Equity Law: An Introduction

The law of England and Wales could be described as a body of rules, some of which are defined by legislation, others that have evolved through centuries of judgments being delivered in the courts. The latter is known as the common law of the country and is based on the legal precedents or rules developed from these cases. There is, however, a third source of law in England – that of Equity – which serves to act as a supplement to the laws of England, stepping in to enhance its application where the result would be contrary to natural justice or too harsh.

Equity introduction: the origins of equity

In the 11th century, as the common law developed a claimant could only bring a case if it fell within the strict forms established. In relation to property, for example, they had to show legal title.

Often a claimant had an interest in property that fell short of this, and which arguably it would be unjust to deny, such as in early forms of trusts where the property was conveyed to one person with the intention that it was held for the benefit of another.

In that situation, where justice was denied through the courts, the claimant could petition the King. The Lord Chancellor would deal with the petitions on the King’s behalf. Thus a two-court system evolved, one dealing with the common law with it’s more rigid rules, and one administered by the Court of Chancery based on legal principles, fairness and flexibility.

The two bodies of law were often seen as being in contradiction. Where the two laws conflicted, equity would prevail.

One common example of equity in practice is the law of trusts. Trust evolved as an equitable addition to property law and was used where one person held legal title to a property, but the courts held that it was fair, just and equitable that the legal owner used the property for the benefit of another. This was the first legal recognition that there could be a split between legal and beneficial ownership.

In the 1870s the primacy of Equity was enshrined in law through the Judicature Acts. This legislation also combined the two courts into one court structure, although the two systems of law remain distinct. The majority of modern courts apply both sets of rules to proceedings.

Equity introduction: The Equitable Principles

Equitable principles are expressed as a series of legal maxims, which reflect the more flexible application of this strand of the law. They can be deviated from in specific cases, and individually do not cover the whole ground. The most commonly referred to maxims are:-

1.  Equity sees that as done what ought to be done
2.  Equity will not suffer a wrong without a remedy
3.  Equity delights in equality/Equality is equity.
4.  One who seeks equity must do equity.
5.  Equity aids the vigilant not the indolent.
6.  Equity imputes an intent to fulfil an obligation
7.  Equity acts on persons rather than objects
8.  Equity abhors a forfeiture
9.  Equity does not require an idle gesture
10.  He who comes into equity must come with clean hands
11.  Equity delights to do justice and not by halves
12.  Equity will take jurisdiction to avoid multiplicity of suits
13.  Equity follows the law
14.  Equity will not assist a volunteer
15.  Where equities are equal, the law will prevail.
16.  Between equal equities the first in order of time shall prevail
17.  Equity will not complete an imperfect gift
18.  Equity will not allow a statute to be used as a cloak for fraud
19.  Equity will not allow a trust to fail for want of a trustee
20.  Equity regards the beneficiary as the true owner.

They overlap and create a system designed to remove injustice from the application of common law. The overriding message is that equity acts on the person and will not suffer a wrong to be without a remedy.

Equity introduction: what remedies are available in the Law of Equity?

Remedies are….

Equitable remedies offer typically more flexible and arguably more intuitive solutions to a dispute than other forms of remedy They tend to be used by the courts where non-equitable remedies such as damages would not provide an adequate solution for the claimant. They also differ from other remedies available to a claimant as their application is at the discretion of the court based on the facts of the case.

Examples of equitable remedies include:

1.  Injunction
2.  Specific performance
3.  Account of profits
4.  Recission
5.  Rectification
6.  Equitable estoppel
7. Specific property remedies, such as constructive trusts.
8.  Subrogation
9.  In very specific circumstances, an equitable lien.
10.  Equitable compensation
11.  Appointment or removal of fiduciary
12.  Interpleader

For equitable remedies to be available, a claimant would have to show that there had been an infringement of a right, and that equity should provide an alternative to damages.

In practice, the two most commonly used remedies are generally injunctions and specific performance.

An injunction is mainly used to stop someone from doing something. For example, an injunction may be used to stop a building project from commencing, or from preventing publication of a potentially damaging material.

Specific performance can be used to direct a party to do something, such as performing a contractual obligation.

Equity introduction: How does Equity work in practice?

‘Equity sees that as done what ought to be done’ is often the first equitable principle mentioned and it has many modern day practical examples.

Put more simply this principle means that when you are required by law to perform an act, equity will regard this to have been done as it ought to have been done, even before it has happened. This gives rise to the concept of ‘equitable conversion’.

Equitable conversion acknowledges an interest in the outcome of a contract before the terms of that contract have been performed. This has consequences for both parties if something goes wrong. So, for example, if you enter a contract for the sale of property, the buyer is considered to have obtained an equitable right that becomes a legal right once the transaction is completed. This equitable interest in the outcome of the contract means that if there is a breach, the buyer may be entitled to specific performance.

Alternatively, this principle will step in where a technical breach of a contract term has occurred, but that breach has significant and unduly harsh consequences. So, for instance, where a life insurance policy has lapsed due to failure to pay premiums, the equitable principle could be invoked. This happened in a case where the letter from the insurer advising of the failure to pay, and the consequent risk of cancellation, was not received by the policyholder. If it had been received by the policyholder, who was terminally ill, the payments would have been made, and the policy would still have been in force at the time of his death.  The insurance company agreed that the matter should be dealt equitably and as if the policyholder had made the payments. They allowed his widow to receive the sum assured, less the outstanding premiums.

Seeking legal advice

As the equitable principles can be applied by all courts in England, recourse to them is not uncommon.  In cases where the standard legal remedies don’t provide adequate redress, knowing which equitable remedies may be able to assist is critical to ensure that justice is done.  This branch of law is not without its difficulties though, and it is always advisable to speak to a solicitor to fully understand how the law may work for you.

