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Contributions of Equity and Trust in Australia
Australia’s non-statutory laws are divided into two facets – Equity and Common Law. The Common Law primarily protects the rights of citizen in a unifying common law all over the country (Cannon , 2008) English Common Law was brought to Australia upon the British colonizing years, during their settlement in New South Whales in the year 1788 and was later extended to other Australian colonies (Ong, 2007). Common Law finally provided a common legal structure in England in the early medieval period. However, there were some aspects in legal court trials which did not give justice and fairness to complainants and defendants alike. In response, King James appointed a Lord Chancellor, who was to give the fair trial and summon defendants to ensure that they are going to act in ‘conscience’ with their agreements (Hudson, 2008). This gave birth to the early principles of Equity, which primarily existed to address the limitations and injustices which the legal common law provided.
The concept of equity relied on the knowledge that there some social dilemmas which are hard to appease under a legal court. Imposition of common laws required that it be applied strictly and literally, which at various cases may provide injustices and unfair judgment. Equity paved way to the formation of another important aspect in non-statutory law and that is the Trust (Hepburn, 2001). Trust provided an assurance for the equity court to prevent misdeeds and unconscionable acts from the defendants and complainants. It served as a means to prevent parties from withdrawing their individual shares from their joint properties. And in modern aspects, the trust scheme paved way to more important systems such as Australia’s Superannuation and Pension schemes.
It is the aim of this paper to see how Equity and Trusts work and what these have generally contributed to Australian society. Statement of the Problem
Specifically, this research aims to answer the following questions:
1. What is the relationship between Common law and Equity?
2. What is the role of Equity and Trust in Australian court rulings? And why are these important?
3. What is the current trend in Equity and Trust applications in Australia?
Review of Related Literature
History of the Common Law and Equity
Common Law was born primarily out of the Norman Conquest of 1066 when the Normans introduced the new legal system to the entire kingdom of England, after the consolidation of a series of tribal wars which existed between the English and the Welsh (Hudson, 2001). This law was imposed on the entire kingdom of England and according to Hudson (2001), was arguably the first single and ‘common’ legal system that the kingdom has had. During the medieval times, in order to hear concerns of people brought before the Crown, King Henry II established the courts of ‘King’s Bench’ which gave birth to the early principles of common law (Hudson, 2001). Together with this were two other common law courts – the Common Pleas and Exchequer (Edwards, ). During the medieval period, plaintiffs who think they were unjustly ruled by the Common Law courts may pass their petition to the King, who in turn, transfers the concern to the Lord Chancellor (Edwards, ). The Lord Chancellor does not play the role of a central judge, but instead is the keeper of the Great Seal and the one who authenticates writs and the one empowered to issue royal writs in behalf of the Crown (Edwards, and Hudson, 2001). It was the Lord Chancellor’s job to summon defendants so that they can justify their behaviour before him (Hudson, 2001). The Lord Chancellor may serve even after the judgment of the common law has been given, to ensure that the defendant will not do deeds to overturn the statutes of Common Law (Hudson, 2001). The reasons given and the decision made by the King’s council, including the Lord Chancellor to give further trial to a defendant developed into a distinct law system which now is known as Equity (Ong, 2007). However, it soon came to a point that adjudicators of the Common Law resented the Lord Chancellor’s power to create injunctions for defendants to avoid pain of imprisonment because they thought this was bending the law of commons (Ong, 2007). The Lord Chancellor’s right to issue injunctions received disputes from the Lord Coke and the Lord Chief Justice in the Lord of Oxford’s case in 1615, but was resolved by King James I by deciding that ‘wherever equity conflicted with the common law, equity would prevail’ (Ong, 2007:2).
Now in modern times, equity evolved into a more sophisticated system which deals with more complex facets of social dilemma. It is important to make the distinction between Common Law and Equity. As stated by Hudson (2008), Common Law deals with claims such as ‘breach of contract’, ‘negligence’ and ‘fraud’, to name a few, by which are remedied by ‘damages’, ‘common law tracing’ and ‘money had and received’. On the other hand, Equity claims can be ‘breach of trust’, ‘tracing property’ and ‘claiming property in insolvency’ which may be remedied by ‘compensation, equitable tracing, specific performance, injunction, rescission, rectification, imposition of constructive trust or resulting trust, subrogation and account’. In other words according to Hudson (2008), equity deals with discretionary remedies to prevent unjust behaviour while Common Law more concerned with the return of a particular property and awards of money pertaining to loss.
What is Equity?
In 1615, Equity was described as the ‘collection of legal principles that allowed the courts to reach fair results in cases in which it appeared that the rigour of the common law that would otherwise have led to injustice’ (Hudson, 2008: 5). It evolved from the manner of giving petitions to the King even as early as the late 3th century (Hudson, 2004). According to Aristotle, equity was a more significant principle because it enabled the courts in any particular case to come to the best possible result on the facts given by the plaintiff (Hudson, 2008).
