Equity

From Max-EuP 2012

by Martin Illmer

1. Term

Equity may be understood, in the first place, as the basic idea of justness and fairness of the law. Since ancient times, this idea has been a guiding principle of most legal systems. Today, it is a cornerstone of all European legal systems. The roots of the concept date back to the Roman aequitas, where it paved the way for the principles of morals and ethics into the law. Striving for individual justice, equity is often contrasted with legal certainty achieved by the formal rigidity of the law.

In English law, this basic idea served as the foundation for a distinct body of law: equity. According to the prevailing view, equity comprises ‘that body of rules administered by our English courts of justice which, were it not for the operation of the Judicature Acts [1873–75], would be administered only by those courts known as the Courts of Equity’ (Frederick William Maitland, Equity and the Forms of Action (1920) 1). The definition indicates that equity is not a systematically structured, homogeneous body of law, but rather a result of history that developed as the counter-part and supplement to the common law. Equity can only be described and defined conceptually by juxtaposing it to the common law, which is regularly done by referring to the law applied by the courts of equity as opposed to the common law courts.

2. Historical background

The origins of English equity can be traced back to Roman and canon law.

a) Origins in Roman law

The ius civile of early Roman law, which applied only to Roman citizens, was characterized by its formal rigidity and the technicality of its system of actiones. Not rarely this led to results that were felt to be unjust in the individual case. The ius gentium, initially applicable only to foreigners, was far more flexible. It was regarded as a universally applicable law based on universally accepted notions of justness and equitableness. When applying the ius gentium, the praetor peregrinus was not limited to the rigid system of actiones. Instead, he had a wide discretion to grant the relief required in the individual case. This enabled him to avoid the formal rigidity of the law for the benefit of individual justice. In the 2nd century BC the formular procedure was amended, allowing the praetor to apply not only the ius civile but also the ius gentium to Roman citizens. The edict published by each praetor, usually based on the edict of the preceding praetor plus some new provisions, formed the basis of a so-called ius honorarium introduced by the praetors ‘adiuvandi vel supplendi vel corrigendi iuris civilis gratia’ (Pap. D. 1,1,7,1). Hence, there were two bodies of law side-by-side: ius civile and ius honorarium. In the formular procedure, the praetor determined, on the basis of both bodies of law, the formula which, in turn, provided the programme of litigation before the judge (apud iudicem). In the cognition procedure prevailing from the 2nd century AD, both stages of the proceedings were amalgamated.

Particularly important among the creations of the ius honorarium were the consensual contracts, invested with iudicia bonae fidei (as opposed to the condictio—a iudicium stricti iuris—which was applicable to the stipulatio); it was to become an important motor of legal development for Roman law contract doctrine. The praetor also, eg, intervened to protect minors. Among the remedies provided by him was the in integrum restitutio.

b) Origins in canon law

In the 9th century, a procedure before the ecclesiastical courts emerged which was guided by principles of aequitas. The courts could grant a dispensatio to overcome harsh results produced by the strict application of the law. The power to grant a dispensatio was either provided explicitly by the law or justified by the general inability of abstract legal rules to do justice in the individual case. Initially, the dispensatio was granted exclusively by special courts within the ecclesiastical judiciary, the signatura gratiae. From the 13th century onwards, the signatura justitiae both applied the law but also decided whether to grant a dispensatio. Apart from the dispensatio, the ecclesiastical courts were generally less guided by the written law than by notions of rationality and conscience based on divine and natural law. Through the procedure of denunciatio evangelica these principles, inter alia, also established themselves in England.

