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Last Updated: 16 November 2022
Inaugural Professorial Lecture: The Lure of Equity and the Academic Voice
35
Inaugural Professorial Lecture
The Lure of Equity and the Academic Voice
Jessica Palmer*
It is a privilege to be an academic. The academic’s role is to study an area in significant detail with the aim of contributing knowledge to that particular field, and to pass that knowledge on to the next group of enthusiastic learners. Sometimes, the contributions academics make to a particular field may be substantial and bring massive change to the way in which we understand things or the way in which we do things. But for most academics, for most of the time, the contributions we make are, on their own, small refinements or discoveries, or indeed rediscoveries. These contributions require much time and perseverance, and sometimes the effects seem not to be overwhelming, but when you stand back to appreciate the wider picture, you can see a patchwork of scholarship that has advanced our knowledge of the world in some way and has, hopefully, made us better off for it.
Equity
My task in this lecture is to share with you a sense of some of the particular work that I do. The title of my lecture is “The Lure of Equity and the Academic Voice”. First, what do I mean by Equity?Our law is a messy and complicated mix of rules and principles from various different sources. Much of it, in our fairly highly regulated state, comes from statutes and regulations enacted by Parliament. Another substantial source is case law – judge-made law – which we have largely inherited from the United Kingdom and then progressively developed as our own. In to the mix are added international treaties and covenants which are incorporated into our law in various ways. Importantly and fortunately, in more recent times we are seeing a concerted effort to also acknowledge and include principles of tikanga1 and te ao Māori2 in our statutes and case law.3
We lawyers refer to case law as common law – that law which is common to the various different courts in our system. In an earlier time, that common law was applied with significant rigidity and led to
* Dean, Faculty of Law, University of Otago.
This article is the text of my Inaugural Professorial Lecture, delivered at the University of Otago on 27 May 2019 (footnotes added). I am grateful to Professors Nicola Peart and Charles Rickett for commenting on an earlier draft of the lecture.
some injustices. Three illustrations suffice. First, a promise is made and a promisee relies on it, but the promise is not made under seal in the technically correct way as was once required so the common law courts will not enforce it. Secondly, a contract is entered into and this time the correct formalities are complied with, but one of the parties agreed to the contract as a result of the other’s abuse of influence and seeks a release which the common law courts will not give. Finally, a person takes legal ownership of property with the commitment to hold it for the use of another but then reneges on the commitment, and insists on taking the benefits of their ownership for themselves. As far as the common law courts are concerned, they are the owner and entitled to do as they like.
Where the response from the King’s common law courts was unsatisfactory, the litigant appealed directly to the King. The King delegated his function of dispensing justice to his chief minister, the Chancellor. The request put to the Chancellor was to exercise his discretion to provide a sort of exemption from a ruling of the common law courts. Eventually, over time, the Chancellor’s exercise of discretion developed into its own jurisdiction complete with rules of process and substance, and its own judges. It came to be known as Equity. The King’s judges adminstered the rules of the Common Law and the Chancery judges administered the rules and principles of equity. So, in the examples just mentioned, the promisor is estopped from denying the promise in the Chancery Court, albeit that the promise was not legally binding in the King’s courts; the contract, although enforceable at law, is set aside in equity because of the undue influence; the person for whom the legal owner holds the property is recognised as having equitable rights against the legal owner, including equitable ownership rights, and the owner’s powers are accordingly curtailed.
So, Equity arose as a separate system of justice responding to an unconscionable insistence or assertion of legal rights. In that sense, Equity has been described as “another country [where] they do things differently”.4 For some, it was indeed seen as “[r]oguish”.5 But equity’s existence is not independent, but rather supplementary or auxiliary to the Common Law. A ruling in Equity was a response to a Common Law ruling or lack thereof; it “qualifies, moderates, and reforms the rigour, hardness, and edge of the law”.6
Of course, two systems of justice operating in one jurisdiction were bound to cause tensions. An interesting history of chess moves followed, that need not be explored in detail here. Suffice to say, Equity was
[244] per Cowper LC.
declared to have the upper hand7 and eventually, late in the mid 19th century, the two systems were combined into one jurisdiction.8 Our common law is now a “happy” mix of the old King’s Common Law and Equity, both of which have developed over many years, through many cases, as is the way of case law. Whether the two were intended to be truly assimilated or whether it is better to understand the situation as a dualist system is an ongoing debate.9 While the differing rules of practice and procedure have to a large extent been integrated, many of the substantive doctrines continue to be treated as distinct. In many areas of the private law, we often still talk about what we do “at law” in contrast to what we do “in equity”.
