Remembering Equity and

its Role in Property

Relationships
Associate Professor Cameron Stewart
Division of Law
The Blind Men and the Elephant
 John Godfrey Saxe
The Anglo-Saxon Invasions c500AD
The Battle of Hastings 1066
 Norman Reorganisation
 Sovereignty
 Absolute beneficial
title
 Reception of laws
 Conquering

 Settling;

 Cessession

 Feudalism
 Henry II – the Father of the
Common law
 Curia Regis
 General Eyre and
Assizes
 Assize of Clarendon
1166 – 12 freemen from
the hundred and 4 from
the town
 Henry, Richard Coeur-
de-Lion and John
Lackland
 A’Beckett’s Legacy
The Church Courts

 The benefit of the

clergy
Edward Longshanks Hammer of the
Scots
 Parliament begins 1275
 The use of statute as
opposed to ordinance
 Nisi Prius
 Quia Emptores
 Curia Regis – embryonic courts
 Court of Exchequer – revenue
 Court of Common Pleas – civil actions

 Court of King’s bench – crime

 Remaining Council functions split into

King’s Council later Concilium Regis and then

Privy Council
 The Writ System
 Bureacracy
 Organisation of wrongs
 Remedies
 Popularity
 Recording
 Stare Decisis
 Common law
 What’s the common law meant to
do?
 Persons & Property
 Quick, efficient, fair and effective
 Real property – real actions- real relief
 Seisin
 Remedies – return the seisin, pay monetary
damages
 Contract and tort
What goes wrong?
 The Office of the Lord
Chancellor
 Around since Norman
times
 Keeper of the King’s
Conscience
 Cleric and Keeper of the
Great Seal
 Member of Lords, Judge
and Church
 Chancery as a Court
 Around the 15th century
 Function to repair the failings of Common law
 Principles of Christian fairness/conscience
 Maxims of equity
 Substance not form
 Does not assist a volunteer
 Equity follows the law
 Clean hands
 Discretion and the Chancellor’s foot
 The two streams – law and equity
 What does Equity do?
Parkinson:
(i) the exploitation of vulnerability or weakness, as exemplified in
principles relating to unconscionable dealing and undue influence;
(ii) the abuse of positions of trust or confidence, as exemplified in the
law of trusts and fiduciary obligations generally;
(iii) the insistence upon rights in circumstances which make such
insistence harsh or oppressive as exemplified in relief from
penalties and forfeiture, the law of equitable set-off, and the refusal
of specific performance on the discretionary ground of hardship;
(iv) the inequitable denial of obligations, as exemplified in the
doctrine of part performance and the principle of equitable
estoppel;
(v) the unjust retention of property, as exemplified in certain
constructive trusts and principles of subrogation
The relationship between CL and Eq
 James VI of Scotland
 The rise of
protestantism
 Absolutism of sovereign
– Divine Right of Kings
or King-in-parliament?
 Bacon & Ellesmere:
Earl of Oxford’s case
 Earl of Oxford’s case
 The Office of the Chancellor is to correct Men’s
consciences for Frauds, Breach of Trusts,
Wrongs and oppressions, of what Nature soever
they be, and to soften and mollify the Extremity
of the Law ... [W]hen a Judgment is obtained by
Oppression, Wrong and a hard Conscience, the
Chancellor will frustrate and set it aside, not for
any error or Defect in the Judgment, but for the
hard Conscience of the Party.
 The legalisation of equity
 The Civil War – equity nearly destroyed
 Lord Nottingham (1673-82)– father of equity
 Lord Eldon – (1801-27) modern rules
 Precedent and fixation
 Appointment of VC
 Poor administration
 Infamous delay – record 16 years and still
interlocutory
 19 Century reforms
th

 Bentham and the ‘dog law’

 Judicature Acts 1870s – 1970s
 The two streams in one courtWindeyer J in Felton v Mulligan (1971) 124
CLR 367 at 392; [1972] ALR 33 at 46
 Fusion fallacies
 Salt v Cooper (1880) 16 ChD 545 at 549, Jessel MR said of the effect of the
Act:
 It has been sometimes inaccurately called 'the fusion of Law and Equity'; but
it was not any fusion, or anything of that kind; it was the vesting in one
tribunal the administration of Law and Equity in every cause, action, or
dispute which should come before that tribunal. … To carry that out, the
Legislature did not create a new jurisdiction, but simply transferred the old
jurisdictions of the Courts of Law and Equity to the new tribunal, and then
gave directions to the new tribunal as to the mode in which it should
administer the combined jurisdictions.