3. Development in English law

a) Origins

The origins of equity in English law are disputed. Partly, the view is taken that the roots of equity lie in the concept of uses as predecessors of trusts. The prevailing view, based on F.W. Maitland, regards equity more broadly as a body of rules and mechanisms, developed and administered by the Lord Chancellor, to alleviate hardship and to fill gaps of the common law. It was not for some time that trusts became a core field of equity. Sometimes, parallels are drawn between the emergence of the English equity and the development of the ius honorarium in Roman law: the common law being as rigid and formalized as the ius civile, and characterized by a strict system of actiones, or writs; the Lord Chancellor as a kind of English praetor, alleviating harsh results in individual cases by means of his equitable jurisdiction; and the emergence of a distinct body of law, the ius honorarium and equity respectively.

b) Development of a law of equity by the Lord Chancellor

Every English citizen could bring a petition before the king pleading that injustice had been done to him. Upon such a petition, the Lord Chancellor as the competent servant of the king could alleviate particularly harsh and unjust results of the common law. One way of doing this was issuing new writs in consimili casu before the common law courts. This power was, however, limited and the common law courts could reject such new writs. Another, far more effective way was to alleviate hardship without directly interfering with the writs and rules of common law. For that purpose the Lord Chancellor established his own jurisdiction in Chancery. The defendant was summoned under the writ of subpoena to appear before the Lord Chancellor where he had to present his position in relation to the claim against him under oath. Often, the Lord Chancellor ordered disclosure which was unknown to the common law courts. This enabled him to base his decision on facts that were not amenable to the strict rules of evidence under common law, in particular the intention as well as exclusive knowledge of the defendant. The Lord Chancellor did not decide merely upon the facts pleaded and proved (secundum allegata et probata) but on his conscience (secundum conscientiam) based on the set of facts comprehensively revealed by disclosure under oath without consulting a jury. He was not bound by precedents (precedent, rule of) of the common law or his own prior jurisprudence. The procedure before the Lord Chancellor was modelled after that of the denunciatio evangelica before the ecclesiastical courts, with which the early Lord Chancellors—regularly clergymen and lawyers at the same time and educated in Roman and canon law—were familiar. Hence, early equity, sometimes referred to as conscience, had a strongly procedural dimension. It corrected the over-formalistic common law procedure to do justice in the individual case. The special procedure pursued by the Chancery, however, also explains the areas of substantive law in which equity asserted itself. They are mainly areas requiring a flexible approach to formal requirements, proof of subjective elements and individual deviations from the rigid structures of the common law. This encompasses simple promises (not under deed), matters of accident (frustrated contracts, lost documents), mistake, fraud, duress, misrepresentation, breach of confidence and fiduciary relationships, in particular uses and trusts.

c) Categories of early equity and the relationship to the common law

When equity emerged in the 12th century, the Lord Chancellors regarded the law they administered as part of the ordinary law of the land. They did not intend to create a distinctive body of law. In the course of this development, there were often overlaps and competition between the jurisdiction of the Lord Chancellor and the jurisdiction of the common law courts. Accordingly, the Chancery’s jurisdiction was classified by John Fonblanque and Joseph Story into several sub-categories: (a) assistant/auxiliary, (b) concurrent with (and often corrective of), and (c) exclusive of the jurisdiction of the courts of common law. In the field of assistant and concurrent jurisdiction, the jurisdiction of the Chancery had the advantage of being less formalistic and more flexible than the common law both in relation to substantive and procedural matters (although early English law was not really familiar with the distinction of substance and procedure). Consequently, the Chancery was seized frequently. Neither the common law courts nor parliament approved of such a special, royal jurisdiction interfering with their powers. As early as the 14th century, the Lord Chancellor was warned not to make use of his jurisdiction in cases where the common law courts were concurrently competent.

