The Law of Equity and Trust.
Question :
Assess the major developments in the law of equity and; Evaluate the current use of the trust.
The maxims of equity can be described as a set of principles or guidelines for the exercise of judicial discretion. The maxims display the strengths of equity as a responsive set of values, which can take into account the parties conduct more than the common law. There is no definitive list of maxims of equity, and the maxims are only applied when the court feels it is appropriate.
The origins of equity lie in the deficiencies of the common law, in that equity looks to fill some of the gaps not covered by the common law, and works alongside the common law, providing alternative solutions to the legal problems presented.
Although equity developed a body of principles it did not acquire the rigidity of the common law. An equitable remedy is available at the discretion of the judge, and the judge is assisted in the exercise of this discretion by these principles.
The functions of equity were discussed in Tinsley v Milligan (1993) 3 WLR 126. This case involved two women who had entered into an arrangement to hold the house they shared in one name, so the other could fraudulently claim housing benefit. After a disagreement the legal owner sought to evict her partner, and the defendant claimed she had an equitable interest. However because the claimant fell foul of the maxim ‘he who comes to equity must come with clean hands’ her claim was not allowed.
When the Court of Appeal discussed this case discussed they decided that this maxim should be applied depending on whether or not it would be an affront to the public conscience to allow the plaintiff to succeed. However on the facts given, they felt it wasn’t an affront and allowed her claim.
Yet when it came to the House of Lords this flexible approach was rejected but the decision of the Court of Appeal was upheld. They argued that such a flexible approach depending on something as difficult to quantify as public conscience, would lead to great uncertainty. It would appear that with this maxim the court has no flexibility, and must continue to apply it to deny any unconscionable plaintiff relief.
Although equity developed next to the common law, it is arguable that this development has become more regulated in recent years, as precedent predetermines the outcome of the majority of cases facing the courts.
However I believe there are many examples of where equity has continued to develop, for example in the areas of the new model constructive trust, proprietary estoppel, the increase in the number of varied remedies available, and the recognition of restrictive covenants.
The protection given to equitable owners behind a trust has developed very significantly over the last 30 years, particularly in the areas of the new model constructive trust, proprietary estoppel and the contractual licence.
A constructive trust is a trust imposed by the court where there has been no contribution to the purchase price of property; however it can be shown that the legal owner has acted inequitably, illegally, or fraudulently. In Hussey v Palmer (1972) 1 WLR 1286, Lord Denning described a constructive trust as one imposed by law wherever justice and good conscience requires it
The constructive trust will only be imposed when there has been an agreement between the parties to share the beneficial interest, and the person claiming the interest relies on this to their own detriment, in such cases, the court may exercise its discretion to impose a constructive trust.
In Eves v Eves (1975) 3 All ER 768, a man untruthfully told a woman that she could not hold legal title to the property as she was underage. The woman had done extensive work on the house and the court awarded her with a 25% share. However since the decision in Lloyds Bank v Rosset it seems unlikely that without a direct financial contribution a trust may not be imposed.
However proprietary estoppel is another example of an equitable doctrine which has developed significantly since the establishing case of Dillwyn V Llewellyn (1862) 4 De G F & J 517
In essence, equity will intervene and adjust the rights of the parties, where there has been encouragement and acquiescence. For example in Inwards v Baker (1965) 2 QB 29, a father encouraged his son to build a bungalow on the fathers land, promising him that he would retain ownership (the son that is), however when the father died his heirs claimed the land,. The Court of Appeal held that the father was estopped from going back on his promise as the son had acted in reliance on it, and the son could continue to live there.
The application of this doctrine was widened in the case of Gillett v Holt (2000) 2 All ER 289 where a man who had left school early and gone to work on a farm (with the assurances he would be left the business) was awarded the freehold of the farm and £100,000 compensation. Ultimately this case was won on the unconscionablility of the actions of the farmer who made promises which were not upheld.
The flexibility of this doctrine can be seen in the remedies offered by the court. In Gillett v Holt they were awarded the fee simple, however in Matharu v Matharu (1994) 2 FLR 597 they won the right to remain on the land. The issue for the court being how best to satisfy the equity bearing in mind the need to achieve the minimum equity to do justice to the plaintiff
Furthermore there have been developments in other areas of equitable remedies, such as the injunction. Anton Pillar KG v Manufacturing Processes Ltd (1976) Ch 55 developed the search order which allows a claimant to enter a defendants premises and search and seize property where there was a risk it would be destroyed before trial, and this continues to be used and developed today.
