Feature Report on the Law of Equity May/June 2008

[White Wolf]

Equity: the Law of Judicial Conscience

Fog everywhere … and hard … at the very heart of the fog, sits the Lord High Chancellor in his High Court of Chancery.
—Charles Dickens, Bleak House,
Everyman ed., p. 1

May/June 2008
Feature Report on the Law of Equity
Charles Dickens, in this quote from his book Bleak House, (pictured above) did not have a high view of equity, which was in his day dispensed by the Chancellor. He warned, “suffer any wrong that can be done you, rather than come here!”
How did this category of law called “equity” emerge, what is it, and has its reputation improved today in Canada? This article will briefly examine those questions around an outline of some of the main equitable doctrines.

Strict Common Law Needs Relief
Every legal system needs to have fixed and certain rules to apply to disputes and to guide behaviour. People need to know what the rules are and how they will be applied before they act. The common law judges and the system in which they work create and apply these predictable legal doctrines with relative efficiency. An example of these common law rules is that one is bound by what one signs. This means the documents are conclusive and the contract is binding, but what if the parties’ true agreement was misstated or if the terms were so egregiously unfair for one side as to strike against anyone’s conscience? Other common law principles hold that property is owned by whose name is on title to it (even if this was a mistake or fraud), and the remedy available to aggrieved parties is money compensation called damages (what if the innocent party really wanted the original contract to be enforced?).

However, an unwavering focus on fixed rules can itself lead to injustice in some cases.

As with most systems with fixed rules (such as corporate policies), exceptions need to be made occasionally, in the interests of justice. The strictness of legal rules, applied in every case, must be offset by some flexibility to ensure greater fairness. This objective of general predictability and efficiency (common law) co-exists along side the objective of individual discretion and flexibility to facilitate justice in special cases (equity).

The Court of Equity (also called Chancery) was set up by the King to relieve against the strictness of the common law. A party unhappy with the outcome in the common law court could appeal to the King and later to his designate, the Chancellor. The King, as sovereign, retained complete discretion to grant relief from the common law to achieve fairness in individual cases. People came calling for the King’s justice, by petitioning the Chancellor, who was usually a clergyman, for a new solution to their problem. It became a court of second chances. Since the Judicature Acts of the 1880s, common law and equity are merged in superior trial courts, where the judge can grant a common law or equitable remedy.

Relationship Between Common Law and Equity
Legal and equitable rules are largely complementary. To the extent they are contradictory, equity prevails because the Chancellor could imprison those who disregarded his orders. Equity can command someone to do (eg. specific performance) or not do something (eg. injunction). Therefore, someone might have common law title to land, but be prevented by equity from exercising all rights to that land, in favour of another person (eg. constructive trust).

Equitable remedies are completely left to the discretion of the judge. This contrasts to the common law right of damages for breach of contract. Therefore, to illustrate this point, there is no right to rectify a contract, or to stop a company or government from acting in some way that is otherwise legal (injunction). The overall circumstances in each case will be carefully scrutinized as to what the needs of justice are, in maxims such as “irreparable harm,” “unconscionable,” and “the balance of convenience.”

One opposing an equitable remedy can assert various defences that do not apply to common law remedies. The judge will not grant an equitable remedy where the applicant is not himself faultless in the dispute (“clean hands”) or has taken too long to ask for the remedy (laches). In other words, to obtain the grace of equity, one must also have shown equity to the other side. Equity goes both ways.

There is a maxim that “equity will not aid a volunteer.” In other words, someone asking for equity must be invested in the relationship or contract, and not merely a bystander. Also, judges look for “mutuality,” which means that both parties would generally have qualify for equity if one is to receive it. Since this is about fairness, the judge will also look at any personal hardship occasioned by the order. Special attention is paid to negative covenants (promises not to do something) and there are several cases dealing with promises to keep businesses open. The court will also consider what legal remedies the parties themselves stipulated at the beginning of their legal relationship.

The judge will also withhold discretion to grant equity if a common law remedy would be adequate in the case, or if it is not feasible because the court would have to supervise performance over a long period of time or direct someone to do a creative act.

Therefore, if you finally got front row seats to see your favourite performer in concert and she cancelled for no valid legal reason, equity would not force her to perform the concert. A hockey player cannot be forced to play hockey to fulfill contractual commitments. Presumably, creative or athletic performance under protest is no performance really worth ordering.

It should be clear that equity makes the law and legal outcomes more ambiguous and harder to predict. Litigation may increase as more people attempt to state a special, idiosyncratic context for equitable relief. Entire common law rules might be ignored at the prompting of the judge’s conscience.

