_Case List - Equity and Trusts.docx

Equity Case List Case Topic Principle Earl of Oxford’s case (1615) Tradition of Equity Equity acts in personam (handles the rights and conflicts of the parties) and when common law and equity conflict, Equity will always prevail. Insurance Society v Argyll Stores (1998) Equitable remedies Where dama...

Equity Case List Case Topic Principle Earl of Oxford’s case (1615) Tradition of Equity Equity acts in personam (handles the rights and conflicts of the parties) and when common law and equity conflict, Equity will always prevail. Insurance Society v Argyll Stores (1998) Equitable remedies Where damages were granted instead of Specific performance Tinsley v Milligan (1993) Equitable principles Clean hands - claims can't be tainted by illegality Shelfer v City of London Electric Co (1985) Equitable principles Injury to legal rights is small Injury capable of being estimated in money Injury adequately compensated by a small payment It would be oppressive to D to grant the injunction American Cyanamid (1975) Injunctive relief Test: establish that there is a ‘serious issue to be tried’ Then: ask if damages would be adequate to compensate C. If damages would be adequate to compensate D? If damages are not adequate – the court considers the balance of convenience (at this stage, discretion is exercised) – based on maintaining the status quo The Mareva Case (1975) Injunctive Relief Freezes all or some of the defendant's assets to prevent removal from jurisdiction/dissipation The Anton Piller case Injunctive Relief Granted possibility of entry into premises of defendant if believed that defendant has items in possession and possibility of destruction that are imperative to the case. Wolverhampton CC vs Gypsies (2023) Injunctive Relief Allowed injunctions against persons unknown to prevent certain activities (camping in this case) Terry (LNS) v Persons Unknown Injunctive Relief Allowed a super-injunction, in which individuals were not allowed to know about the case or the injunction itself to allow privacy to famous individuals. Montefiori v Montefiori (1762) Estoppel ‘The law is, that where, upon proposals of marriage, third persons represent anything material, in a light different from the truth, even though it be by collusion with the husband, they shall be bound to make good the thing in the manner in which they represented it. It shall be, as represented to be.’ Hammersley v De Biel (1845) Estoppel ‘[I]f a party holds out inducements to another to celebrate marriage and holds them out deliberately, and the other party consents, and celebrates the marriage in consequence of them... a Court of Equity will take care that he is not disappointed, and will give effect to the proposal.’ Jorden v Money (1854) Estoppel by representation Fine distinction between a representation of fact and a representation of intention. estoppel by representation does not apply to statements of future intent Central London Property Trusts v High Trees House Ltd (1947) Promissory Estoppel A Promise intended to be binding, intended to be acted upon, and acted on, is binding so far as its terms properly apply Ramsden v Dyson (1866) Proprietary Estoppel If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest in land, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a court of equity will compel the landlord to give effect to such promise or expectation Crabb v Arun DC (1975) Proprietary Estoppel Framework for establishing Proprietary Estoppel: Has equity arisen (clear promise/representation creating a belief/expectation and unconscionability What is the extent of the equity What relief is appropriate to satisfy the equity Jennings v Rice (2002) Proprietary Estoppel In terms of reliance, a proportionality test is used to balance reliance and expectation Gillet v Holt (2000) Proprietary Estoppel Equity is concerned with preventing unconscionable conduct Guest v Guest Proprietary Estoppel The inherent flexibility and pragmatism of equitable relief enabled the courts to address [problems] as they arose without having to frame a rule book for the purpose, but while pursuing the invariable aim of preventing or putting right unconscionable conduct” Dodsworth v Dodsworth (1973) Proprietary Estoppel How to satisfy the Equity In this case, it was already satisfied by the benefit but also: Grant an interest in the property Issue and injunction in the property An order that the property is held on a constructive trust Cobbe v Yeomann’s Row (2008) Proprietary Estoppel The house of lord refused proprietary estoppel in a case where the defendant was promised a property sale if he procured planning permission (detrimental and reliant to C) after they pulled out due to rising prices, he applied for proprietary estoppel, however, the house of lord denied it, stating that he had not required an interest and estoppel was not present. Thorner v Major Proprietary estoppel The claimant had worked on the defendant's estate’s farm for over a decade without pay, believing that he would inherit the land when the defendant died. While the defendant once gave the claimant a bonus stating that it was for his ‘death duties’, he never explicitly told the claimant he would inherit. Under the original will, the property would have passed to the claimant, but the defendant retracted this will and died intestate. The claimant argued he should inherit the property due to proprietary estoppel. Held: It is possible for a representation to