According to Hudson, Equity primarily works in situations wherein strict application of law would provide unfair ruling for particular situations. As a hypothetical example, Hudson tells the case of Bertha. Supposedly, a statute provides that a reward will be given to anyone who wears an orange Doc Martin boots and presents themselves on the Town Hall at a particular time. However, along Bertha’s way to the Town Hall, she encountered the muddy parking lot which stained her orange boots muddy brown. By legal rule of the statute, Bertha is now not qualified from claiming her reward because her boots now appear brown instead of orange. It is at this point that judges will have to reach a conclusion even if it is contrary to what the literal statute says. And at this particular point, according to Hudson is when Equity charges in.
Most importantly, there is a contention that ‘Equity provides citizens with the possibility of liberty in the face of the system’ (Hudson, 2008: 4), so that each person will have a chance to express their own stories and have a chance to achieve fair judgement in the courts.
What is Trust?
Because of the injustices caused by the rigid application of statutory laws, Trust grew out of the system of Equity which was also used to manage ‘commercial, public and private property’ (Hudson, 2008: 5). There is also a significant historical roots to the formation of trust which takes us back to the time of the crusaders in Europe in the 13th century (Hudson, 2008). English noblemen who were part of the crusade also owned lands in the feudal system, and they were away for most of the time which required them to leave behind their lands to trusted individuals or trustees who will take care of their properties, but the ultimate property rights still remain with the original landowner as the beneficiary (Hudson, 2008). In a sense, according to Hudson (2008), the main concept of trust developed from taking care of lands which then evolved to the modern forms and facets of trust that exist today.
There are three categories of trust, these are ‘express trusts’, ‘resulting’ or ‘implied trusts’ and ‘constructive trusts’ (Ong, 2007). These kinds of trusts are defined by the nature of their creation; express trust is created by ‘express intention’, resulting trust from an ‘implied intention’ while constructive trust is placed on someone to prevent him or her from acts of ‘unconscionable assertion of ownership over property’ (Ong, 2007:3). In modern trust, express trusts exist in ‘trust funds’ wherein absolute power of the trust fund comes from the ‘settlor’ who appoints trustees to hold trusts for beneficiaries, these are intentionally created by the settlor (Hudson, 2008). On the other hand, resulting and constructive trusts are imposed by the courts (Hudson, 2008). Resulting trusts are those wherein parties have not created express trusts; it exists under two circumstances which is the ‘automatic resulting trust’ where a settlor creates a trust but the trustees have not yet identified beneficiaries for the trust; and ‘purchase price resulting trusts’ wherein if two acquire a common property, the equity court will provide them with equitable interest which is only proportional to how much they have contributed in order to acquire that property (Hudson, 2008). Lastly, constructive trusts are those imposed by the equity court to ‘construe’ a defendant into becoming a trustee of a particular property, thus preventing that person to commit unconscionable acts (Hudson, 2008).
Presentation of Facts and Analysis
The Relationship between Common Law and Equity
As what has been found in the literature, Equity was born out of the inadequacies of common law to move beyond the literal application of laws and the lack of writs for specific wrongs encountered by the people (Hudson, 2008). Simply put, equity served what common law was unable to justify. Equity in principle was made to provide justice to those which were denied proper trial in the common law, because the strict rules may not always create the fairest rulings in the court. The relationship between common law and equity has been one filled with resentment in the early times, when common law judiciaries found that the Lord Chancellor exercised ‘too much freedom’ in deciding whether to give injunction to plaintiff or defendants. But then, it has always come to the point that whether in conflict with the law, equity will and must always prevail and must be exercised.
The Role of Equity and Trust
It is said that people are always fearful of chaos and crave order; it is for this reason that equity addresses chaos in the world through providing ‘flexible claims’ and ‘remedies’ (Hudson, 2005). Equity prevents a defendant from acting unconscionably specifically relating to trustees dealing with beneficiary’s property, a claimant’s fear that that a defendant may move his or her properties out of the jurisdiction before a trial begins and if a defendant fails to perform his or her role in the contract established (Hudson, 2008). In other words according to Hudson, he explains that equity courts ensure that any defendant will act in good conscience and observe the trust established with the complainant, and that he or she may refrain from taking out his or her share of the property.
On the 17th century, the maxims of Equity were developed which described how the court of Equity dealt with disputes (Edwards, ). The first maxim is that “Equity will not suffer a wrong without a remedy" which explains that equity may always opt to remedy injustices even when a writ did not exist in common law (Edwards, :7). The next is that “Equity follows the law" which interprets that equity only served as a supplement of the common law and further remedies whenever common law was inadequate or did not serve justice to any party (Edwards, :7). Furthermore, equity also ensures that a claimant may not establish a claim which he or she has not acted in conscionably himself or herself (Hudson, 2008). In other words, it is said that “He who seeks equity must do equity" (Hudson, 2008: 10). Likewise, it was also said that “He who comes to equity must come with clean hands" (Hudson, 2008: 10), as in the case referred to by Hudson which involved a company director who was refused to be given an equity trial by the court when he asked monetary recognition for the services and work he has offered the company because he has committed criminal offenses in the first place (Guinness vs Sander, (1990) as cited in Hudson, 2008).
