Law and Equity

Application in HK: Equity and Law

 In HK, equity and law is put in a constitutional footing by the Basic Law
Article 8
The laws previously in force in Hong Kong, that is, the common law, rules of equity,
ordinances, subordinate legislation and customary law shall be maintained, except for any
that contravene this Law, and subject to any amendment by the legislature of the HKSAR.
 The distinction between equity and law is primarily historical
 Courts in HK have both jurisdiction to apply both common law and equitable rules

Division of Courts
 Until the late 19th century, England had two parallel bodies of law administered out
of separate courts – common law and equity
 The common law, narrowly defined, was administered by the Court of King’s (or
Queen’s) Bench, the Court of Common Pleas, and the Exchequer.
 Equity is that body of law administered by the separate Court of Chancery.
 There were other courts, e.g. the Star Chamber, which originally served a purpose
not unlike that of equity, to ensure that laws were fairly enforced against the rich
and powerful, but which became known instead for oppression and was abolished
by the mid-17th century.
 Both the Equity and Common law was subsequently combined by the Judicature
Acts of 1873 and 1875 (see below)

Historical Development of Equity

 Common law courts created by Itinerant justices were inadequate as there are only
certain causes of action which are available and the only remedy in the common law
courts is damages
 Inadequate to address all matters which created an injustice
 Dissatisfied parties petitioned the King – “foundation of justice”
 Chancellor – chief minister took on these matters – the creation of the court of
equity
 Depending on the type of remedy or relief the party is seeking they would go to
either the Court of Chancery or the Common law court
The Chancery predates equity and was not historically a court system, being instead a
Department of State.
 The office of the Chancellor is an ancient one, dating back, according to some
sources, to before the Norman conquest in 1066.
 Historically, the Chancellor was almost always a clergyman. One of his functions was
to serve as the Keeper of the Great Seal (of the Realm) – seal of the king to pass
laws.

Earl of Oxford’s Case

As Lord Ellesmere explained in the Earl of Oxford’s Case (1615) 1 Rep Ch 1:
“The cause why there is Chancery is, for that men’s actions are so diverse and infinite, that
it is impossible to make any general law which may aptly meet with every particular act,
and not fail in some circumstances. The office of the Chancellor is to correct men’s
consciences for frauds, breaches of trust, wrongs and oppression of what nature so ever
they be, and to soften and mollify the extremity of the law.”
 Roger Kelke, the Master of Magdalene College, Cambridge, sold some of its land in
London to Queen Elizabeth I who then granted the land to Benedict Spinola, a
Genoese merchant.
 Spinola sold the land to Edward de Vere, the 17th Earl of Oxford, in 1580, who built
numerous houses upon it and leased one to John Warren through intermediaries.
 However, according to the Ecclesiastical Leases Act 1571, conveyances of estates by
the masters, fellows, any college dean to anyone for anything other than a term of
21 years, or three lives, “shall be utterly void”
 Barnabas Gooch, a subsequent Master of the College, considered the sale to
Elizabeth I void and therefore that he could lease the land to John Smith, which he
did. Warren sought to eject Smith. By the time the court heard the case, Smith’s
lease had expired but the case proceeded anyway.
 The Jury found for Warren but Sir Edward Coke, Chief Justice of the King’s Bench
overturned the Jury.
 In 1604, Edward de Vere died and his son, Henry de Vere and another tenant,
Thomas Wood, brought the case to the Court of Chancery.
 Gooch and Smith refused to answer the bill.
 Gooch and Smith were committed to Fleet Prison for contempt of court.
 The Chancellor, Lord Ellesmere, issued a common injunction prohibiting the
enforcement of the common law order.
 Sir Edward Coke, the Chief Justice, in turn, held that the imprisonment of Gooch and
Smith by the Chancery was unlawful and sought their release by the writ of habeas
corpus.
 The Chancery claimed that it did not interfere with the common law as the
judgment still stood. It was merely concerned with the conduct of the parties

The jurisdictional war between the courts was ended when King James I (& VI) declared:
“[A]s mercy and justice be the true supports of our Royal Throne; and it properly belongeth
to our princely office to take care and provide that our subjects have equal and indifferent
justice ministered to them; and that when their case deserveth to be relieved in course of
equity by suit in our Court of Chancery, they should not be abandoned and exposed to
perish under the rigor and extremity of our laws, we ... do approve, ratifie and confirm, as
well the practice of our Court of Chancery.”

