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The development and use of equity law

Abstract

The brief deals with the question on how equity evolves to provide a remedy where the common law falls short. It first discusses what equity is and how it was created to temper the harsh and strict rules of the common law. The brief then discusses two recent examples where equity provided a remedy where there did not exist one before. The brief discusses the Mareva Injunction from its first appearance to the development thereof into a worldwide Mareva Injunction. The brief then discusses the Anton Piller order from its first appearance to its acceptance in legislation through to the so called rolling Anton Piller order that is found in Canada to provide a remedy against piracy by flea market sellers.

Introduction

The quoted passage comes from Lord Selborne LC in the judgment of Wilson v Northampton and Banbury Junction Railway Co. [1] It has often been quoted in various judgments and creates the impression that equity is a very flexible instrument. Equity does however have to comply with the rules of precedent.

On the other hand equity’s development may also appear as inflexible and rigid as the common law which equity is supposed to temper. The legal system under the common law was based on writs and if a writ did not exist the courts could not provide a remedy to the aggrieved party. As a result of this people took their cases to the King as the fountain of all justice and requested him for relief.

The King delegated the decision making to the Chancery who used to be an ecclesiastic. The court of equity thus developed.

The courts still have some discretion in equity and there are some potential for judges to determine disputes. Equity exists to do more perfect and complete justice than would be the result if the parties had to rely on the common law to determine their disputes.

The courts have used equity in various cases to provide a remedy for a plaintiff. Equity acts in personam so that a person is restrained or ordered to act in a specific manner. It is therefore based on the person. Property (in rem) is the domain of the common law. In equity if a person did not heed the order of the court, the court will commit that party for contempt of court.

“…to do more perfect and complete justice" than would be the result of leaving the parties to their remedies at common law…”

In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [2] Lord Hoffman referred to the quote but refused to order specific performance of a lease agreement despite the fact that the Defendant clearly breached the terms of the lease agreement.

In Earl of Oxford’s Case [3] the common law courts held that a debt that had already been repaid had to be paid again since the deed upon which it was based has not been cancelled. The court of equity came to the rescue and found in favour of the debtor and rectified the deed.

The rule that where a conflict exists between equity and the common law equity prevails, is now enshrined in Section 49 of the Supreme Court Act, 1981.

We see the growth and development of equity in the acceptance of constructive trusts from domestic to the now largely commercial sphere.

Equity is evolutionary in nature. The supporters of the gradual evolution of the common law principles may not recognise the development of equity as we see in In re Hallett's Estate; Knatchbull v Hallett[4] where the Master of the Rolls said that it should not be forgotten that the rules of the courts of equity are not supposed to have been established since time immemorial as one expect the case to be with the common law rules.

The rules have been developed, improved and refined from time to time. It was equity that developed the fiduciary relationship, obligation of confidence, remedies of specific performance and injunction, the doctrine of satisfaction, ademption and election in the administration of deceased estates, principles governing fraud, mistake and undue influence, procedures of subpoena, interrogatories and discovery and more recently in Australia, unconscionable conduct[5].

The trust was an institution that only the court of chancery assumed jurisdiction over. Professor Maitland called the trust the most important invention of equity.[6]

Recent evolvement of Equity

I will now discuss some instances where the courts have turned to equity to protect the rights of parties where there existed no right under the common law and the law of equity had not evolved to the point where protection was generally accepted. In all the instances the protection was granted to avoid a grave injustice to a party.

Mareva[7] Injunction

The facts:

Mareva chartered their ship to the respondent. The parties agreed on a daily rate that was payable half monthly. The defendant chartered the ship to the president of India who paid £174,000.00 to the defendant. This money was held in a bank account in London.

After only two payments and whilst the ship was underway to India, the defendant informed the plaintiff that it was unable to continue with its payments. The payments that the defendant made came out of the money that was in the UK bank account. The plaintiff accepted the action of the defendant as amounting to repudiation of the agreement and brought an application to court to prevent the defendant from dissipating the funds in the bank account.

The court a quo granted a limited order. The matter was heard in the civil appeal division with Lord Denning giving the judgement of the court. The court extended the order.