be made through conduct alone so long as it conveys the message to a reasonable person sufficiently. Earl of Chesterfield v Janssen (1750) Equitable Fraud ‘The court has an undoubted jurisdiction to relieve against every species of fraud’ such as undue influence and unconscionable bargain Williams v Bailey (1866) Actual Undue Influence The requirements for undue influence are as follows A question of fact that must be proven Defendant must have capacity to influence of which must have been subsequently exercised Must be ‘undue’ in the sense that it results in the other party not freely exercising their own will - traditionally wider than common law duress Must result in the claimant entering the transaction Allcard v Skinner (1887) Actual and Presumed Undue Influence This case distinguished between Actual and presumed undue influence : Presumed undue influence refers to influence that is presumed due to the specific relationship that exists between the parties. Presumed undue influence is based on public policy of preventing victimisation; it is not about preventing “folly” Actual undue influence is concerned with coercive or deceptive behaviour, regardless of the context This rebutted the presumption : independent advice and removing donor from influence of the donee. Lloyds bank v Bundy (1975) Undue Influence Herbert James Bundy owned a house, which was the extent of his estate. His son operated a business that did not do very well, and he asked his father to give him collateral for taking out loans from Lloyds. The father signed the original collateral for a smaller amount of money after considering it overnight and talking to his lawyer. Later on, the son needed more collateral, and the only way that Bundy could provide it was by using the house as collateral. When the lawyers from the bank came over with his son they explained that this was the only thing that he could do to help his son, and Bundy signed the document. Five months later the bank foreclosed on the son's assets, and as he was bankrupt they seized the house. Bundy refused to leave the house, and the bank sued to have him evicted. Denning, writing for a unanimous (in the result) court, states that in the vast majority of cases a customer who signs a bank charge cannot get out of it. However, there is an exception to this rule when the parties have not met on equal terms – when one is very strong in bargaining power and the other is very weak it is a matter of fairness that the stronger party should not be able to push the weaker one to the wall. There are five historical categories of unconscionability : Duress of goods - the owner is in a weak position because he i in urgent needs of good and the stronger demands more than is justly due Salvage agreements - whena ship is sinking and requires assistance, the rescuers cannot take advantage of a sinking ship’s urgent position to demand ridiculous fees Undue pressure and and undue influence Denning states that all of these categories share a scenario of inequality in bargaining power. The law relieves the party who, without independent advice, enters into a contract upon terms which are very unfair for a grossly inadequate consideration. SEE CASE BELOW National Westminister v Morgan (1985) Unconscionability Bank managers are not usually in a position of trust and confidence and no general principles of ‘ineqquality of bargaining power’ exists in the law. As Lord Scarman states : This is the world of doctrine, not neat and tidy rules… a court in the exercise of this equitable jurisdiction is a court of conscience. Definition is a poor instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends upon the particular facts of the case’ Ertridge (NO 2) (2002) Intention An important statement of principles clarifying law for the benefit of banks and mortgage markets: The Court of Chancery was not blind to the opportunities of obtaining and unfairly using influence over a wife which a husband often possesses. But there is nothing unusual or strange in a wife, from motives of affection or for other reasons, conferring substantial financial benefits on her husband.’ (Lord Nicholls (emphasis added)) Fry v Lane (1888) & Earl of Aylesford v Morris (1873) Unconscionable bargain The Earl of Aylesford, under financial distress and without independent legal advice, sold his interest in a reversion for much less than its worth to Morris, who was aware of the Earl's desperation. The court held that the transaction was unconscionable because Morris took advantage of the Earl's vulnerability and lack of advice. This case established that a bargain cannot be unconscionable merely because it is a bad deal; there must be an element of undue influence or exploitation of a weakness This case involved a situation where an illiterate person was made to sign a document under the impression it was a lease agreement, whereas it was actually a sale deed. The court in this instance ruled the agreement voidable due to the misrepresentation and exploitation of the person's illiteracy and lack of understanding. This decision highlighted the need for fair dealing and transparency in contracts to ensure that no party is taken advantage of due to their vulnerabilities or misunderstandings. Credit Lyonnais v Burch (1997) Unconscionable Bargain ‘The terms of the mortgage were so harsh and unconscionable as to make it hardly necessary for a court of equity to rely on [undue influence and constructive notice] as a basis for avoiding the transaction.’ Commercial Bank of Australia v Amadio (1982) & Uber Technologies v Heller (2020) Unconscionable Bargain: Australia and Canada In Australia, unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so.’ In Canada, a requirement for inequality of bargaining power results in an improvident (none future-thinking) bargain but requires no knowledge. Yerkey v Jones Surety Transactions: the Special Equity Approach Special Equity It is unconscionable for a lender to rely on a security given by a wife where: Wife us a volunteer, no received benefit The lender knows the husband-wife relationship and is taken to know that due to the trust and confidence between spouses, the wife may not understand the transaction Barclays Bank v O’Brien (1993) Surety transactions: the constructive approach CONSTRUCTIVE NOTICE Establish equitable wrongdoing, eg undue influence Actual undue influence Presumed undue influence Relationship of trust and confidence A transaction that calls for an explanation Was the bank put on inquiry? ‘put on inquiry in every case where the relationship between the surety and the debtor is non-commercial’ did the bank take reasonable steps to ensure it isn’t bound by the wrongdoing? Did the surety enter the transaction with her eyes wide open? If reasonable steps are followed then the bank is not bound and can enforce the security (unless it has actual knowledge of wrongdoing); if they are not followed ‘the lender should be affected by the equity—it is unconscionable that the lender should enforce the secured contractual right against her’ (Lord Hobhouse in Etridge (No 2) (2001)). Turnbull & Co v Duval Surety transactions: Agency approach Agency Husband acts as agent for Bank in procuring wife’s consent Bank bound by agent’s wrongdoing Robinson v Pett (1734) Powers and Obligations of Trustees This case inhabited the traditional model of remuneration in trusteeship A personal office – amateur trusteeship A gratuitous office - non-remuneration: ‘A trustee, executor or administrator, shall have no allowance for his care and trouble: the reason for this seems to be if allowed, the trust estate might be loaded, and rendered or little value. Besides, the great difficulty there might be in settling the quantum of such allowance, especially as one man’s time may be more valuable than that of another; and there can be no hardship in this respect upon any trustee, who may choose whether he will accept the trust, or not.’ Furthermore the basics of a trusteeship in duties: Familiarise oneself with the trust To safeguard the trust assets (ensure property is under control, debts discharged, and a proper state of investment To consider exercising any powers or discretion (dispositive or administrative including 1. Ensuring the fund is in a proper state of investment 2. acting even-handedly between beneficiaries 3. To keep proper accounts In carrying out duties To act with appropriate care and skill To act in good faith and ensure that there is no possible conflict between personal interest and one’s duty Turner v Corney (1841) & Speight v Gaunt Powers and Obligations of Trustees This case inhabited the traditional model of delegation in trusteeship The second case inhabited the traditional models of Duty of Care and standard of care in trusteeship A personal office - general duty of non-delegation ‘Trustees who take on themselves the management of property for the benefit of others have no right to shift their duty on other persons’ See also: Trustee delegation Act 2000 Trustees owe duties of care and skill in exercising powers and carrying out other duties. This case recognized that trustees must employ agents and delegate tasks in certain circumstances when this comes when the ordinarily prudent man of business would do so. They consequently would have a duty of care: ‘It seems to me that on general principles a trustee ought to conduct the business of the trust in the same manner that an ordinary prudent man of business would conduct his own, and that beyond that there is no liability or obligation on the trustee. In other words, a trustee is not bound because he is a trustee to conduct business in other than the ordinary and usual way in which similar business is conducted by mankind in transactions of their own Re Whitley (1886) Powers and obligations of trustees Established the Duty of Care in Investment ‘The duty of a trustee is to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.’ Bristol and West Building Society v Mothew (1988) Holding Trustees to account After the decision of this case, the equitable compensation for breach of trust was changed as well as for duty of care and skill breach: Breach of trust If an unauthorised transfer of trust property out of the fund then the trustee is under an obligation to pay equitable compensation for loss caused by the breach determined at date of judgment: if the trust relation subsists then into the trust fund (‘reconstitute the trust’); or if the trust has come to an end or the underlying commercial transaction has been completed then to the beneficiary directly. Question marks remain over whether foreseeability, remoteness, mitigation of loss, contributory negligence, and intervening causes are relevant: see Lord Toulson (para 71) and Lord Reed (para 135) in AIB. Breach of care and skill: If the trustee has breached his duty of care and skill, then he must pay equitable compensation to the trust fund or the beneficiary for the loss caused by the breach