The Earl of Oxford’s Case is thus the origin of the modern rule of equity prevailing over the
common law.
What is the meaning and purpose of Equity?
• Meaning of Equity – “fair” OR “just”
• In the legal sense, equity tries to mitigate the severity or constraints of the common law
However, this is not without criticism...
 Because of its origins in conscience, many of the early Chancellor’s decided cases on
the basis of their own personal sense of justice.
 This led to the criticism by John Selden in Table Talk (1689):
“Equity is a roguish thing. For Law we have a measure, know what to trust to; Equity is
according to the conscience of him that is Chancellor, and as that is larger or narrower, so is
Equity. 'T is all one as if they should make the standard for the measure we call a "foot" a
Chancellor's foot; what an uncertain measure would this be! One Chancellor has a long foot,
another a short foot, a third an indifferent foot. 'T is the same thing in the Chancellor's
conscience.”

Systemisation of Equity
 Lord Eldon, a famous and well-respected Chancellor, remarked in Gee v Pritchard
(1818) 2 Swan 402:
“The doctrines of this Court ought to be well settled, and made as uniform, almost, as those
of the common law, laying down fixed principles, but taking care that they are to be applied
to the circumstances of each case. I cannot agree that the doctrines of this court are to be
changed by every succeeding judge. Nothing would inflict on me greater pain in quitting this
place than the recollection that I had done anything to justify the reproach that the equity
of this court varies like the Chancellor’s foot.

 Beginning in the late 17th century until recently (2012-2018), the Chancellor was
always a lawyer.
 This in turn led to the increasing systematisation of equity.
 Decisions were reported and precedent followed so that equity became as settled
as the common law.
This is important because one of the key principles of the rule of law that embody modern
legal systems is equality before the law.
 Such equality cannot be achieved if the rule is itself arbitrary.

 Despite the triumph of equity over common law and its increasing systemisation,
problems still plagued both equity itself and the dual system of courts in the 18th
and 19th century.
 Equity became notorious for delays owing to personnel issues, most famously
satirised by Charles Dickens in his novel Bleak House (1852- 1853).
 The need for litigants to navigate the dual court structure added greatly to
confusion and cost as litigants needed to determine which court they had to start
their case at depending on the relief they wished to obtain.

Two Systems combined

 This led eventually to the fusion of the administration of law and equity through
the Judicature Acts 1873 and 1875.
 The Judicature Acts 1873 and 1875 provided all judges of the Supreme Court both
common law and equitable jurisdiction, regardless of the division in which they sat.
 The concurrent jurisdiction meant that a separate action in the Chancery to obtain
equitable relief was no longer necessary.
  The common injunction was abolished and equity’s supremacy was instead
enshrined in s 25 of the Judicature Act 1873, which is the predecessor provision for
s16(1) High Court Ordinance and s 48(2) District Court Ordinance in Hong Kong.

Application in Hong Kong

Section 16(1) High Court Ordinance (Cap 4):
“The Court of Appeal and the Court of First Instance, when exercising jurisdiction in any civil
cause or matter, shall continue to administer law and equity on the basis that, wherever
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 shall prevail.”

Section 48(2) District Court Ordinance (Cap 336):

“The Court has to administer law and equity so that, if there is a conflict or variance
between the rules of equity and the rules of the common law referring to the same matter,
the rules of equity prevail.”

 It is notable that although Hong Kong was colonised before the passing of the
Judicature Acts 1873 and 1875, the administration of law and equity was always
fused.
 This was the case in many of Britain’s later colonies, including Singapore
 One of the latest jurisdictions to fuse the administration of law and equity was the
state of New South Wales in Australia, which only introduced s44 of the Supreme
Court Act 1970 (NSW) in 1972.

Fusion and Separate rules

 The orthodox view of the reforms by the Judicature Acts 1873 and 1875 are that
they only fused the administration of common law and equity but not their
substantive rules:
“[T]he two streams of jurisprudence, though they run in the same channel, run side by side,
and do not mingle their waters.” (do not need to know)
 But in the 20th century, some prominent judges, including Lord Denning and Lord
Diplock suggested that the reforms led also to the fusion of law and equity in
substance.

Modern debate
By now, the debate on fusion no longer rested on the Judicature Acts 1873 and 1875 per se
but rather logic, rationality and harmonisation. See Andrew Burrows, “We Do This At
Common Law But That In Equity” (2002) 22 OJLS 1.

Introduction to Trusts
 The trust was developed out of its predecessor concept, the use, which was also
developed by the Chancery.
 If land is conveyed to X to the use of Y, then although X was the legal owner of the
land, he was obliged to apply it for the benefit of Y.
  X was termed the feoffee to use (from Latin “foedus”) and Y the cestui que use (from
Latin “they who use”).

