TOPIC ONE: The Nature and Historical Origins of Equity.

Equity may be defined as the body of rules, principles and remedies which was initially developed
and administered in the English High Court of Chancery before 1873.
You have made a promise. Promises are meant to be kept. Your immortal soul will be in danger if
you do not keep your promises. I the Chancellor have a duty to safeguard your immortal soul.
Accordingly for the good of your soul I am going to keep you in prison until you decide to keep your
promise.
The role of equity became more settled during the 15th century. The equitable jurisdiction
encompassed three broad heads:
cases where there existed a common law remedy but it was unobtainable;
cases where the common law remedy was being applied oppressively;
cases where there was no common law remedy at all.

The Earl of Oxfordss Case (1615)

The cause why there is a chancery is, for that mens actions are so divers and infinite, that it is
impossible to make any general law which may aptly meet with every particular act, and not fail in some
circumstances. The office of the Chancellor is to correct mens consciences for frauds, breach of
trustsand to soften and mollify the extremity of the law.
Seldons Chancellors foot:
Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to
the conscience of him that is chancellor, and as that is larger or narrower, so is equity. Tis all one as
if they should make the standard for the measure we call a foot, a chancellors foot, another a short
foot, a third an indifferent foot: tis the same thing in a chancellors conscience.

Fusion?

Lord Ashburners now famous statement in 1933 perhaps best illustrates the position of law and
equity post the administrative fusion:
two streams of jurisdiction, though they run in the same channel, run side by side and do not
mingle their waters.
Fusion is a fallacy. A fusion of administration only; this is the view taken by Meagher Gummow and
Lehane.
Modified fusion fallacy. A more moderate version of the above approach; it accepts limited
administrative fusion, but contends the fusion is little more than a fusion of jurisdiction.
The empirical approach. As stated by Hanbury and Madsen: Modern Equity: a century of fused
jurisdiction has seen the two systems working more closely together, each developing and changing
from contact with the otherthey are coming closer together, but they are not fused.
Fusion is fact. Lord Denning in Seagar v Copydex stated fusion is complete. In Waltons v Maher [at
566] Justice Deane not only accepts fusion as reality but says to think otherwise places in jeopardy
the future development of an orderly legal system.
taken from The Fusion Fallacy Revisited, by Fiona Burns at ANU
The practical effects of the Judicature Act can be summarized as follows:
All branches of the court have the power to order equitable remedies;
Equitable defences may be plead in any court;
All courts will recognize equitable rights, titles and interests;

The Maxims of Equity

generalizations expressing a sort of collective wisdom of equity: Michael Evans.

they are the fruit of observation of developed equitable doctrinethe ideas embodied in them are
far older than their articulate expression. But their practical valueis immense: H G Hanbury

Equity will not suffer a wrong to be without a remedy

Where the common law is unable to provide a satisfactory remedy the inherent flexibility of equity
will provide for relief;
Equitable relief is not available unless there is not available an appropriate common law remedy;
and
All equitable remedies are discretionary (cf common law remedies follow as a matter of right).

A person who seeks equity must do equity.

Closely related to the clean hands doctrine.

Equity will not allow statute to be used as an instrument of fraud.

But equity follows the law!

Equity follows the law

But not when to do so would provide an unjust outcome or allow one party to be unjustly
enriched;
To this maxim we should add the famous words of Judge Cardozo of the New York Supreme Court
equity does not follow the law slavishly or always.

Equity acts in personam

Cf the common law which traditonally acts in rem;

Perhaps the single most unifying concept of equity: equity binds the individual conscience.

Equity is equality

In the absence of evidence to the contrary or some other disqualifying conduct equity assumes an
intent to act fairly and will apportion property equally;

Equity looks to the intent rather than the form

Lord King expressed it: We do not always consider what the strict intent of the party was, but
consider what is equitable and just; and then suppose the party meant that and so decrees it.
This maxim will be particularly in evidence in topic three, Assignments in Equity.

Equity will not assist a volunteer

The scope and import of this maxim will also become apparent in topic three;
Equity requires the conscience to be bound and in the absence of the provision of consideration
subject to some exceptions equity will not force the performance of obligations.

Equity will not perfect an imperfect gift

Closely related to the volunteer maxim;

The scope and import of this maxim will also become apparent in topic three.