Discussion:

Before the court granted the order in the Mareva[8] judgement, the court in Nippon Yusen Kaisha v Karageorgis[9] granted a similar order. The judge in the court a quo in the Mareva [10] judgement was in doubt whether he could follow the Nippon[11] decision in light of the judgement in Lister & Co v Stubbs[12]. In this case the court held that even if it were highly probable that the Plaintiff could show at a trial that a debt from the defendant was due to him or her, it was highly unlikely that a court will order a defendant to give security until the debt has been established by the court at the end of the trial. It is like getting judgement before the trial even begins and the court has heard the evidence. The court was not convinced that it had any jurisdiction to make an order to protect a creditor before judgement has been given in his or her favour.

In Mercedes-Benz A.G. v Herbert Heinz Horst Leiduck[13] Lord Nicholls of Birkenhead said that there is no black hole into which a defendant can disappear into in order to become unreachable to a plaintiff, when the court discussed the dilemma a plaintiff faces with international fraud by defendants.

The Mareva injunction was primarily designed to prevent foreign defendants from removing their assets from the jurisdiction of the courts.[14] The Defendant can defeat any claim that a plaintiff may have against him or her by removing his or her assets from the court’s jurisdiction to an overseas one.

The Mareva Injunction was later extended to cover domestic defendants so that the courts could also order security or freeze assets of domestic defendants to ensure that the Plaintiff‘s claim will not be defeated.

With the development of technology and the ease with which assets can be moved between countries, it was a natural progression that in 1990 the ability to obtain an order was extended to assets within and outside the court’s jurisdiction. The so called worldwide Mareva is recognised in Australia, New Zealand, Canada, Ireland and Hong Kong.[15] To obtain an order, both domestic and for a worldwide Mareva, the plaintiff had to show that it had a good arguable case on the merits and that there is a risk that the defendant may remove the assets from the court’s jurisdiction.

In Siskina (Owners of Cargo Lately Laden on Board) v Distos Compania Naviera S.A[16] the court in the UK held that if it does not have jurisdiction over the substantive proceedings the court will not grant the order. The court held that before the order can be granted there must be a cause of action on which to found the action. The right to obtain an interlocutory order is not a cause of action by itself.

The Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997 (S.I. 1997 No. 302) promulgated in the EU has extended the relief that was previously available and the UK courts now also have jurisdiction to grant a Mareva injunction irrespective of where the substantive proceedings are being tried and where the defendant and his or her assets are. This gives the UK courts enormous powers to protect the rights of plaintiffs.

In 1975, there existed no remedy for plaintiffs to protect their rights against unscrupulous defendants. The common law did not extend to granting a plaintiff the right to apply to freeze assets of a defendant within the court’s jurisdiction even if the defendant clearly owes the money and plaintiff is running a grave risk of not being able to recover the debt due to him or her.

At that stage it was clear that some form of protection was required given the fact that technology was evolving as was commerce and the law had to change to keep up with the development.

The court in Nippon[17] was brave enough to be the first to grant a similar order. The appeal court in Mareva followed in the same year.

The courts have thereby used its discretion in equity to develop a remedy that did not exist before. In 1975, the remedy was limited to freeze assets of foreigners to protect valid claims of plaintiffs and to ensure that if they are successful with their claim they have not won a pyrrhic victory and be unable to get satisfaction of the judgement.

As the Mareva injunction developed the courts were able to apply the rule to local defendants too. With the growth in commerce and as the co-operation between countries that are bound to each other in commerce grew the remedy was expanded to what is now known as the worldwide Mareva.

The advent of the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997 (S.I. 1997 No. 302) extended the right of the courts further and the UK courts are now able to make an order to freeze assets irrespective where the assets are, the defendant finds him or herself or where the substantive proceedings are.

We therefore see that what started out as a simple order in 1975 has grown into a very sophisticated weapon available to plaintiffs. The words that Lord Selborne uttered in 1879 still apply today as far as the Mareva injunction is concerned.

The purpose of the Mareva injunction is to enable the court to ensure that its orders are enforced and not to create any additional rights.

