Equity Law: Principles & Concepts

Introduction

Equity is a body of principles and remedies developed to address gaps and harsh outcomes produced by the common law. It is not a separate legal system today, but a set of rules applied within the same courts to achieve fair results where legal damages would be inadequate. In practice, a claimant seeking equitable relief must show why ordinary damages will not do, meet standards of fair conduct, and accept that the remedy is discretionary.

Equity is organised around maxims that guide the court’s approach, and it has shaped key fields including trusts, contracts, and property. Typical remedies include injunctions, specific performance, rescission, rectification, accounts, constructive trusts, and estoppel-based relief. Modern courts apply legal and equitable rules side by side, with equitable rules taking priority if they conflict with common law rules in the same matter.

What You’ll Learn

• How equity arose, how it works with the common law, and why “equity prevails” still matters
• The main equitable maxims and what they mean for claimants and defendants
• Core equitable remedies: injunctions, specific performance, rescission, rectification, accounts, and constructive trusts
• Estoppel (promissory and proprietary): when assurances and reliance affect rights
• Fiduciary duties: no-profit and no-conflict rules, dishonest assistance, and bribes/secret commissions
• How courts assess interim relief (American Cyanamid) and bars such as delay and clean hands
• Practical steps for applying equitable principles in property, contract, and commercial disputes

Core Concepts

Historical roots and the Chancery

• Medieval petitioners sought relief from the King when rigid common law rules produced unfair outcomes; the Lord Chancellor took on this role and the Court of Chancery emerged.
• Chancery offered remedies unknown to the common law, such as injunctions and specific performance, and focused on conscience and fair dealing.
• Tensions between the two systems culminated in Earl of Oxford’s Case (1615), which confirmed that when common law and equity clash, equitable rules prevail.
• The Judicature Acts 1873–1875 merged the administration of law and equity in one court system. Today, legal and equitable rules are applied in the same proceedings, and the principle that equity prevails in the event of conflict remains in force by statute.

Maxims of equity and claimant conduct

Equity’s maxims guide discretion. Key ones include:

• Equity will not suffer a wrong to be without a remedy: if damages are not adequate, the court considers equitable relief.
• Equity follows the law: equitable rules respect legal rights and operate alongside them.
• He who seeks equity must do equity: a claimant asking for equitable relief may be required to meet fair conditions (for example, offering to perform their own obligations).
• He who comes to equity must come with clean hands: misconduct linked to the claim can defeat relief.
• Delay defeats equity (laches): undue delay may bar relief even if the claim is otherwise sound.
• Equity looks to intent rather than form: substance can trump technical defects.
• Equity regards as done that which ought to be done: where specific performance would be ordered, equity treats the transaction as effectively complete (see Walsh v Lonsdale).
• Equity will not assist a volunteer and will not perfect an imperfect gift: someone who has given no value generally cannot enforce an incomplete transfer (subject to limited exceptions, e.g., Re Rose and Pennington v Waine).
• Equity acts in personam: equitable orders typically bind the person, making compliance enforceable by contempt if breached.

Equitable remedies and doctrines

• Injunctions
  • Interim: The American Cyanamid test asks whether there is a serious issue to be tried, adequacy of damages for both sides, and where the balance of convenience lies. A cross‑undertaking in damages is usually required.
  • Final: Granted where damages are inadequate and it is just to restrain or compel conduct.
  • Special orders: freezing injunctions (Mareva) to preserve assets; search orders (Anton Piller) to prevent destruction of evidence.
• Specific performance
  • Orders performance of a contract where damages are inadequate (for example, unique goods or land).
  • Not usually available for personal services or contracts needing constant supervision (Co‑operative Insurance Society v Argyll Stores).
• Rescission
  • Sets a contract aside for misrepresentation, duress, undue influence, or certain equitable wrongs.
  • Bars include affirmation, lapse of time, impossibility of restoration, and third‑party rights.
• Rectification
  • Corrects a written document that fails to record a prior common intention due to mistake.
• Account of profits and equitable compensation
  • Strips wrongful gains (for fiduciary breaches) and compensates for loss caused by breach of equitable duty.
• Constructive trusts and fiduciary duties
  • Fiduciaries must avoid conflicts and not profit without fully informed consent. Bribes and secret commissions are held on constructive trust for the principal (FHR European Ventures).
  • Third parties who dishonestly assist a breach may be liable (Royal Brunei v Tan).
• Estoppel
  • Promissory estoppel: stops a party going back on a clear promise intended to be relied on, where reliance occurred and it would be unjust to allow resilement. It is generally a defence, not a cause of action (High Trees; Combe v Combe).
  • Proprietary estoppel: an assurance relating to rights in land, reliance, and detriment may justify a remedy that is proportionate to achieve fairness (Thorner v Major).