X (trustee) ---- holding property ---- > Y (beneficiary)

“’until u reach 18 ..”

 The use was a popular device for landholding because it allowed its users to avoid
the rules of heirship. Real property historically could not be freely willed away but
instead passed to the holder’s heir.
 It also allowed its users to avoid feudal incidents such as relief, which was a fee
charged by a lord to release the land and permit it to pass to his tenant’s heir by
succession.
 By vesting the land in a group of feoffees, who were unlikely to die at the same time,
and devising only the equitable title, the use enabled its users to avoid this form of
medieval estate duty – way of avoiding tax
 Every time a feoffee died, he would be replaced by another feoffee so that the legal
title would never pass by succession.
 Ability of trusts back in the day, one would succeed another by virtue of
relationship of the land but trusts could avoid that to give it to whoever you
want instead of successor

 Given the advantages of the use, it should be no surprise that by 1500, the majority
of land in England was held in use.
 This in turn gave rise to the presumption of resulting trust
o Particular relationship between beneficiary and trustee -as beneficiary you
hold property for trustee - How do you know a trust exists – I put the money
in, I am the beneficial owner – the relationship is resulting trust
 The effectiveness of the use as a tax avoidance device understandably drew the
attention of the King, who had all to lose and nothing to gain as ultimate landlord.
 King Henry VIII accordingly passed the Statute of Uses 1535 to “execute” the use
and thereby vest the legal estate in the cestui que use (i.e., beneficiary).
Realised the trust mechanism was being used to avoid taxes

 This led to the legal innovation of a “use upon a use”, whereby land was conveyed
“to X, to the use of Y, to the use of Z”.
 The first use (to Y) was executed so that legal title would vest in Y rather than X.
 However, the second use (to Z) would remain unexecuted and be enforced by the
Chancery as a trust by the end of the 16th century.
 This led to the observation by Lord Hardwicke in Hopkins v Hopkins (1739) 1 Atk 581
that the Statute of Uses “has had no other effect than to add at most, three words to
a conveyance.”

 By now, however, the trust was serving far more social functions than feudal tax
avoidance.
 These included the enablement of married women to hold property independently
of their husbands.
  Further developments such as the discretionary trust (to X on trust for such of the
children of Y as he may choose) and investment powers (allowing the trustee to sell
the trust assets and replace them with other assets) within trust deeds further
improved the attractiveness of trusts.
 The trust is now the foundation of many modern innovations in commerce in
common law jurisdictions such as modern dematerialised securities (i.e. shares)
holdings.

 The essence of the modern trust is the separation of the powers of management
from the right to beneficial enjoyment.
 The beneficial interest under trust is often regarded as a less durable analogue of
legal title.
 Whereas legal title to land at common law bind the world at large without
exception, equitable title supposedly only bound the world at large except the (i)
bona fide (ii) purchaser (iii) of the legal estate (iv) for value (v) without notice (i.e.,
equity’s darling).
 Law and equity are opposed, giving different answers to the question of who
owned property, with equity prevailing over the common law.

Equity’s Darling
 Although the equitable obligation undertaken by an express trustee was replicated
as against many third parties, including heirs, creditors, purchasers with notice and
donees, it was never replicated against “equity’s darling”:
(i) The Bona fide
(ii) purchaser
(iii) for value
(iv) of the legal estate
(v) without notice
 This is not a rule so much concerned with protecting bona fide purchase but
essentially a jurisdictional one.

Equitable Maxims
 Equity will not suffer a wrong to be without a remedy.
 Equity follows the law.
 He who seeks equity must do equity.
 He who comes to equity must come with clean hands.
 Delay defeats equity.
 Equality is equity.
 Equity has regard to the intent rather than the form.
 Equity will not assist a volunteer.
 Equity regards as done that which ought to be done.
 Equity acts in personam.
The maxims of equity are not binding rules but flexible meta- principles for equitable
intervention.
As Mason CJ and McHugh J observed in Corin v Patton (1990) 169 CLR 540:
“Of course it would be a mistake to set too much store by the maxim. Like other maxims of
equity, it is not a specific rule or principle of law. It is a summary statement of a broad
theme which underlies equitable concepts and principles. Its precise scope is necessarily ill-
defined and somewhat uncertain.”
Can rely on these maxims to assist your claim in court, can rely when certain facts unclear

Application to Land Law

Common law principles only allows for damages – is it adequate? – not in property law the
adequate remedies as land is unique – by virtue of you owning the thing, u are entitled to
have it back
o Courts reluctant to push for anything that deals w generic goods
These concepts are rules govern by equity:
 Specific Performance
 Trusts in land
 Equitable and legal ownership