 Property in CL
 Universalized, reified, fetishized – the materialization
of the common law
 Formality
 Creation
 Transfer
 Rights recognised in contract and tort – breach of
contract, trespass, negligence
 Remedies for breach of property rights – damages
 CL makes orders about the property not the people
 Property in Eq
 Substance
 Conscience
 Power
 Responsibility – lunacy, infants, married woman
 Trust and confidence
 BUT through the logic of precedent not unfettered discretion
 Rights recognised through doctrines of equity –
misrepresentation, undue influence, duress,
unconscionability, fiduciary relationships, part performance,
equitable estoppel, breach of confidence
 Remedies – injunctions, specific performance, constructive
trusts, personal orders
 Equity makes orders about the people not the property
 Property in Eq
 Equitable property or interest (equitable
fee simple, mortgages, covenants etc)
 Personal Equities (Gill v Gill)

 Mere Equities (Latec)

Case study 1: When contracts go bad
 A (vendor) exchanges contracts with B (purchaser)
 A gets a better offer from C (he knows about B’s
offer) and completes the sale to C before B knows
 Common law approach? Breach and damages – no
property held by B
 Equitable approach: breach and specific performance
 But what about the property interests?
Case study 1: When contracts go bad
In common law B is not the owner as the contract
has not been completed so the property cannot be
returned

In equity, the rule in Lysaght v Edwards says that

B gets an equitable interest from the exchange
and that it is a form of constructive trust, which
can be enforced against C (when he knows about
B)
 Case Study 2: Fat Henry and the
problem of trusts
 Henry and the purse
strings
 Taxation in Tudor
England – feudal
tenures
 Primogeniture
 Devising land by will
 The legal remainder
rules
 The use

A --------------------------B --------------------C
(Landowner) (feoffee to use ) (cestui que use)
Legal estate Beneficial
estate
CL Equitable
 The Statute of Uses 1535
 Collapse the use
 Springing uses
 The use on the use
 Equity creates property where there was none
before……
Case study 2: Part performance and
the equitable ‘impersonation’

 A Lease for a factory – an agreement to create

a deed
 Or a mortgage created by deposit of title deeds
 Or a promise to give a life interest if cared for
in dotage…
 The requirements for writing
23B 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.

23C Instruments required to be in writing

(1) Subject to the provisions of this Act with respect to the
creation of interests in land by parol: (a)  no interest in
land can be created or disposed of except by writing
signed by the person creating or conveying the same, or
by the person’s agent thereunto lawfully authorised in
writing, or by will, or by operation of law, ….
 The requirements for writing
54A Contracts for sale etc of land to be in
writing
(1) No action or proceedings may be brought upon any
contract for the sale or other disposition of land or
any interest in land, unless the agreement upon
which such action or proceedings is brought, or
some memorandum or note thereof, is in writing,
and signed by the party to be charged or by some
other person thereunto lawfully authorised by the
party to be charged…

CL says no deal
 Part performance
 Equity looks to substance not form
 Was there an agreement?
 Did a party act under that agreement and performed
an act to their detriment which relates solely to the
agreement?
 Is the agreement one which a court of equity would
order specific performance?
 If yes to all then equity creates an interest which is an
equitable impersonation or copy of the common law
interest being claimed
 Legal interest v legal interest

 When two or more legal interests in the land

conflict the main principle is that a person
cannot convey an interest which he or she does
not have (“nemo dat quod non habet”)
 Partial eg where A leases to B – A then sells to
C – C ‘s interest is taken subject to the lease
 Wholly inconsistent – A sells to B and then
sells to C: C receives nothing
 Equitable interest v equitable
interest

 General rule : the earlier interest has the better

claim, if everyone has acted in good
conscience
 NOTE: no nemo dat equivalent – equity is a
court of conscience – many exceptions to the
general principle – first in time principle is a
last resort
 Equitable interest v equitable
interest
 Who has the best equity?
 Heid v Reliance Finance Corporation Ltd – the better
equity depends on the circumstances –
 look to the conduct of the parties
 the question of negligence on the part of the prior
claimant
 the effect of any representations made by the prior
claimant which may give rise to an estoppel
 did the conduct of the prior claimant enable such a
representation to be made?
 Equitable interest v equitable
interest