Equity and common law today

• One court system administers both sets of rules; equitable and legal remedies are pleaded together where appropriate.
• Equity remains discretionary: the court weighs fairness, practicality, hardship, delay, and the effect on third parties.
• If legal and equitable rules conflict in the same matter, equity prevails (reflecting the Judicature Acts principle).
• Statutes may shape or limit equitable relief, but equity is often used to prevent harsh outcomes that strict legal rules might produce.
• The bona fide purchaser for value without notice (“equity’s darling”) takes free of prior equitable interests.

Key Examples or Case Studies

• Earl of Oxford’s Case (1615) 21 ER 485

  • Context: Conflict between common law and Chancery rulings.
  • Holding: Where law and equity conflict, equity prevails.
  • Use: Confirms the hierarchy applied in modern courts.

• Walsh v Lonsdale (1882) 21 Ch D 9

  • Context: Agreement for a lease not completed by deed.
  • Holding: Equity treats as done that which ought to be done; equitable lease recognised where specific performance would be granted.
  • Use: Practical effect of an agreement can mirror a formal estate if equitable relief is available.

• Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 (with Combe v Combe [1951] 2 KB 215)

  • Context: Rent reduction during wartime; later claim for full rent.
  • Holding: Clear promise and reliance can suspend rights (promissory estoppel), but estoppel is generally a shield, not a sword.
  • Use: Useful defence where a party seeks to enforce strict rights contrary to an earlier promise.

• Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378

  • Context: Third party involvement in misuse of trust money.
  • Holding: Liability for dishonest assistance assessed by objective standards of dishonesty.
  • Use: Routes to recovery against accessories to fiduciary breaches.

• Co‑operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

  • Context: Anchor tenant sought to be compelled to keep a supermarket open.
  • Holding: No specific performance of a contract requiring constant supervision and ongoing business activity.
  • Use: Sets limits on compulsion in continuing obligations.

• Thorner v Major [2009] UKHL 18

  • Context: Farmer encouraged a relative to expect the farm; no will made.
  • Holding: Proprietary estoppel can arise from conduct implying an assurance; remedy should be proportionate.
  • Use: Guidance on assurance, reliance, detriment, and the shape of relief.

• FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45

  • Context: Secret commission received by an agent.
  • Holding: Bribes and secret commissions are held on constructive trust for the principal.
  • Use: Clarifies proprietary remedies against dishonest agents.

• American Cyanamid Co v Ethicon Ltd [1975] AC 396

  • Context: Interim injunction application.
  • Holding: Set the modern test for interim relief focusing on serious issue, adequacy of damages, and balance of convenience.
  • Use: Essential framework for urgent restraint orders.

Practical Applications

• Choosing the right route

  • Start by asking whether damages would be adequate. If not, consider specific performance, injunction, rescission, or rectification.
  • Check bars: delay, hardship, clean hands, and impact on third parties. Document any steps you have taken that show fairness (e.g., offers to perform your own obligations).

• Injunctions in practice

  • Prepare evidence addressing the American Cyanamid factors and the cross‑undertaking in damages.
  • Be precise in drafting: set out clear, enforceable terms. Avoid orders that require ongoing judicial supervision unless truly necessary.
  • Consider whether a freezing injunction or search order is justified and proportionate, and whether less intrusive relief would suffice.

• Contracts

  • Specific performance is strong for unique assets (land, rare goods). Not suitable for personal service or complex supervision.
  • For rescission, act promptly and be ready to restore benefits. Identify any third‑party rights that may block relief.
  • Promissory estoppel can defend against strict enforcement of rights where a clear promise and reliance exist. Do not rely on it to found a claim.

• Property and trusts

  • When legal title is with one person but another claims a share, examine common intention constructive trusts and proprietary estoppel (assurance, reliance, detriment).
  • In fiduciary settings, trace benefits, seek an account of profits, and consider proprietary claims (e.g., bribes held on trust).
  • Beware the bona fide purchaser defence; priority may be lost if a third party acquired without notice and gave value.

• Banking and undue influence

  • For guarantees and security over a family home, confirm independent legal advice and proper explanations as flagged in Etridge (No 2). This helps mitigate undue influence risks.

• Evidence and timing

  • Move quickly for urgent relief. Delay can defeat the application.
  • Keep a record of clean conduct: compliance with your own obligations, timely complaints, and steps to minimise loss.

• Pleading tactics

  • Plead legal and equitable claims in the alternative where appropriate.
  • For interim relief, include a clear undertaking in damages and serve full and frank disclosure on without‑notice applications.

Summary Checklist

• Is a legal remedy (damages) inadequate? If yes, identify the equitable remedy that fits.
• Have you considered bars: delay (laches), clean hands, hardship, and third‑party rights?
• For injunctions, cover serious issue, adequacy of damages, and balance of convenience; give a cross‑undertaking.
• For specific performance, confirm certainty of terms, mutuality, and practicality; avoid ongoing supervision problems.
• For rescission, act promptly; check for affirmation and ability to restore benefits.
• For estoppel, show clear assurance/promise, reliance, and detriment; in promissory estoppel, use as a defence.
• In fiduciary cases, seek an account of profits and consider constructive trust claims over bribes/commissions.
• Remember: if legal and equitable rules conflict on the same point, equity prevails.

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