This disjuncture contributes to a belief by some that Equity is, even now, primarily a system of discretion and fairness for the particular individual10 and is less concerned with the values of certainty, consistency and coherence which we tend to expect of the wider law. But, in my opinion this view overlooks the development of Equity over many years and many cases since its early formation into a collection of doctrines, principles and rights that do justice across a wide range of scenarios,11 in much the same way as the Common Law has evolved and continues to do so.
A preference for an abstract notion of Equity has been evident in modern cases in ways that undermine those principles and rights. It is this sense in which I suggest that some courts and some lawyers are lured into a misunderstanding of what Equity is now, by what it first was. My claim is simple. Equity ought not to be used as license to do what at first glance might appear to be the “just thing” in a given case, without reference to the principles of Equity and in particular the rights of the parties as already recognised in Equity. This is not simply for the sake of formalism and certainty, but because such principles themselves have been developed and worked out to do justice. If we do not give enough attention to parties’ existing rights in Equity, we end up with
a body of law that is contradictory and incoherent.12 I will provide an example of this shortly.
The academic voice
It is in Equity that much of my work has been concentrated. And there are two reasons for this. First, I find the breadth and depth of Equity fascinating. Equity applies across a range of different contexts, in large- scale swap contracts between banks;13 property developments between commercial partners;14 real estate agents acting for both buyer and seller;15 family members at odds over who owns a Lotto win;16 spouses and de facto partners seeking to ringfence their property from relationship property claims;17 and, indeed, between the Crown and Māori in its treaty partnership.18 Equity can have something to say in large-scale and small-scale commercial scenarios, and in family situations.For instance, my husband and I have finally decided to get on with renovating our house. Unfortunately, spare time is not something we have much of these days, so we have contracted an interior designer to manage all the detail. She seems to be doing a wonderful job, but what if at the end of the project, we learn that she has in fact been receiving significant commissions from the kitchen joiner and benchtop supplier, that has seen us pay much more than we should have, and has pocketed herself a nice secret profit. Am I entitled to expect that she should have acted in our interests while she managed the project and not made any additional profit, at least not without my authorisation? Or should I have thought to cover this in the contract? What if our contract is silent on this? What if there is nothing in writing at all, which of course given the conscientous contract law lecturer that I am, there is not!
I am taken by Equity because of the way in which it is interested in so many different interactions, and the way in which it is concerned to do right.
[1996] UKHL 12; [1996] AC 669 (HL).
The second reason I have found myself focussing much of my research in Equity is because I was blessed to be taught by some superb teachers in my undergraduate and postgraduate studies who showed me that although Equity is complicated, it is also very interesting and shines useful light on how the rest of the law operates. I am particularly indebted to Professor Graham Virgo and to my own father, Professor Charles Rickett.
As an academic lawyer, it is my hope that the work I do helps to develop or clarify the law in a way that best serves society’s needs. The law operates to enable us to live peacefully in the same space together. But the law, as with the humans it seeks to assist, is not always perfect nor is it readily understandable. Just as humans are complicated, so, too, is the law. And as humans develop, so, too, does the law.
The role of the academic lawyer then is vital. To have the time to reflect and think critically about the law and how it functions; and to be able to explain it and address instances where there is a change occurring, a real dilemma arising or where the law is being misapplied. To analyse, critique, reflect and suggest. This is the contribution that an academic lawyer makes.19
An analogy with sport might be helpful at this point. The judge is on the field, determining and applying the rules of the game as it is played. The academic watches from the sideline, considering the present game in the context of the objectives of the game, the history of the game, how it is played elsewhere, and how it should best be played. In between games, the academic pronounces where the judge got it right and where the judge got it wrong (with the utmost respect, of course) in the hope that in the next game, their input may be of assistance. Sometimes, this is done in community with other commentators and sometimes, the academic goes it alone. At times, the community moves their view from the field and argues out a difference of opinion or works through a theory of the game amongst themselves. Sometimes the lawyers and parties out on the field invite the academic to work with them to prepare for the game, or to play in the game with them, or to help them avoid the game altogether. And every so often, the rules of the game are reviewed by the officials and the academic is invited to the table to join in that discussion.20
The academic lawyer. Part commentator, part strategist, part advisor, part reformer.