Anton Piller[18] Order

The Facts:

The plaintiff manufactured frequency converters for computers. The defendant was the United Kingdom agent of the plaintiff. The defendant was in secret communication with a German competitor of the plaintiff and was providing them with information about the plaintiff’s power unit and details of a new converter.

The plaintiff was afraid that the defendant may destroy documents relating to the plaintiff’s machines or designs when it became aware that the plaintiff was planning legal action and brought an ex parte application to the court asking the court for an order to authorise the plaintiff’s solicitor to enter the defendant’s premises to inspect all documents and to remove them to their office.

Discussion

There are startling similarities between the Mareva judgement and the Anton Piller case. Both cases were heard by Lord Denning MR and both cases were not the first to grant such and order. In 1975 Judge Tempelman granted a similar order in EMI Limited v Pandit[19].

Lord Denning stressed that the relief is extraordinary and should be exercised only where it was clear that it is essential that the plaintiff should be able to see the documents so that justice prevailed. Prior notice to the defendant creates the danger that vital evidence will be destroyed or other evidence will be suppressed or removed from the court’s jurisdiction. The defendant’s case will not be harmed by the order.

The order does not authorise the plaintiff’s solicitor to enter the premises against the defendant’s will. It does not authorise the breaking down of doors. It is not a search warrant and if the defendant refuses entry then this was to be disclosed to the judge at the trial and the defendant will be guilty of contempt of court. This is an order in personam and not one in rem. It attaches to the person of the defendant.

Because the order is a draconian one the requirements for Anton Piller relief are threefold:

  • There must be a strong prima facie case.
  • There must exist very serious potential or actual damage for the applicant; and
  • There must be clear evidence that the defendant has in his or her possession incriminating documents or things which there is a real possibility that, unless restrained, will be destroyed before an inter partes application can be made.

The Anton Piller order has been enshrined in legislation[20] and Rule 261 of the Uniform Civil Procedure Rules1999 now provides for the procedure relating to the Anton Piller Order.

On application, the court may make an order, without notice to the respondent, of a type requiring the respondent to permit the applicant or another person to enter the respondent’s premises and inspect or seize documents or other items.

An Anton Piller order may also require the respondent to disclose stated information relevant to the proceeding to which the order relates.

An Anton Piller order may also include an injunction restraining for a period of up to 7 days, anyone on whom the order is served from informing anyone else the order has been made.

The court may make the order on the conditions as to the persons by whom the order is to be carried out, retention of seized items and otherwise as the court considers appropriate.

The court may set aside or vary the order.

The Anton Piller Order has developed over time and is still developing as we see in the judgements of Columbia Picture Industries Inc. v Robinson[21] and Universal Thermosensors Ltd v Hibben.[22]

The Anton Piller order has also developed outside the UK in other common law countries. In Canada the Federal Court created what is now called the rolling Anton Piller order.

The first of these rolling orders were orders executed against street and flea market vendors. The order was brought by known trademark and copyright holders against defendants who possessed pirated video, CD, software, clothing and other apparel. The affidavit it submitted in evidence will provide specific details of infringement.

After a number of site specific orders were granted these would then be used to show more widespread infringement at many flea market locations.

The defendants are not known so the names John and Jane Doe will appear on the style of the cause. By 1990’s about 50 rolling orders have attracted several hundred defendants to the proceeding.

Lord Denning once again provided an equitable remedy to protect a potential grave injustice to a plaintiff. The remedy was so effective that it received statutory approval and thus became part of the common law.

The remedy developed over time as we see in the Columbia and Universal judgements and in Canada was innovatively used to provide for the so called rolling Anton Piller order and thus protecting copyright and trademark owners against infringement of their rights by persons selling pirated goods at street and flea market stalls.