What is Duress in Contract Law?

In law, duress is a concept that can have different contextual meanings. Within the context of contract law, duress refers to circumstances in which a person or party is forced into a contractual agreement through the use of illegitimate pressure. This may be by way of a threat of physical violence, a threat to property or through economic pressure.

The doctrine of duress is often considered alongside the doctrine of undue influence. Undue influence refers to circumstances in which a party has entered into a contract as a result of undue pressure but this pressure is not sufficient to establish duress.

Duress and undue influence are both grounds on which a contract may be cancelled because the consent of one of the parties was obtained as a result of pressure that the law regards as unacceptable or illegitimate. As such, duress and undue influence are used to redress circumstances where a contractual relationship has been created and exploited by one party to gain an unfair advantage over the other.

Below we consider in more detail the doctrine of duress, the different types of duress and related case law, together with the effects of duress where proven.

The different types of duress

Duress is a common law doctrine. It has evolved to extend to any form of unlawful threat or coercion that is used to induce a party to enter into a contract. Historically, the doctrine of duress was confined within very narrow limits, ie; to actual or threatened violence to the person. However, through the development of case law, there are now several different types of duress, including but not limited to threats against the person.

The main categories of duress include:

  • Duress to the person
  • Duress to goods
  • Economic duress

Duress to the person

Duress to the person commonly refers to violence, either actual or threatened, against the person or party who has been induced to enter into a contractual agreement by reason thereof.

In the case of Antonio v Antonio (2008), where a wife who owned a lucrative business entered into a shareholders’ agreement with her husband following a campaign of threats of violence culminating in an assault, the court found that the agreement had been induced by duress. The contract was set aside.

Further, where there is duress to the person, this need not be the main reason, it must merely be one of the reasons for entering into an agreement. There is no obligation to show that the party would not have entered the agreement but for any violence or threat of violence, it simply being sufficient that the illegitimate means of persuasion was ‘a’ cause.

In the Privy Council case of Barton v Armstrong (1976) threats to kill made by the chairman of a company to a managing director to coerce him into entering into an agreement to buy his interest in the company, rendered the contract voidable. In this case the contract was signed predominantly out of commercial necessity. The fact that duress was not the only, or even the main, reason for entering into the contractual agreement did not matter.

Duress to goods

A contractual agreement entered into in consideration of the release of goods from unlawful destruction or detention, or to avoid the threat of the same, may in limited circumstances amount to duress.

Whilst this area of law is not clearly defined, the higher courts have, at the very least, recognised that this type of illegitimate pressure may leave the person or party with no alternative but to submit to the threat.

As the law currently stands, a party who has been coerced into paying money for the return or protection of their goods would be entitled to recover those sums under the law of restitution. In Maskell v Horner (1915) the Claimant was able to recover sums paid to the Defendant following threats to seize the Claimant’s stock if he did not pay a toll fee for his market stall.

However, in the case of Occidental Worldwide Investment Corporation v Skibs (1976) – commonly referred to as The Siboen and The Sibotre – the court recognised that where a person is compelled to sign a contract, for example, under the imminent threat of having their house burnt down, that the law should not uphold the agreement. It is likely, therefore, that the courts may intervene in circumstances where a threat to property is serious.

Economic duress

Economic duress is the threat to damage a person or party’s financial interests, most commonly an actual or threatened breach of contract unless the other party agrees to a variation in contractual terms.

The doctrine of economic duress is a relatively modern concept in English common law, first recognised in the case of The Sibeon and The Sibotre. Here there was a threat by charterers of two ships to break their charterparties by not paying the agreed charter rate unless that rate was lowered. Whilst the Court found for the owners on the basis of misrepresentation, it accepted the principle that economic duress could apply.

More recently, in DSND Subsea Ltd v Petroleum Geo Services ASA (2000), the necessary ingredients for economic duress were defined as follows:

“The ingredients of actionable duress are that there must be pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is a significant cause inducing the claimant to enter into the contract.”

The court distinguished illegitimate pressure from the “rough and tumble of the pressures of normal commercial bargaining”. Rather, in determining whether there has been illegitimate pressure, account will be taken of the following factors:

  • whether there has been an actual threatened breach of contract
  • whether the person allegedly exerting the pressure has acted in good or bad faith
  • whether the victim had any realistic practical alternative but to submit to the pressure
  • whether the victim protested at the time, and
  • whether he affirmed and sought to rely on the contract.

It should also be noted that the relaxed view on causation in the special context of duress to the person does not prevail in the less serious context of economic duress. Here the duress must, at the very least, be a significant cause of why a party entered into a contract.

The effects of duress

The effect of an allegation of duress, where proven, is to render a contract voidable. As such, this allows a party to ask the court to set the contract aside and seek restitution of any monies paid under it.

A contract that is voidable simply means that the contract is still legally binding until rescinded by the party, although arguments may still arise as to whether the contract in question has, as a matter of fact, been affirmed. Any entitlement to set aside a contract will be lost if the party either expressly, or by its conduct, affirms the contract.

The challenges of alleging duress

The law on duress is by no means clear. It operates entirely on common law principles and in many areas is likely to undergo further development, not least in relation to the doctrine of economic duress. In the main, however, the courts are reluctant to interfere with the freedom of contract and will often summarily dismiss these types of allegations or, at the very least, adopt a restrictive approach.

In appropriate cases the doctrine of duress can still be an effective way for a party to avoid contractual obligations, particularly if those obligations were entered into under protest. However, litigants should be extremely cautious about relying on duress – either as a defence where the other party seeks to enforce a contract, or to otherwise set aside a contract – and are often better served by looking to other contractual, tortious or equitable remedies. Legal advice should always be sought on specific matters.