 Generally: the earlier equitable interest may

be postponed to the later interest where:
 (a) the conduct of the earlier interest holder
has led to the later interest holder
acquiring an interest;
 (b) in the mistaken belief that the prior
interest did not exist
 If the equities are equal then first in time
 Equitable interest v equitable
interest
EG Able agrees to sell his land to Barb. Able
gives the title deeds to barb and signs a receipt
for the purchase money even though he has yet
to be paid. Barb proceeds to grant an equitable
mortgage over the land to Clary. How has the
better interest?
 Look to the equities:
 Able has an equitable lien over the property
 Clary has an equitable mortgage
 Equitable interest v equitable
interest
 Both the equities are security interests – no
real difference between them – However
Able’s negligent conduct in giving the title
deeds and signing the certificate means that it
was his fault that Clary took his interest
without notice- Hence Clary’s interest is
superior
 See Rice v Rice (1853) 61 ER 646
 Equitable interest v equitable
interest
 Exception: in the case of land held under a
trust the beneficiaries will not lose their
priority because of negligent or fraudulent
conduct by the trustee

 Shropshire Union Railways and Canal

Company v The Queen
 Equitable interest v equitable
interest
 Exception doesn’t apply unless the trust is
properly formed or in cases where the
trustee has failed to complete the trust be
receiving the trust property

 Walker v Linom
 Mere Equities
 Exception: Mere equities – personal right to a
remedy – proprietary in nature but less than a full
equitable interest
 Examples: the right to have a document rectified,
right to have a conveyance set aside because of the
grantee’s fraud
 Latec Investments Ltd v Hotel Terrigal Pty Limited:
Terrigal had granted a mortgage to Latec. Latec
exercised the power of sale of the mortgage and sold
it to a wholly owned subsidiary, Southern – Southern
granted a further equitable interest to MLC which had
no notice of the Terrigal interest
 Mere Equities
 Terrigal argued that the sale was fraudulent – not at
arm’s length – both Southern and Latec had
conspired to sell at a low price
 What was the priority between the interest held by
Terrigal and the interest held by MLC? It was held
that Terrigal had a bare right to sue and have the
transaction set aside – a mere equity
 A prior mere equity will not prevail over a later full-
blown equitable interest that was taken without notice
 Exception: tacking
 Exception: tacking – tabula in naufragio – if a later
equitable interest holder purchased for value and
without notice and is later able to acquire the legal
estate then the later interest holder can tack its equity
onto the legal estate and jump priority
 EG Mortgages – If Able grants a mortgage to Bette
then an equitable mortgage to Clary and then another
equitable mortgage to Donna – then the order of
priority will normally be B, C, D – but if Donna can
later buy the land off Bette then Donna equitable
interest will be tacked to the legal estate and Clary
will come in last
Prior legal interest v equitable interest
 In cases where there has been no fraud on the
part of the legal estate holder the prior legal
estate prevails over the later equitable estate
 Where the equities are equal the law prevails
Prior legal interest v equitable interest
 Exceptions:
 Where the legal interest holder was a party to
the fraud that led to the equitable interest being
created Northtern Counties v Whipp
 Where the legal interest holder was grossly
negligent in failing to inquire after or obtain
possession of the title deeds Walker v Linom
Prior legal interest v equitable interest
 Exceptions:
 Where the legal interest holder entrusted the title
deeds to an agent with limited authority to raise
money by using the property as a security
interest, and that agent exceeds authority by
borrowing more than was intended – legal
interest is bound to the full extent.
 Brocklesby v Temperence Permanent Building
Society
Prior legal interest v equitable interest
 Exceptions:
 Where the legal holder hands over a title
document which is used by a fraudster to
create an equitable interest in another who
takes on the faith of the document
 Barry v Heider
 Prior equitable interest v legal interest
 The legal interest will prevail if it was acquired:
1. by a purchaser:
 Anyone who acquire an interest for value (lessee, fee
simple owner, mortgagee)
2 for value
 Consideration in money – needs to be more than
nominal amount but not market valu
3 in good faith
 Bona fide – no hint of conspiracy or unclean hands
 Prior equitable interest v legal interest
4. without notice of the prior equitable interest
 Can be actual, constructive or imputed
 Actual: knowledge of the actual facts – real knowledge
 Constructive: knowledge that would have come into the
person’s attention had they made reasonable inquiries eg
case of land sold with a tenant in possession – purchaser
should have checked the rights of the lessee - constructive
notice
 Must be able to find the interest – old system title allowed
to go back 30 years
 CAct s 164
 Imputed: at law you are regarded as having been notified
eg where agent is notified by no principle
Prior equitable interest v legal interest
The rule in Wilkes v Spooner