Moreover, when there is no clear distinction as to the scale of the merits of the claimant’s arguments, the court will always refer to “Equality is equity" which contends that complainants must be treated equally as last resort if it cannot be distinguished which among the complainants carry a larger share of the property (Hudson, 2008). Another maxim of equity is that “Equity serves the vigilant and not the tardy", wherein plaintiffs will be denied relief if they fail to submit or create seek equitable assistance within the required time (Edwards, 2000:8). The maxim which says, “Equity looks to the intent rather than the form" interprets that equity focuses more on operation or intent of a trust rather than wording or presentation of a deed or legal documents; another maxim is that “Equity looks at what ought to be done as being done" implying that equity would consider any agreement complete even before it is approved in the common law court; another is “Equity acts in personam" or that equitable remedies are personal obligations in nature and not proprietary; and lastly, “Equity will not assist a volunteer" which says that equity will not be concerned with people who have no ‘consideration’ or monetary value in the agreement (Edwards, 2000:8).
The relationship between a trustee and a beneficiary is constituted whenever legal or equitable title is laid upon in one or more trustees for the enjoyment of beneficiaries or with people to whom the title has been vested upon in partnership with other trustees or beneficiaries as well (Ong, 2007). Trust is also vested in many ways depending if it has legal or equitable roots. A trust of relevant property is created when a trustee is vested with a legal title. A sub-trust is created when a title laid down on a trustee is a ‘beneficial interest trust under a trust’ itself; while a trust of equitable interest is created when the title vested is from an equitable trust and not from a beneficial interest (Ong, 2007). Moreover, according to Ong (2007), a trust may also be vested by an ‘absolute owner of property’ for the benefit of ‘another’, ‘another and himself’, for ‘others’ (Ong, 2007:4). On the other hand, sub-trust is created when declaration of trust is made by an ‘equitable owner’; however, both absolute and equitable owners cannot declare a trust for selfish benefits alone (Ong, 2007).
In Australia, trust funds have become a very important structure in retirement schemes; and likewise, Superannuation and Pension funds were derived from these trust funds (Hepburn, 2001). Contributory schemes in superannuation, basically establishes a board of trustees who will hold a fund in the trust to provide benefits to retiring employees (Hepburn, 2001).
Development, Trends and Issues
According to Cope (1995), the society develops more and more complex dilemmas which require the evolvement in equity courts. However, property disputes remain one main area in which equitable intervention plays a major role. Most of the recent trends in trusts exist now in forms of Superannuation and Pension funds, which however, created problems because contribution schemes for these programs became an obligatory aspect for most employees, placing much tension on the equitable relationships (Hepburn, 2001). Not only these, equity and trust also gained ethical issues when the Australian society became more complex and demanded more from the government and the public sector (Elliot, 2007). According to Elliot (2007), trust in the Australian government has been increasing in pressure. Over the years, it has been contended that the judicial system failed to fill the gap between the public sector and the parliament which became weaker (Elliot, 2007). In effect, citizen started seeking out justice from non-governmental organizations.
The relationship between Common Law and Equity have is one which is described to be effective when it comes hand in hand but cannot be mixed together. Although, there were past conflicts in the legal judiciary and equity court, it is still held that equity must and will always prevail at all times.
Equity served as a means for people to achieve justice even though legal court denied them of reaching fairness. Equity became a means of appeasing conflicts in the fairest way, in such cases as property disputes to be resolved in discretionary measures which will ensure that both complainant and dependent will act in conscience. It is now evident that Australia’s equity and trusts laws primarily adopt the test of ‘unconscionability’ which focuses on objectively assessing the claimant’s and defendant’s party and so that it can be made sure that both parties will not remove their share of properties through the help of constructive trusts (Ramjohn, 2008). Through equity and trust, the limitations of the common law were addressed and it has been established that the literal application of legal laws may not always work for most societal dilemmas. Most rightfully regarded is the fact that Australian society is constantly evolving and now has placed more pressure on the Australian government as ever than before. Despite the knowledge that the judicial court of Australia may have been unable to provide an appeasement between the parliament and the public sector, such that the citizen’s trust declined which led most individuals to seek justice in non-governmental organizations. However, a positive effect of the trust and equity systems in Australia has been the imposition of Superannuation and Pension schemes, which gave employees the chance to participate in trust funds and benefit from this scheme. However, there is still a contention that this may have a negative implication of equitable relationships between employer and employee as the employees are obliged to contribute to these trust funds. Nonetheless, equity and trust still remain strong forces in the Australian society which have greatly provided justice beyond legal court rulings.
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