determined at the date of judgment. Question marks remain over relevance of foreseeability, remoteness, mitigation of loss, and contributory negligence: see Canson Enterprises (Can.), Pilmer (Aus.), Youyang (Aus.), and AIB (UK). Beloved Wilkes Charity (1851) & Londonderry Settlement (1964) Holding Trustees to Account Trustees under a duty to inform beneficiaries under a fixed trust they have an interest in reaching of majority They do not have to give reasons for their decisions, but if they do give reasons they can be challenged. Nestle v National Westminister Bank (1983) & Daniel v Tee (2016) Holding Trustees to Account The onus is on the beneficiary to prove both the loss and that it was a consequence of the beneficiary’s breach Can be difficult to prove, particularly regarding investment decisions as in Nestle Would no ‘Reasonable trustee’ have made the investment as in Daniel v tee? Even so, the loss still must be proved. Santander UK Plc v RA Legal Solicitors (2014) Holding Trustees to account Judicial relief from liability is a key issue in ‘I would … caution against an over-mechanistic application of the requirement to show the necessary connection between the conduct complained of and the lender's loss.’ (para 29) ‘The question whether a trustee has acted reasonably in respect of matters connected with the beneficiary's loss is not in my judgment to be resolved purely by considering each specific complaint separately.’ (para 96 – includes a long list of the failures) Bristol and West Building Society v Mothew Fiduciaries: Definition “... A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. Regal (Hastings) Ltd v Gulliver Fiduciaries: Definition “The rule of equity which insists on those, who by use of a fiduciary position makes a profit, being liable to account for that profit, in no way depends on fraud or absence of bona fides; or upon such questions … as whether the profit would or should otherwise have gone to the plaintiff… The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account” Hospital Products v USSC (1984) Fiduciaries: Definition Fiduciaries are a broader term than that of a trustee, A Trustee: A trustee is specifically appointed to manage the assets placed in a trust. Their role is to administer these assets according to the terms of the trust document and in the best interest of the beneficiaries. Fiduciary: A fiduciary is a broader term that refers to anyone who has a legal or ethical relationship of trust with another party. This could include trustees but also encompasses financial advisors, lawyers, guardians, and corporate officers, among others. In this case: The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations.... The critical feature of these relationships is that the fiduciary undertakes or agrees to act on behalf of or in the interests of another person in the exercise of a power or discretion that will affect the interests of that other person in a legal or practical sense. The relationship between the parties is, therefore, one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.... It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed.’ Secretariat Consulting PTE v A Company (2021) Fiduciaries: Definition Coulson LJ: ‘exceptional’ for fiduciary duties to arise other than for trustees, solicitors, and agents, citing Leggatt LJ: “…fiduciary duties typically arise where one person undertakes and is entrusted with the authority to manage the property or affairs of another and to make discretionary decisions on behalf of that person…” Argued in Secretariat that ‘a high degree of mutual trust and confidence between the parties’ – but following Leggat’s statement, ‘the exercise of trust and confidence is not sufficient by itself to give rise to fiduciary obligations’ Norberg v Wynrib (1992) Fiduciary Obligations Contrastingly to the UK and Australia, Canada allows doctors to act as fiduciaries to patients and provides Canadian law with an analytic model by which physicians can be held to the high standards of feeling with their patients which the trust accorded them requires. Keech v Sandford (1726) & Boardman v Phipps (1966) Fiduciary Breach These cases reminded English law that profit v loss are strict in application: Step 1: distinguish Distinguish (despite seeming conflation in Sinclair/FHR): Equitable compensation (losses, but-for test) Disgorgement (profit, strict application) Rationale for the distinction between losses and secret profit: “But for” test in Equitable Compensation can’t apply We don’t know what would have happened if there had been no secret… Evidential difficulty not encountered in cases of loss Results in strict liability to account for all secret profits Regardless of any lack of dishonesty, what counts is the principal’s consent Reasons: Deterrence (human nature being what it is…?) Unable to speculate what Principal would have consented to Confirmed in Parker v McKenna Lister v Stubbs (1890) Fiduciaries: Remedy through constructive trust Defendant was the foreman for Plaintiff and placed orders with X in return for a bribe. Plaintiff brought an action against Defendant to reclaim the bribe via constructive trust. CA denied that a constructive trust existed, saying instead that Defendant was merely under a fiduciary duty in personam to pay over the money as being owed to Plaintiff. Constructive trusts are imposed by law as an equitable remedy. They are typically used to address situations where someone has wrongfully benefitted at