Of course, those of us who work in the law know that what is at stake is far more than a game – the questions that we work on have very real effects on people’s lives. And for this reason, what we do is both a privilege and a responsibilty.
An academic voice in Equity
In some instances, my particular academic voice has been accepted and has contributed to a clarification or correction. In others, it has not ... yet, I hope. I shall give a couple of illustrations in the specific context of trusts.The trust is perhaps the most conspicuous of Equity’s creations. A trust is a relationship of property ownership. Ordinarily, we understand ownership to give us the liberty and power to use the thing we own, to exclude others from it, and to transfer it. However, when someone is appointed by the original owner (who we call the settlor) to hold property for the benefit of others (or when the original owner declares themselves to so hold), equity recognises that as a trust and the property owner as the trustee. While to the outside world the trustee remains the owner, their liberty in relation to the property is severely fettered by their relationship with the beneficiaries. The property is not to be used for the trustee’s personal benefit but instead for the benefit of the beneficiaries who do not legally own the property. The trustee is personally accountable to the beneficiaries for all they do with the property, but they remain the owner.
Trusts are created for a range of purposes. Perhaps the original owner wants to gift property to the beneficiary but does not think the beneficiary is capable of making wise decisions with the property; or perhaps they want to avoid any taxes that might apply to the gift and so use a trust instead; or they may want to access government subsidies and benefits (rest home care subsidies, legal aid, allowances for families) that are assessed on the basis of income or capital wealth and needs, therefore, to shed assets. Many of these tax and subsidy benefits have been removed in various ways over the past few years but there remain other significant incentives for settling property on trust. Trusts enable succession of family-owned land and business interests across multiple generations without the properties being broken up, and they remove property from claims that could possibly be made by a lender/creditor or a spouse/ partner against the settlor or the beneficiaries because neither is a legal owner. Their lack of registration and disclosure requirements has also made trusts popular, both in commercial and private settings.
It is fair to say that in modern times, New Zealanders have had somewhat of a love affair with trusts, settling their homes and other significant assets on trust. In so doing, they have sought ways to retain control of the assets for themselves. They might give themselves significant powers such as to change the beneficiaries, to disregard the interests of some of the beneficiaries and to act in a way that benefits themselves. They are attempting to control the property and who benefits
from it, while still being able to rely on the protection that the trust affords them. It is not surprising that this has caused some raised eyebrows and close scrutiny from creditors, ex-partners, lawyers, judges and reformers questioning the appropriate boundaries of trusts.
In this context, there has been a series of important cases in the past decade that has attacked the modern trust on several different grounds. Arguments of shams and illusions have been made,21 alongside arguments about whether trusts are beyond the reach of statutory anti- avoidance provisions relating to creditors,22 the Inland Revenue,23 and domestic partners.24 In addition, the New Zealand Law Commission has reviewed the law of trusts and the resulting new draft legislation is now currently before Parliament.25 All of this has kept a trusts lawyer, like me, rather busy. I want to give two examples of the academic voice in this context.
1 Access to information
The first relates to the information available to the beneficiaries about the trust. Often settlors and trustees, and their lawyers claim that confidentiality is key to the running of the trust and refuse disclosure, and this is all the more so in the modern trust where the original owner stays involved and sees themselves as still somewhat in control. They may not want the beneficiary to know the details of property subject to the trust; who the other beneficiaries are; what has been done with the property; or even that there is a trust of which the beneficiary may benefit.Yet, if accountability of the trustee to the beneficiary is at the heart of the trust relationship, the beneficiary must be able to gather relevant information to assess and ensure the trustee is remaining accountable for what they do with the property. It is extremely difficult for a beneficiary to do so if the trustee keeps everything hidden. For that reason, the beneficiaries need access to information about the trust. Courts have recognised the beneficiary’s right to information in the past but the basis of that right has been the subject of debate and recent reconsideration. It was once thought to be dependent on the beneficiary having a fixed share of the trust property26 and so did not extend to discretionary beneficiaries (these are beneficiaries who do not have a declared share in the trust property but instead the trustee may choose when and if to distribute property to them). More recently, access to information has been seen as
a matter of the Court’s supervisory jurisdiction.27 The Court of Appeal, surprisingly, seemed to suggest just a couple of years ago that disclosure of information was an exercise of discretion on the part of the trustees.28 The work of academics on this question has argued that the beneficiary’s right to information is a vital element of the beneficiaries’ right and ability to hold the trustee to account.29 If accountability is essential for the trust relationship to function, then the starting point must be a presumption in favour of disclosure of trust information, not confidentiality. There may be valid reasons why disclosure will not be made in a specific instance including, for example, that other beneficiaries already have the information and so can ensure accountability, particularly where the requesting beneficiary is likely to reveal confidential information and cause trouble for other beneficiaries. While it is entirely possible for a request for disclosure to be reasonably denied, the starting point is important and should play a large part in determining the line calls and reminding trustees of their core responsibility of accountability to the beneficiaries.