Equity Based Upon Concept of Trust
Equity is largely based on the broad ownership-dividing concept of trust. This is sometimes described as how the conscience of equity finds its expression. Trust obligations are difficult to codify in statute because they appear in unlimited factual variations. We all make mistakes. We rely upon unwritten, oral promises made by others. We trust others and then find that trust violated. People abuse the power they exercise over others. While breaches of trust are hard to define and catalogue, we know them when we fall victim to them. How could we legislate rules to cover all those possible scenarios? Trust and fairness are inextricably linked and equity can even be used to trump legislation when it is seen to be fair to do so.

For example, in the mid-1980s case of Becker v. Pettkus, a woman had been living for decades with a man in Ontario. While not formally married, they were living as husband and wife and she contributed many years of hard work to their bee-keeping business. When they eventually split, the business and other assets were in the man’s name. The common law and domestic property legislation at that time stipulated that all the property belonged to the man. The Supreme Court of Canada invoked the equitable remedy of constructive trust and ordered the man to hold half the property and value for the woman.

Other trust-related principles relate to breaches of confidential information. In another well known case, Lac Minerals v. Corona Resources, the junior mining company (Corona) contracted with the big mining company (Lac) to employ its expertise in exploration and development of a gold property in northern Ontario. When Lac learned of the drilling test outcomes from Corona, Lac secretly proceeded to buy up the rights to the property and then built the mine. The Supreme Court found this conduct to violate commercial morality and applied equity. The economic and reputational consequences were monumental to Lac, as they often are in cases of breaches of equitable obligations. Lac had to turn its gold mine over to Corona.

Fiduciary duty is an equitable obligation that some lawyers say is the highest civil obligation known to all of law. Anyone in a position of superior power over another’s interests owes a fiduciary or trust duty not to take personal advantage of that power differential. This translates to fiduciaries having to put those vulnerable others’ interests ahead of their own, and not to act in any way that conflicts with the others’ interests.

Physicians and lawyers stand in a powerful fiduciary position and must not to exploit their patients and clients by betraying confidential information or entering into intimate relationships with them while under care. A trustee of an estate to be distributed to others is a fiduciary.

Directors and officers of corporations entirely manage and represent the interests of their companies. With their superior inside knowledge of corporate operations, they must not appropriate corporate opportunities to themselves (otherwise there would be nothing valuable left for the company). They must not compete with the company, or personally transact with the company. This would put them in a conflict of interest position and the interests of the company would likely be compromised.

There are some procedural safeguards in place to allow self-interested transactions, but the consequences of breaching this fiduciary duty include transferring to the company all profits earned from the breach.

An Outline of Equitable Doctrines
Equity as practised in Canada today encompasses procedural and substantive fairness. Much of equity law to date has developed around contracts, real property, and management relational power. The chart on this page shows shows some of the main principles in several categories. An introductory article such as this does not permit a more detailed description and treatment of each principle.

Conclusion
The reason for Dickens’ dark view of equity at the end of the nineteenth century was because, ironically, it had become at least as rigid as the common law it was supposed to redress. The Chancery got a bad reputation as equitable principles became the “fog” Dickens referred to, and justice depended on the “length of the Chancellor’s foot.” Equity was vexed by too much discretion on one hand and what became an unduly rigid application of its own rules on the other. It was also not viewed as the most relevant, applicable law. No one was happy with equity in Dickens time.

Modern equity is well-entrenched in Canadian law. It is accepted for the purpose it originally arose, to provide relief and remedies for those in extraordinary cases where the common law does not adequately serve the ends of justice. Unlike in Dickens’ time, most Canadians do not understand how equity is different from the common law or legislation and today there is no particular need to distinguish them in every day life. What was justice according to the length of the judge’s foot has been replaced by justice according to the judge’s (and ideally, society’s) conscience. Like the common law, judges will continue to create and shape equitable principles to meet the needs of a changing society.

Peter Bowal is a Professor of Law with the Haskayne School of Business, University of Calgary.

Modern equity is well-entrenched in Canadian law. It is accepted for the purpose it originally arose, to provide relief and remedies for those in extraordinary cases where the common law does not adequately serve the ends of justice.

Link:
Bowal_Equity2008_LawNow.pdf https://sha ... dff0fgccgd



In other words, to obtain the grace of equity, one must also have shown equity to the other side. Equity goes both ways.



People came calling for the King’s justice, by petitioning the Chancellor, who was usually a clergyman, for a new solution to their problem. It became a court of second chances.



Fiduciary duty is an equitable obligation that some lawyers say is the highest civil obligation known to all of law. Anyone in a position of superior power over another’s interests owes a fiduciary or trust duty not to take personal advantage of that power differential.