another's expense, often through fraud, breach of fiduciary duty, or other forms of unjust enrichment. A constructive trust essentially makes the wrongdoer a trustee of the assets they have misappropriated or misused, requiring them to hold these assets for the benefit of the rightful owner. The Sinclair Investments Case (2011) Fiduciaries: Breach The case of Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd, heard in the UK, addresses significant principles relating to fiduciaries and the concept of 'proprietary claims' in the context of misappropriated assets. In this case, the court considered the circumstances under which a claimant (Sinclair Investments) could assert a proprietary claim over misappropriated funds that were mixed with other funds and used for investment by a fiduciary. In Sinclair v Versailles, the link between fiduciaries and constructive trusts emerges through the analysis of the actions of a fiduciary who misappropriated funds. The court examined whether a constructive trust could be imposed over profits generated from the misappropriated funds. The critical factor was whether these profits were traceable to the original misappropriated funds, which were subject to the fiduciary duty. If the profits could be traced directly back to the misappropriated funds, they could potentially be subject to a constructive trust, ensuring that they would be returned to the beneficiary. Foskett v McKeown (2000) Third Parties: Tracing Tracing in equity. Equitable tracing is based not on legal ownership but on the claimant's possession of an equitable interest. There are several advantages to equitable tracing; first, it can trace property now mixed with other property. ‘The transmission of a claimant’s property rights from one asset to its traceable proceeds is part of our law of property, not of the law of unjust enrichment. There is no “unjust factor” to justify restitution. The claimant succeeds if at all by virtue of his own title, not to reverse unjust enrichment. Property rights are to be determined by fixed rules and settled principles, they are not discretionary. They do not depend upon ideas of what is “fair, just, or reasonable”. Such concepts, which in reality mask decisions of legal policy, have no place in the law of property. A beneficiary of a trust is entitled to a continuing beneficial interest not merely in the trust property but in its traceable proceeds also, and his interest binds everyone who takes the property or its traceable proceeds except a bona fide purchaser for value without notice.’ ‘Tracing is thus neither a claim nor a remedy. It is merely a process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.’ If ‘tracing’ against trustee: ‘the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge to secure restoration of the trust fund.’ ‘Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.’ ‘Innocent contributors … must be treated equally inter se. Where the beneficiary’s claim is in competition with other innocent contributors, there is no basis upon which any of the claims can be subordinated to any others. Where the fund is deficient, the beneficiary is not entitled to enforce a lien for his contributions; all must share rateably in the fund.’ El Ajou v Dollar Land Holdings (1995) Third parties: Tracing ‘[T]racing in equity is (to say the least) a complicated subject and, although the ideal would be to have simple rules of general application, the fact is that the court’s approach has, understandably and rightly been influenced by the context in which a tracing problem arises. Many of the earlier cases concerned fiduciaries who, without any fraudulent intention and in days when professional rules about segregation of clients’ funds were less stringent, mixed money belonging to a small number of clients with their own, and then got into financial difficulties.’ ‘They are very different from cases such as Barlow Clowes International v Vaughan (1992) where funds from thousands of persons (who believed they were making advantageous investments) had been misappropriated and had passed through bank accounts which never had any honest purpose and were simply machinery for money laundering. In cases of that type, there is at the end of the day a fund in the hands of receivers or liquidators which represents what is left of the proceeds of fraud.’ Barnes v Addy (1874) Types of third-party liability Two types of third-party liability: recipient and accessory ‘Now, in this case, we have to deal with certain persons who are trustees and certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with legal power and control over the trust property, imposing on him corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly speaking trustees. … But, on the other hand, strangers are not to be made constructive trustees merely because they act as agents of trustees in transactions within their legal powers, transactions, perhaps, of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or … they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.’ Baden v Societe Generale (1983) The Baden Knowledge Scale Actual knowledge Wilfully shutting one’s eyes to the obvious (wilful blindness or Nelsonian blindness) Wilfully and recklessly failing to make such inquiries as an honest and reasonable person would have made Knowledge of circumstances that would indicate the facts to an honest and reasonable person Knowledge of circumstances that would put an honest and reasonable person on inquiry