Judicature System – addressing the imprac9cali9es of the earlier system

• Administration of common law and equity into one court system of many divisions each with the

power to determine legal rights and recognise equitable rights and provide legal and equitable

remedies

• Views on fusion

o Fusion a fallacy

o Modified fusion

o Judicature system has substantive impact

o Fusion a fact

Fusion Fallacies

• That CL and E are jurisdictionally united – an integra3on of legal and equitable causes of ac3on and

remedies

• It has been sometimes inaccurately called ‘the fusion of Law and Equity’; but it was not any fusion, or

anything of the 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: Sir George Jessel MR in Salt v

Cooper (1880) 16 Ch D 544 at 549

• The statement in Ashburton on Equity [2nd edn, p.18] that the result of the fusion of law and equity by

the Judicature Act is that the two streams of jurisdiction, though they run in the same channel, run

side by side and do not mingle their waters (Windeyer J in Felton v Mulligan (1971) 124 CLR 367 at

392).

• In Australia, distinctiveness prevails

o Meagher, Gummow and Lehane

▪ Legislature never intended fusion

▪ Doctrinal fusion was and is unnecessary

▪ Attempts at substantive fusion have distorted the administration of justice

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o In Pilmer v The Duke Group Limited (in liq) Kirby J said that ‘the repeated recognition by

this Court that, in Australia, the substantive rules of equity have retained their identity as part

of a separate and coherent body of principles’

• The term fusion fallacy refers to the fallacy of assuming that the provisions of the Judicature Act

effected any substantive alteration to the rules that previously existed under common law and equity.

o It is clearly illustrated in the case of Walsh

• Essentially the correct analysis is that there is only one court and equity rules and prevails in it even

though the court applies both law and equity

o What is not fused is the substantive provisions of law and equity

• In the decision of Walsh v Lonsdale (1882) Jessel MR concluded that since the introduction of the

Judicature system, a tenant holding an agreement for lease of which specific performance would be

decreed, stands in the same position as to liability as if the lease had been executed. According to

Jessel MR, the Judicature Act resulted in the complete merger of legal and equitable estates; there

were no longer two estates, one at law and one in equity, but rather ‘there is only one Court and the

equity rules prevail in it’.

o Wrongly assumed the fusion merged legal and equitable interests in land

▪ The rule of equity only ‘prevail’ when there is a conflict between those rules and the

common law rule; the rule that equity should prevail does not apply to the relationship

generally

o The outcome meant that the common-law remedy of distress was available because the lease

was to be treated as if it was legal in character, even though it could be enforced in equity only

because it had not complied with all the legal formalities

o Taken literally the judgment of Jessel MR would completely obliterate all distinctions between

law and equity and justify this destruction on the ground that the conflict provision intended

such a result.

▪ Judgment would elevate equitable leases to the status of CL leases and obliterates all

cf. b/w legal and equitable estates on the basis of the conflict or variance provisions

o This view was clearly an inaccurate interpretation of the intention of the drafters of the

Judicature Act.

o Despite these obvious flaws, and considerable criticism since, Walsh has survived and has

been accepted as authority for the rule that a written lease not in proper form will, pending a

decree of specific performance requiring the lessor to execute a lease in proper form, give rise

to an equitable relationship of landlord and tenant between the parties under which the former

could, if necessary, be restrained by injunction from acting on the footing that the latter was

merely a tenant at will or a tenant from ear to year (Progressive Mailing House Pty Ltd v

Tabali Pty Ltd)

Chan v Cresdon

Facts

• An agreement for lease was executed under which the respondendent agreed to lease certain land for

five years to Sarcourt Pty Ltd. Lease was not registered under the RPA 1861 (Qld). Thus, under s 43

of the Act, the lease was not effectual to pass nay estate or interest until registration.

Held

• High Court held that the appellants were not liable under the guarantee. Even if it were assumed that

specific performance of the agreement for lease would be granted, that was not enough to establish

liability on the part of the appellants as guarantors. Only a lease at law would meet the description for

the purpose of the guarantee.

Discussion

• Having discussed Walsh, it was reasoned that that case established two propositions;

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1. While the court was willing to treat the agreement as a lease in equity – on the footing that equity

regards as done that which ought to be done, and looks to the intent rather than the form – that

willingness rested on the specific enforceability of the agreement.

2. An agreement for a elase will be treated by a court administering equity as an equitable lease for

the term agreed on and, as between the parties, as the equivalent of a lease at law, though the

lessee does not have a lease at law in the sense of having a legal interest in the term

• In other words, the stipulation that the Chans had guaranteed payment of rent under this lease meant

just that, and no more.

• There are many other instances where the conflict provisions has been analysed in terms of fusion.

o In Redgrave v Hurd (1881) Jessel MR again concluded that the conflict provision entitled him

to issue an award of damages for an innocent misrepresentation, traditionally recognised and

enforced only in equity.

▪ Actually insisted that the cf. b/w CL and equity have now disappeared by the operation

of the Judicature Act

o In Seager v Copydex, Lord Denning concluded that an award of damages was available for a

purely equitable breach of confidence action.