Equity considers as done that which ought to have been done.

Related to equity looks to the intent rather than the form.

Equity aids the diligent not the tardy or Delay defeats equity

The doctrine of laches: if you sleep on your rights you may lose them;
Related to the clean hands doctrine.

Equity implies an intention to fulfill an obligation

Really another way of saying equity considers done that which ought to be done.

Where the equities are equal the law prevails;

Topic two: priorities in equity;

Equities here means merits (remember equity follows the law)! and

Where the equities are equal first in time prevails

Hotel Terrigal and J&H Just Holdings in topic two will demonstrate the practical application of these
maxims

A person who comes to equity must come with clean hands.

It is more correctly a defence, and then only a defence to an equitable claim.

The conduct sought to be relied upon as a defence must be directly related to the wrongful
action of the defendant; it must display an immediate and necessary relation to the equity
sued for. Cox v Hunt [1917] 2 Ch 71, 87.
The mere fact a plaintiff may have unclean hands will not necessarily defeat the claim if to do
so would unjustly enrich the defendant.
The conduct of the plaintiff must be more than merely bad judgment or the taking advantage of
fortuitous circumstances, it must be unconscionable or unlawful;
Like in all equitable matters the court will have regard to the entire circumstances of the matter
in judging a parties behavior.

Moody v Cox [1917] 2 Ch 71.

Equity will not apply the principle about clean hands unless the depravity, the dirt in
question on the hand, has an immediate and necessary relation to the equity sued for. In this
case the bribe has no immediate relation to rectification.
Kettles and Gas Appliances Ltd v Anthony Horden and Sons Ltd (1934) 35 SR (NSW) 108. Note
this appears at par 30.180, in the chapter on Equitable Defences: see pages 923-926 inclusive.

FAI Insurances Ltd v Pioneer Concrete Services (1987) 15 NSWLR 552.

I think all counsel submitted that when one is considering whether or not to make an
order setting aside a voidable allotment of shares,
(1) one does not make such an order if the allotted is a bona fide purchaser for value who has
become registered;
(2) one does not look at the question of the respective moral merits of the actors in the
transaction globally or, as it was put during argument, one does not consider general
naughtiness; and

(3) that one does look to see whether the transaction should be set aside by considering the
equitable defences such as equitable fraud, illegality, laches, acquiescence or unclean hands;
(4) unless there is established one of the equitable defences, then general naughtiness or the
desire of the court to censor the plaintiff's conduct, does not enter into the equation when
one is considering whether the plaintiff should get relief.
TOPIC TWO: Equitable Interests: their nature, creation and priority
Equitable interests may arise in three ways:
Pursuant to the intention of the creator of the interest (eg: express trusts);
By implication of law (eg: resulting trusts);
By operation of law (eg: constructive trusts).
This topic discusses the creation of equitable interests, the nature and the scope of the rights
conferred by equitable interests, and issues of priorities between competing equitable interests.
Nature of equitable interests
Equitable estates and interests are rooted in the remedies by which they are protected; the
strength or resilience of one equitable right as compared to another will be determined by the
availability of equitable remedies to those asserting a claim to the subject matter.
Equitable interests may be categorized as follows:
Equitable proprietary interests;
Personal equities; and
Mere equities.
Examples of equitable proprietary interests:
Beneficial interest pursuant to a trust [the highest form of equitable interest];
Equitable lease [see Walsh v Lonsdale];
Equitable mortgage [see J&H Just Holdings];
Partnership interest [see FCT v Everett, topic three];
The equity of redemption enjoyed by a mortgagor in old system title real property;
Equitable charge;
Equitable lien.

Old system title to land v Torrens Title Land.

Section 41 Real Property Act (NSW) 1900:
Dealings not effectual until recorded in Register
(1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any
estate or interest in any land under the provisions of this Act

Section 23B Conveyancing Act (NSW) 1919

Assurances of land to be by deed:
(1) No assurance of land shall be valid to pass an interest at law unless made by deed.

Barry v Heider (1914) 19 CLR 197.