It is clear that although equity continues to be refined and may at times face setbacks, when judges rationalise and develop new principles, they do so with equitable principles often at the forefront of their mind.
The trust was developed via equity, as a solution to a problem, but has continued to grow and develop since then. The great merit of the trust, was and still is, its adaptability to evolve and cope with new and different problems.
The trust itself is quite hard to define but an example would be as follows.
If a settlor transfers property to 2 trustees, to hold on trust for Y, the legal ownership of the property is vested in the 2 trustees and the equitable ownership in Y. The property is held by the trustees for the benefit of Y, and the trustees have legal responsibilities and burdens that must be adhered to. These duties and responsibilities will be imposed by the settlor and the general law of trusts. The beneficial ownership which Y enjoys, brings with it the positive advantages, for example any income the trust accrues will be for the advantage of Y.
Furthermore any property may be the subject matter of a trust and although the nature of the property may effect the formalities for setting up or running the trust, property can be tangible or intangible; it can be land money, or personal goods.
The development of the trust often took place in the context of solving private family problems. However trusts today are of a very varied nature, and it is their flexibility to adapt and change to circumstances which has led to it being used increasingly in the commercial world. Trusts are used in a bewildering amount of circumstances, and I will look at a number of their uses below (not an exhaustive list) in order to establish the relevance of the trust to everyday life.
One of the major way a trust fund can be used is by an employer to arrange a pension scheme for his employees. An employer who sets up such a scheme can determine its structure, and unlike other trusts, where the settlers role ends once the trust has been created, the settlor in this case the employer often has continued involvement.
In Imperial Group Pension Trust v Imperial Tobacco Ltd (1991) 1 WLR 589 the issue of the duties of employers in exercising powers contained in a pension scheme was discussed, in this case it was held that the employer was bound by his obligation of good faith to the employee..
There are advantages to using a trust in such a situation for an employer.
Firstly it separates the pension funds from other funds of the employer, therefore if the employer comes into financial difficulty there is separation between the monies
The second reason why pension schemes are often set up as trusts is because of the generous tax advantages under the Incomes and Corporation Taxes Act 1986. Employers often find that providing a pension scheme is a very cheap way to reward employees.
Although in principle pension trusts are like any other trust, unlike many other trusts they are intimately involved in the relationship between employer and employee, and so do have some particular characteristics and problems.
For example after the Daily Mirror scandal some questioned whether or not a trust fund was an appropriate vehicle for pension funds, arguing that it was the unsuitability of the trust that allowed the siphoning of the pension funds. However it is impossible to devise a mechanism that could safeguard against the resolute thief, and the Daily Mirror pensions scandal was as the result of fraudulent behaviour and not the fault of trust law.
A different way the trust has been used in the commercial world is as a unit trust. Unit trusts provide a way for people to invest their money and exploit stock market speculation without attracting all the usual risks. A unit trust is set up and will buy shares in companies, whilst being closely regulated by statute.
In such a case the public are then invited to but a unit in the fund, and their money is deposited with the trustees until it is needed to buy more investments. Investment decisions are made by a fund manager, which removes some of the old risks in stock market investment for the general public Furthermore the size of the underlying funds means that the investments can be spread much wider, again reducing risks. The unit trust has been very creative in offering a range of different funds in which the public can buy units.
Other ways a trust can be used are as a device to provide security for a person who is paying for goods before they are ready for delivery, as a way to keep trade union funds, a way to preserve wealth and provide for the family, as a trust in land, and a way for property to be given to charity by a donor.
It is clear that when the trust was developed these ways of using it could not have been dreamt up, but they prove the flexibility and adaptability and essentially the power of the trust to provide inventively for beneficiaries.
BIBLIOGRAPHY
Edwards, R & Stockwell, N Trusts and Equity (2002) 5th edition Longman
Martin, J Hanbury and Martin: Modern Equity Sweet & Maxwell; 17Rev Ed edition (20 April 2005)
Pearce, R The Law of Trusts and Equitable Obligations Oxford University Press; 4Rev Ed edition (20 Jul 2006)
Ramjohn, Mohammed Unlocking Trusts (2005) Hodder Arnold
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