▪ During the course of his judgment he made no reference to the Judicature Act;

however, one can only assume he felt that jurisdictional restraints had been removed.

Legitimate Fusion Developments

• Legitimate fusion developments may occur where the introduction of a merged administration has

resulted in greater interaction and association between law and equity producing an inevitable

intermingling of ideas.

• It is not correct to say all fusion is a fallacy because legitimate development within a merged

jurisdiction may be inevitable.

• Increased doctrinal and remedial interaction b/w the CL and equity is a product of the ongoing

progression of the relational dynamic b/w legal and equitable principles within a concurrent

jurisdiction

o Equitable principles are constantly developing and mutating, inevitable some parallel

reasoning or conceptual foundations which had had their genesis in CL have become relevant

to the application of equitable principles and vice versa

• There have been a number of recent decisions that evince a more rationalized approach and

interactive development b/w the CL and equity and which demonstrate this inevitable interaction

Digital Pulse v Harris and Harris v Digital Pulse

• In Digital Pulse Ptd Ltd v Harris (2002) Palmer J in the Supreme Court of NSW concluded that

exemplary/punitive damages for a breach of fiduciary duty (ie tortious common law relief for the

breach of a purely equitable action) was available because there was no authority to suggest that, as a

matter of principle, such relief could not be awarded where necessary to stop a ‘wrongful and

reprehensible’ breach

• Subsequently, the Court of Appeal in Harris v Digital Pulse Pty Ltd (2003) rejected this approach.

Held:

• Spigelman CJ concluded that legal remedies are not available for a breach of an equitable action and

any change to this was a matter for the High Court.

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o His Honour preferred a contractual rather than a tortious analogy for breach of fiduciary duty

and an award based upon punishment is inconsistent with the balanced approach of equitable

deduction.

o Punitive damages are not available. No past decisions have awarded them and there is no

equivalent notion of punishment under the equity jurisdiction

o A high rate of interest and account of profits for breach of a fid. duty is equivalent

▪ Breach of a fid. duty is akin to a breach of a contract and punitive damages are not

available in that context

• Spigelman CJ at 306 noted: ‘The heart of the fusion fallacy... is the proposition that the joint

administration of two distinct bodies of law means that the doctrines of one are applicable to the

other. That is no more true of equity and common law than it was and is true of tort and contract in

the common law context. That is not to say that one body of law does not influence the other, It is

only to say that they remain conceptually distinct’.

• Heydon JA expressly noted that it was not ‘irrational to maintain the existence of different remedies

for different causes of action having different threshold requirements and different purposes. The

resulting differences are not necessarily anomalous Case Commentary

Commentary:

• The latter decision suggests a clear shift in perspective

• Whilst the majority did not endorse the application of exemplary damages for a breach of a fiduciary

duty, they did not reject it on the grounds of orthodox jurisdictional separation alone

o This suggests an increasing awareness and acceptance of legitimate jurisdictional interaction

o Court was aware of the conceptual similarity underlying tort, contract and fiduciary principle

and, in this respect, of the need for a consistent remedial approach

• Equitable remedies are deemed appropriate to support legal actions were legal remedies are

inadequate and so the possibility of some interactive 'crossover' appears broadly consistent with this

process

Post-Harris cases:

Nicholls v Michael Wilson (2010) 243 FLR 177 per Basten JA at [147] - [183]

No punitive damages but can be ‘robust’ in awarding compensation but this does not give judges the

liberty to ‘think of a number’ or to award punitive damages under another name.’

Giller v Procopets (2008)

• The court concluded that the decision in Harris does not stand in the way of an award of aggravated

damages (a legal remedy) for a breach of confidence because such damages should be classified as

compensatory rather than punitive.

o On the facts this meant that the plaintiff was entitled to damages for the mental distress caused

through the publication of confidential images

o 'Aggravated Compensatory Damage's should be available because the primary purpose is a

consideration of the effect on the victim rather than punishment

▪ Goal of these damages to compensate for the hurt inflicted by the conduct not to

punish

Legitimate Fusion Developments: Account of Profit

• The House of Lords in Attorney-General v Blake [2001] awarded an account of profit for a breach of

contract

o This remedy is generally only available to support a breach of fiduciary duty

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o Lord Nicholls reasoned that the restriction of this remedy to purely equitable actions was

merely an accident of history

▪ The CL damages did not do justice in the circumstances according to Lord Nicholls

• Equity allowed gains to be disgorged even where they did not relate to the

disadvantage suffered by the other part

• This decision has been rejected in Australia.

o In Hospitality Group Pty Ltd v Australia Rugby Union Ltd Hill and Finkelstein JJ their

Honours reasoned that loss recoverable for breach of contract should be limited to

compensation.

o The attraction underlying the application of an equitable remedy to a CL action in

circumstances where such an application appears just and appropriate is clear

▪ However, the conclusions in Blake have attracted criticism

• In particular, it has been suggested that insufficient consideration was given to

the fact that the accounts of profits is a remedy specifically responsive to the

fiduciary principle, providing a clear incentive to avoid potentially exploitative

and abusive behaviour.