Equitable interests are recognised in Real Property Act [Torrens Title] land [per Griffith CJ:
In my opinion Equitable claims and interests are recognised in the real Property Act...[at 208];

Consequently section 41, in denying effect to an instrument untill registered,does not touch
whatever rights are behind it [at 216].
Indicia of equitable proprietary interests:
1. The sustainability and endurance of the interest.
2. The objectivity of the right.
3. Is there a power of alienation (or transfer)?
4. The types of remedies available.
5. The recoverability of the property.
6. The persistence of the rights conferred against third parties.
7. The nature of the creation of the right.
Examples of personal equitable interests:
Rights enjoyed by a beneficiary personally against the trustee (remember equity acts in personam);
This may be additional to any proprietary interest enjoyed by the beneficiary i nrelation to trust
property;
The Bahr v Nicolay in personam exception to indefeasibility in Torrens Title land.
Mere equities:
The right, recognisable in a court of equity, to have a transaction recognised at law [a voidable
transaction] set aside. Arguably a sub-species of a personal equity.
See Hotel Terrigal where Kitto J refers to it as a preliminary equity, and an equitable interest in
contrast to an equitable estate.
Further reading on mere equities:
National Provincial Bank v Ainsworth [1965] AC 1175;
Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd (1996) 42 NSWLR 409.

Walsh v Lonsdale (1882) 21 Ch D 9 Court of Appeal.

A landlord granted a lease on a mill to a tenant. Under the statute of the day the lease was required
to be in the form of a deed to be enforceable at law.
After the tenant had been in possession 18 months the landlord demanded a years rent as the legal
lease allowed. The tenant refused to pay, claiming the lease was void at law and as such he was only
obliged to pay a month at a time.
The landlord sued for distress The tenant sought an injunction against the distress. Question:
could the landlord rely on the common law remedy of distress when there in fact existed no lease at
common law?
There are not two estates as there were formerly, one estate at common law by reason of the
payment of the rent from year to year, and an estate in equity under the agreement. There is only one
Court, and the equity rules prevail in it. The tenant holds under an agreement for a lease. He holds,
therefore, under the same terms in equity as if a lease had been granted, it being a case in which both
parties admit that relief is capable of being given by specific performance. That being so, he cannot
complain of the exercise by the landlord of the same rights as the landlord would have had if a lease had
been granted. On the other hand, he is protected in the same way as if a lease had been granted; he
cannot be turned out by six months' notice as a tenant from year to year. He has a right to say, "I have a
lease in equity, and you can only re-enter if I have committed such a breach of covenant as would if a
lease had been granted have entitled you to re-enter according to the terms of a proper proviso for reentry." That being so, it appears to me that being a lessee in equity he cannot complain of the exercise
of the right of distress merely because the actual parchment has not been signed and sealed.

Chan v Cresdon Pty Ltd (1989) 168 CLR 242 High Court of Australia

Sarcourt Pty Ltd leased retail premises in Queensland for a period of five years from Chan. Sarcourts
obligations were guaranteed by Cresdon.
Queensland statute required the lease to be registered but it was never so registered. This meant
the lease was not a legal lease.
The surety guaranteed the performance of the lessee of its obligations under this lease. This
lease was held (by majority) to mean a legal lease and therefore legal obligations; Credon had
therefore not guaranteed the performance of equitable obligations.
Note Toohey J in dissent.
The respondent's next contention is that the unregistered lease amounts to an equitable lease to
which the relevant covenants may be related. The argument, which invokes the doctrine in Walsh v.
Lonsdale [] is that the lease, though ineffective to create a "legal" lease until registration, was effective
to bring into existence an equitable lease for a term of five years on the footing that equity regards as
done what ought to be done []
For present purposes these authorities establish two propositions. First, the court's willingness to
treat the agreement as a lease in equity, on the footing that equity regards as done what ought to be
done and equity looks to the intent rather than the form, rests upon the specific enforceability of the
agreement. Secondly, an agreement for a lease will be treated by a court administering equity as an
equitable lease for the term agreed upon and, as between the parties, as the equivalent of a lease at
law, though the lessee does not have a lease at law in the sense of having a legal interest in the term []
But even if it be assumed that specific performance would be awarded in favour of the
respondent, that is not enough, in our opinion, to establish liability on the part of the appellants as
guarantors. What they guaranteed was the "obligations (of Sarcourt) under this lease", that is, the
instrument of lease in its character as a lease. In our view, only a lease at law would meet this
description for the purposes of the guarantee.