Subsequent purchasers are in the same shoes

as the legal estate holder even when the
subsequent legal interest has notice or
receives via gift
 Registration Systems

 Problems with fraudulent transactions in the

early colony
 1800 – order of Governor King that all
agreements concerning land be in writing or
entered into books kept at Sydney, Parramatta
and Hawkesbury
 1802 – Judge Advocate’s office
 Registration Systems

 1817- Gov Macquarie – Fraudulent against a

bona fide purchaser for value
 1825 – Registration Act – substantially
amended over time and then repealed in 1984
and sections transferred into the Conveyancing
Act
Conveyancing Act and the Register of
Deeds

 Section 184C – general register of deeds

 Open to public inspection – s 199
 Deliver original and copy to the Registrar –
registered with a number – copy kept on file
 Any instrument affecting land or not can be
registered – not necessarily a “deed” as such
 Conveyancing Act and the Register of
Deeds
The effect of registration?
 (a) Validity of the document – some instruments must
be registered to have legal force eg short form of mortgage
discharge, appointment of new trustee, powers of attorney
 Registration for priority – s 184G – instruments affecting
land, executed bona fide and for valuable consideration
take priority over earlier instruments
 Effect – earlier legal interest will be defeated by later legal
interest upon registration of later interest and so on
 However it only affects priority – will not perfect a
fraudulent transaction, mistake or forgery
 Unregistered interests in the Torrens
system
 Section 41(1) – unregistered instruments not effective
to pass any estate or interest in land until registered
 RPA does recognize unregistered interests but not the
instruments: Barry v Heider(1914) 19 CLR 197 – the
instrument does not create an interest in land but the
agreement between the parties brings into being an
equitable interest which is then enforceable
 Hence unregistered interests are said to be in the nature
of equitable interests in the Torrens system, even if they
are in writing (remember the Statute of Frauds!!)
 Priorities between registered and
unregistered interests

 Unregistered interests are extinguished by

registered interests (unless caveats or
exceptions to indefeasibility: see below)
 Priorities between unregistered
interests

 Priority is determined by general common

law principles: however some unregistered
interests never have to be registered and
hence are “legal” eg short term leases and
adverse possession, mortgage by deposit of
title deeds
 Priorities between unregistered
interests

 So generally we got back to the principles –

where the broad idea is “First in time has the
better equity” but the main principle is “Who
has the better equity?”
 Look to conduct: inaction or postponing
conduct, failure to lodge a caveat to protect
the interest
 Exceptions to indefeasibility
- Fraud
 A person who acquires a registered interest
through fraud has a defeasible interest: RPA ss
42, 43, 124
 Eg their interest can be set aside.
 The requirements for setting aside such an
interest are:
 the registered proprietor’s interest must have
been acquired through implication in the fraud;
and
 the implication may be personal or through the
acts of an agent.
 Exceptions to indefeasibility
- Fraud
 General principle: unless the fraud can be
brought home to the registered proprietor,
registration will confer indefeasibility.
 Definition of fraud: actual dishonesty, which
can be attached to the registered proprietor’s
title (Assets Co Ltd v Mere Roihi [1905] AC
176)
 Sometimes said to be “moral turpitude”
 Exceptions to indefeasibility
- Rights in personam
 While registration of an interest may extinguish
other unregistered interests personal rights of
action can still survive – sometimes called “personal
equities”
 Examples:
 Right of specific performance in a sale of land
contract;
 Right of beneficiary to call on performance of trust;
 Right to rectify a mistake in a contract which has
bestowed title on the wrong party.
 The personal equity must rest on a legal or
equitable cause of action
 Exceptions to indefeasibility
- Rights in personam
 Bahr v Nicolay (No 2) 1988) 62 ALJR 268.
 The registered proprietor (R) was bound by a
personal equity where R knew of an
unregistered interest and had purchased the
property on the basis that R would recognise
and be bound by that unregistered interest.