The famous quote of Lord Denning in1975 still rings true today:[23]

“Equity is not past the age of child bearing”

Bibliography

Books

  • Dal Pont, GE. & Chalmers, DRC: Equity and Trusts in Australia and New Zealand, 2000 Second Edition, LBC Information Services.
  • Gummow, WMC., Change and Continuity: Statute, Equity, and Federalism 1999 Oxford University Press

Legislation

  • Supreme Court Act, 1981
  • Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997 (S.I. 1997 No. 302)
  • Uniform Civil Procedure Rules1999

Cases

  • Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1
  • Commercial Bank of Australia Limited v Amadio (1983) 151 CLR
  • Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213
  • Nippon Yusen Kaisha v Karageorgis[1975] 1 WLR 1093
  • Lister & Co v Stubbs(1890) 45 Ch.D.1,13
  • Mercedes-Benz A.G. v Herbert Heinz Horst Leiduck [1996] AC 284
  • Crédit Suisse Fides Trust S.A. v Cuoghi [1998] QB 818
  • Babanaft International Co. SA v Bassatne and Another [1990] Ch. 13
  • Hospital Poducts Ltd v Ballabil Holding Pty Ltd [1984] 2 NSWLR 662
  • Mooney v Orr [1994] BCJ No 2322
  • Asean Resources Ltd v Ka-Wah International Merchant Finance Ltd [1987] LRC (Comm) 835
  • Powerscourt Estates v Gallagher & Gallagher [1984] ILRM 123
  • Solvalub Ltd v Match Investments Ltd [1998] ILPr 419
  • Zietlow v Simon (1991) 4 PRNZ 373
  • Siskina (Owners of Cargo Lately Laden on Board) v Distos Compania Naviera S.A
  • Anton Piller KG v Manufacturing Processes Ltd [1976] 1 Ch 55
  • EMI Limited v Pandit[1975] 1 All ER 418
  • Columbia Picture Industries Inc. v Robinson [1986] 3 All ER 338
  • Universal Thermosensors Ltd v Hibben [1992] 1WLR 840
  • Eves v Eves [1975] 1 WLR 1338, CA

Journals

  • Dunn, A., Review: Equity is Dead. Long Live Equity! 1999 Modern Law Review
  • Malet-Deraedt, F., The Siskina is Listing. Fire the Last Salvo, The New Zealand Postgraduate Law E-Journal issue 2 / 2005

Other sources

  • Paper presented to the Annual Litigation Conference by Rachelle Lewitan Q.C. on 16 September 1999
  • Berryman, J., Recent Developments in Anton Piller Orders: John and Jane Doe, rolling along in Canada, Oxford Intellectual Property Research Centre Working Paper, Series No 4 November 2001
  • Ong, D.S.K., Unsatisfactory Aspects of the Mareva Order and the Anton Piller Order, Bond Law Review, Issue 1 Vol 17, Article 5 (2005)

Internet


Footnotes

[1] (1879) LR 9 Ch App 279

[2] [1998] AC 1

[3] (1615) 1 Rep Ch 1

[4] I3 Ch. D. 696 (I879)

[5] Commercial Bank of Australia Limited v Amadio (1983) 151 CLR

[6] Brunyate ed, Maitland’s Equity, Cambridge University Press, (1936)

[7] Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213

[8] (Op. cit.)

[9] [1975] 1 WLR 1093.

[10] (Op. cit.)

[11] (Op. cit.)

[12] (1890) 45 Ch.D.1,13

[13] [1996] AC 284

[14] Crédit Suisse Fides Trust S.A. v Cuoghi [1998] QB 818

[15] Babanaft International Co. SA v Bassatne and Another [1990] Ch. 13, Hospital Poducts Ltd v Ballabil Holding Pty Ltd [1984] 2 NSWLR 662, Mooney v Orr [1994] BCJ No 2322, Asean Resources Ltd v Ka-Wah International Merchant Finance Ltd [1987] LRC (Comm) 835, Powerscourt Estates v Gallagher & Gallagher [1984] ILRM 123, Solvalub Ltd v Match Investments Ltd [1998] ILPr 419, Zietlow v Simon (1991) 4 PRNZ 373

[16] [1979] AC 210

[17] (Op. cit.)

[18] Anton Piller KG v Manufacturing Processes Ltd [1976] 1 Ch 55

[19] [1975] 1 All ER 418

[20] The Supreme Court Act 1981 (U.K.) c. 54, s.72

[21] [1986] 3 All ER 338

[22] [1992] 1WLR 840

[23] Eves v Eves [1975] 1 WLR 1338, CA


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