Equitable Priorities
Earlier Legal v subsequent legal:
First in time prevails.
nemo dat quod non habet

Earlier legal v later equitable:

where the equities are equal the law prevails. Equities here means merits. This is on line with
the maxim equity follows the law.
For an earlier legal interest to be set aside in favour of later equitable interest there must be some
disqualifying conduct on the part of the legal interest holder which enabled the equitable interest holder
to acquire his/her interest in the reasonable belief the prior legal interest did not exist. Note especially
the provisions of the Real Property Act in relation to Torrens Title land: notice is not fraud in RPA land.

Earlier equitable v Later legal:

Legal interest will prevail when acquired by a bona fida purchaser for value without notice of the
earlier equitable interest.

Earlier equitable v later equitable: the rule in Rice v Rice.

where the equities are equal, first in time will prevail . But see Hotel Terrigal: the rule in Rice and
Rice is a rule of last resort, not first resort: the problemis to determine where the better equity lies.

Latec Investments Ltd v Hotel Terrigal Pty Ltd [1965] HCA 17; (1965) 113 CLR 265
Hotel Terrigal granted a [legal]mortgage to Latec Investments.
Latec took possession following default and sold the secured property.
Powers of sale pursuant to Real Property Act were exercised fraudulently. (Sold to Southern Hotels:
wholly owned subsidiary co).
Hotel Terrigal acquires equitable interest in sold property: the right to have the sale set aside for
fraud.
Took no action to enforce that equitable interest for five years.
In the interim MLC Nominees advances money to Southern Hotels in return for a floating charge [an
equitable proprietary interest] over the assets of the hotel.
So, the competition is set up between Hotel Terrigals equitable interest (created first in time) and
MLCs subsequent equitable interest. The classification of the nature of the competing interests is a
major issue.
Kitto J:
In all cases where a claim to enforce an equitable interest in property is opposed on the ground
that after the interest is said to have arisen a third party innocently acquired an equitable interest in the
same property, the problem, if the facts relied upon as having given rise to the interests be established,
is to determine where the better equity lies. If the merits are equal, priority in time of creation is
considered to give the better equity. This is the true meaning of the maxim qui prior est tempore potior
est jure: . But where the merits are unequal, as for instance where conduct on the part of the owner of
the earlier interest has led the other to acquire his interest on the supposition that the earlier did not
exist, the maxim may be displaced and priority accorded to the later interest
In the present case it seems to me that there is much to be said for holding that, since during
the long period of the mortgagor's delay in setting up the invalidity of the purchaser's title persons were
induced to lend money on debentures in the belief that an unencumbered fee simple in the subject
property formed part of the security under the trustee's floating charge, the mortgagor ought not to be
allowed to insist upon its equity of redemption as against the equitable interest of the trustee. (at
p276)
The illustrations therefore make it clear, it seems to me, that the cases to which his Lordship was
referring were not only those in which there is an assertion of an equity unaccompanied by an equitable
interest but those in which an equity is asserted which must be made good before an equitable
interest can be held to exist. In the latter class of cases the equity is distinct from, because logically
antecedent to, the equitable interest, and it is against the equity and not the consequential equitable
interest that the defence must be set up

The rule in Dearle v Hall.

relates only to choses in action [a type of
intangible personal property]
the order of priority will be determined not by the date of creation of the interest
date notice is given of its assignment to the
assignee
More on this next week...

but the

J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 456
Bank NSW lends money to Johnson, proprietor of RPA land by way of mortgage. Took possession of
CT and Memorandum of Mortgage but did not proceed to registration. B NSW also did not caveat
mortgage.

J&H Just later also lent money to Johnson. Enquired as to whereabout of CT but made no further
enquiries.
J&H argued banks failure to register/caveat allowed it to attain later equitable interest in mistaken
belief no prior interest was claimed.

Rice v Rice: when equities equal first in time will prevail: where does the better equity lie?
...the failure...to lodge a protective caveat cannot of itself [emphasis added] be held to be an act
fulfilling the requirements ...of conduct which will deprive a prior equity of its priority...the purpose of a
caveat is protective; it is not to give notice. The holder of the subsequent equity in my opinion could not
properly rely upon the absence of any notification in the register...as a representation or as the basis of
a conclusion that no equitable interest in the land existed.
But see Butler v Fairclough

TOPIC THREE: Assignment of Property in Equity