One of the most satisfying roles I have had as an academic trusts lawyer was to be appointed to the Law Commission’s expert reference group to advise them on how trusts law should be reformed. It is fair to say that in a panel of mainly practising lawyers, there was a range of views on this issue of access to information. There is no doubt that disclosure is an added burden for trustees with cost and compliance implications. Ultimately, the Law Commission recommended a presumption of disclosure to a requesting beneficiary unless the trustee reasonably considers otherwise having taken into account several prescribed factors, including the nature of the beneficiary’s interests, issues of confidentiality, the expectations of the settlor, and the impact on other beneficiaries.30 A very similar approach was subsequently taken by the Supreme Court.31 It was gratifying to see the Law Commission’s recommendation was affirmed by the Ministry of Justice in the draft trusts legislation, now awaiting a final reading in Parliament.32 [Since this lecture was given, the Trusts Act 2019 has been passed with these information disclosure provisions.]33
(NZLC R130, 2013) at 103–106.
31 Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320.
32 Trusts Bill 2017 (290-2), cls 47–49.
33 Trusts Act 2019, ss 51–54.
2 Constructive trusts on express trusts
The second example of an academic contribution to recent trust law is still, I hope, playing itself out, because at this stage, I am not having much success!In addition to the personal right the beneficiary has to hold the trustee accountable, another feature of the trust, and one which demonstrates the real wonder of the trust is the right which the trust confers on the beneficiaries in relation to the trust property itself. If the trustee misapplies the property, transferring it to an outside party without authorisation, the beneficiary is entitled to follow the property and claim it back. Even if the beneficiary does not have a fixed right to the property but is only a discretionary beneficiary, they are nevertheless entitled to insist that misapplied property is returned to the trust corpus. And even if the outside party does not know of the trust, the equitable property right nevertheless runs with the property. So, the beneficiary’s trust interest defeats a party who was given the property by the trustee, or who is occupying the property. There is only one limit. The only party who can ignore the beneficiary’s claim is the one who purchases the property, giving something in exchange, and doing so in good faith not knowing of the existence of the trust. This is a fairly basic trust principle.
However, in the current climate of concern about the use of trusts, a rather worrying line of cases has developed that seems to undermine this key trust principle in favour of recognising a distinct (constructive) trust over the property for the benefit of an outside person. The common scenario proceeds along the following lines: Antonio and Petra are de facto partners and they live in a house which Antonio acquired personally before the relationship and which he and his lawyer now hold on trust for the benefit of himself and, say, his two children from his previous marriage. Petra knows there is a trust but this does not concern her because it seems to have no practical effect on their use of the house. Antonio makes all the decisions about the house and sees the lawyer only once a year. Antonio has been renovating the house over the past couple of years, and Petra has helped in several ways. She has put in long hours on the weekends sanding and painting the house, and landscaping the garden. Antonio’s money has been tied up in paying for the renovations so Petra’s income has been used to cover their general living expenses. The parties separate and Petra seeks a share in the house on the basis of a constructive trust. Unlike the express trust to which I have been referring, the constructive trust is not expressly called into being by the parties but arises in particular given circumstances. There are several different circumstances in which a constructive trust may arise. The constructive trust relevant to these facts comes into being where the claimant, Petra, makes a contribution to property with the reasonable expectation that she will receive an interest and for which the owner reasonably expects to give up such an interest.34 These particular constructive trusts were
once important in de facto relationship property disputes before de facto relationships were brought within the same statutory regime that applies to division of property between married couples.35 The constructive trust is being called upon once again, but now it is because the property is subject to an express trust and so is excluded from the statutory regime applying to divide relationship property.