Despite those first clashes between equity and common law, the Chancery continued to exercise exclusive jurisdiction in cases of fiduciary relationships, in particular uses and, after their substantial limitation by Henry VIII, trusts. Furthermore, the Chancery claimed jurisdiction in cases of fraud, matters of accident and breach of confidence. In many cases, however, the relationship to the common law remained unclear and unsettled. To prevent a party from simply seizing the common law courts which did not recognize equitable rights, remedies and defences, the Lord Chancellor issued injunctions upon a party’s request, prohibiting the other party from seizing the common law courts and/or enforcing a judgment obtained from a common law court. These injunctions were not addressed at the common law courts but at the opponent party (equity acts in personam). The common law courts reacted by themselves issuing injunctions under subpoena against the party that requested the injunction from the Chancery. Finally, this clash of jurisdictions culminated in the conflict between Chief Justice Coke and Lord Chancellor Ellesmere at the beginning of the 17th century. King James I resolved it by deciding that in case of clashes between equity and the common law, ‘equity shall prevail’. The potential for clashes decreased during the 17th century: in the fields of concurrent jurisdiction, particularly the law of contract, the common law courts increasingly incorporated equitable principles into the common law. In the fields of exclusive jurisdiction, clashes had always been rare. At the end of the 17th century, equity and common law co-existed harmoniously as ‘parallel streams’ (Maitland) without any substantial overlap.

d) Equity’s transformation into a distinctive and coherent body of law

From the beginning of the 16th century onwards, equity turned more and more into a distinctive and coherent body of law with its own systematic structures. The Lord Chancellors were no longer clergymen; the Chancery turned into a court with jurists as judges (in 1875 it comprised seven judges); distinctive legal norms, ie the rules of equity and good conscience, emerged; trusts developed into a separate field of law within the law of equity; collections of the decisions of the Chancery were published; and a system of precedents was developed.

Furthermore, a number of general principles of the law of equity were developed (such as: equity will not suffer a wrong to be without a remedy; equity looks to the intent rather than the form; equity is equality; he who comes to equity must come with clean hands; equity follows the law). Their relevance, however, is often overrated. A far more relevant issue in relation to the common law were the different remedies. While common law granted mainly damages, Chancery, under the law of equity, could order specific performance as well as final and interim injunctions.

e) The Judicature Acts 1873–75

The most striking turning point in the development of the law of equity was the enactment of the Judicature Acts 1873–75. They abolished the two jurisdictions of the Chancery and the common law courts and established a High Court of Justice that applied and administered equity as well as common law. Within the High Court, there are still divisions (Queen’s Bench, Chancery, Family Division, the latter initially being the Probate, Divorce and Admiralty Division), and cases from the different fields of law are allocated amongst those divisions, but such allocation is not binding. Each division decides the case before it comprehensively, considering common law as well as equity. With the abolition of parallel and concurrent jurisdiction, a uniform law of civil procedure emerged, combining elements of both jurisdictions. Trial by jury was considerably limited, whereas disclosure nowadays is part of nearly all proceedings in private law. Although it was still held that, in case of a clash of common law and equity, equity is to prevail, it soon came to be recognized that—as Maitland aptly put it—equity had come not to destroy the law, but to fulfil it. Rules of equity and of common law are therefore not in conflict; rather, they supplement each other.

4. Role and relevance in modern English law

In modern English law, only trusts and other fiduciary duties remain as distinctive categories of equity. They emerged nearly entirely under the jurisdiction of the Chancery and remained rather untouched by the common law. Thus, the law of trusts still is a separate field of law with its own rules and principles still largely based on equitable doctrine. In case of a fiduciary duty the relationship between the parties and vis-à-vis third parties is also largely governed by a set of equitable principles which is not merely supplemental to a set of common law rules.

Down to the present day, it is still disputed whether the Judicature Acts affected only procedural issues or also the substantive law. In other words, concerning substantive law, are there still two parallel streams running alongside one another or have the waters of common law and equity mingled? Apart from trusts and fiduciary duties, however, there can hardly be any doubt that both bodies of law have largely been fused, a process that is still ongoing. The court seized applies both common law and equitable principles when, for example, determining a contractual claim. It looks at the claim under all aspects, no matter whether historically they were part of the common law (eg formation of contract (contract (formation)) or of equity (eg mistake, fraud, duress, undue influence). The crucial question is not whether the claim succeeds under common law or equity, but whether it succeeds at all, ie whether a contract was validly concluded, whether there is a right to avoid the contract, etc. Even the historically important dividing line between common law and equity in relation to remedies and defences has become largely irrelevant. As far as defences are concerned, the court simply decides whether a specific defence raised by the defendant succeeds in relation to the claim put forward. Remaining differences depend on the nature of the claim and the defence, rather than its historical origin in common law or equity.