Successive Court of Appeal decisions in the last five years have ruled that a constructive trust exists in this situation and applies to the property that was already subject to the express trust and which is now deemed to be held by the trustees on trust for the outside party.36 Antonio and the lawyer, as the legal owners, are said to hold a share of the trust property on a separate and distinct constructive trust for Petra. Despite academic objection,37 the Court has referred to the need to recognise the “practical realities when one trustee is in absolute control of all trust activities and the other trustees have effectively abdicated their trustee responsibilities”,38 and the “reality of a trustee’s ability to give a third party expectations (in return for that third party’s contributions) over trust property”.39
In my opinion, this situation is a good example of an apparently just result on first glance being incorrect once the broader trust principles are considered. There are several problems. The constructive trust is not conceptually possible because, given what was said earlier about the interests of the beneficiary, the trustees are in breach of trust when they part with property by the engendering of an expectation in another. The beneficiary is entitled to trace the trust property and require its return. The trustee cannot give up the beneficiaries’ equitable interests in the property except to a purchaser in good faith,40 but the ex-partner in these cases is not a purchaser for value, and usually they know of the existence of the trust. Petra must, therefore, be bound by the beneficiary’s right to enforce the express trust.
Further, even if we were to rely on Equity’s apparent flexibility and accept the possibility of a constructive trust, it is hard to see how Petra’s expectation of an interest could be reasonable given she knows a trust exists and that she is likely not dealing with all of the trustees. And, even
if these objections were surmountable, the constructive trust would give her an equitable property interest that would be in competition with the beneficiary’s equitable property interest. It is well known in Equity that where there are competing equities, the first interest in time prevails. The trust beneficiaries’ interest arose on creation of the trust; whereas the ex-partner’s interest arose later at the point in time when we can say they made contributions and there was a reasonable expectation of a corresponding property interest. The trust beneficiaries’ interest must surely win out.41
But, of course, the factual injustice remains. Although a constructive trust is not the appropriate response, there should nevertheless be a response to the injustice if indeed Petra’s expectation was reasonable. The law does already provide a response in the form of a restitutionary award of money for the value of the contributions a person has conferred. The ex-partner is not without relief but the relief they receive is a personal monetary order, not a proprietary order over the trust property. In this way, the injustice with which the court has been concerned – that the beneficiaries should not benefit from an increase in value caused by the ex-partner’s contributions – is repaired without the incoherent complications caused by recognition of a constructive trust. It might be time to write another article.
My task has been to understand and to remind others of the principles underlying Equity, especially where an equitable remedy alters property rights and can have significant consequences. Some like to think that Equity is a source of authority to do individual justice on the case but in my view, justice is best achieved by the careful and consistent application of principles that are themselves just. Equity, like the Common Law, has developed principles and rules to ascertain what is just. Lawyers and judges must tread carefully when they revert to first-order labels such as justice and equity. I have tried to warn where I think we are at risk of undermining clearly established rights.
The legal academy
And now as the present Dean of the Otago Faculty of Law, I find myself in a role where I am concerned about the academic lawyer’s voice more generally. I am convinced that despite all of our strange habits, such as turning up to give these public lectures in very old-fashioned garb, what we do matters.To students, we teach methods of reasoning and critique, the necessity of attention to detail, and the importance of identifying all the competing interests and making sure they are all weighed up. We hope that they
will see, as we do, just how important the law is and how valuable their skills will become.
To lawyers, judges, and law reformers we elucidate underlying principles, trends and concerns to help them in their roles of upholding a working and responsive system of justice, albeit that I know we can be very annoying at times!
To the general public, who are often interested in and concerned about the law, as they rightly should be, we can play a valuable role in keeping them informed so that our local and national conversations are rich and productive.
The law school is essential to a functioning, robust legal system, as is the university to a free and informed society. We must never take ourselves too seriously but we must take this institution seriously. I am both privileged and burdened by this task and I am grateful for the wonderful academic colleagues I work with here in the Law Faculty and across the University who are pursuing in their fields this noble role that is the academic’s voice. I am equally grateful for all of our professional staff, for without whom my mind shudders to think of the mess we might make of the place otherwise. Thank you to all of my colleagues, both academic and professional – the academic endeavour can often be a solitary one but that has not been the case for me at all in the Otago Law Faculty and in this great University.
Conclusion
To conclude, I have endeavoured in this lecture to convince you of two things: that the alluring nature of Equity must be treated with caution; and that the academic voice that sounds that caution matters. For several years now, I have tried to inhabit that academic voice as, too, do many of my colleagues daily in their own respective fields. I have not always succeeded but it has nevertheless been a wonderful journey thus far. If I have not managed to persuade you on either of those two points, then the only other plausible conclusion we can reach this evening is that the University has made a rather unfortunate mistake in promoting me to professor. God bless Otago.
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