As far as remedies are concerned, the differences have also largely disappeared. It is common ground that the remedies of common law and equity influenced each other and are slowly converging. Injunctions may nowadays be ordered, on the basis of wide discretionary powers, for the protection of any right. In the field of monetary remedies there is hardly any difference left between equitable compensation and compensatory damages under common law. The remaining differences are usually justified by the different wrongs giving rise to a claim; at the same time, it is increasingly acknowledged that equitable remedies may be granted in case of a common law wrong and vice versa. The courts have not yet developed a consistent case law in that regard.

5. Equity in the continental systems

The continental private law systems do not know—and have never known—a distinct body of law comparable to that of the traditional English equity. The underlying general idea of justice and fairness of the law as well as the aim to overcome formal rigidity in exceptional cases in order to do individual justice are part of the ordinary private law. The rules on avoidance of contract (Anfechtung) in §§ 119–123 of the German Bürgerliches Gesetzbuch (BGB) may serve as an example: they concern issues of mistake, fraud, duress and misrepresentation that were under English law initially developed in the domain of equity.

The concept of good faith inherent in the continental systems (see § 242 Bürgerliches Gesetzbuch (BGB); Art 2 Swiss Civil Code (ZGB)); Art 6:2 Dutch Burgerlijk Wetboek (BW); Art 1375 Italian Codice civile; Art 1134(3) French Code civil) is not a functional equivalent to English equity since it was limited, originally, to contract law, even if, in the meantime, it has been extended to other branches of the law. English law itself would regard a general duty to act in good faith (which it denies) not as a matter of equity, but as a distinctive concept of contract law. Good faith and equity are only comparable with regard to their common origin in the broad Roman concept of aequitas and in their aim to overcome the formal rigidity of the law to do justice in the individual case.

6. European and uniform law

The direct impact of the English law of equity on European private law is limited to trusts. Several European legislative acts contain provisions clarifying their application to trusts (eg Art 60(3) Brussels I Regulation (Reg 44/2001)). The Draft Common Frame of Reference (DCFR) even provides for a comprehensive regime of trusts in its Book X. The impact of equitable principles in uniform law is likewise limited to trusts; see the Hague Convention on the law applicable to trusts and their recognition of 1985 (limited to conflict rules) and the Principles of European Trust Law of 1999 (a non-binding set of principles).

Considering the development in English law since the Judicature Acts 1873–75 and the fact that a separate body of law under the heading of equity never existed in the continental legal systems, a European law of equity extending beyond trusts would be an anachronism.

Literature

William Warwick Buckland, Equity in Roman Law (1911; second reprint 2002); Frederick William Maitland, Equity and the Forms of Action (1920, 2nd edn, 1936—revised by John Brunyate); Helmut Coing, ‘English Equity and the Denunciatio Evangelica of the Canon Law’ (1955) 71 LQR 223; Ralph A Newman (ed), Equity in the World’s Legal Systems (1973); Anthony Mason, ‘The Place of Equity and Equitable Remedies in the Contemporary Common Law World’ (1994) 110 LQR 238; James Gordley, ‘Good faith in contract law in the medieval ius commune’ in Reinhard Zimmermann and Simon Whittaker (eds), Good Faith in European Contract Law (2000) 93; Andrew Burrows, ‘We do this at Common Law but that in Equity’ (2002) 22 Oxford J Legal Stud 1; Mike Macnair, ‘Equity and Conscience’ (2007) 27 Oxford J Legal Stud 659; Harold Greville Hanbury and Jill E Martin, Modern Equity (18th edn, 2009).

Retrieved from Equity – Max-EuP 2012 on 01 December 2022.

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