Question:
Describe about the commercial and corporation law.
Historically, the High Court in the United Kingdom established and adopted the law of equity as a part of its extraordinary jurisdiction which was only used when the judges felt that the traditionally used common law remedy is not capable of providing a suitable and appropriate relief in certain cases[1]. Thus, the law of equity was considered as a modern law in nature which was applied in Courts to supplement the traditional common law. Very soon, the rules and doctrines under the law of equity was globally accepted and recognized and used in many cases where law of equity provided more appropriate relief and prevented a wrongdoer from escaping penalties and punishments due to loopholes in the common law. The basic concept behind law of equity is to prohibit a defendant from engaging in any unconscionable conduct which the common law system allows. Law of equity is widely used globally in law of contracts and many a times Courts have ignored the law of contracts and given relief applying principles of law of equity like estoppel and unjust enrichment and unconscionable conduct. The judges when applying law of equity to contract case laws, most of the times go against the normal course of law to provide remedy which would not be possible if the common law of contracts was applied to case laws. There are many case laws where law of equity is applied over and above common law and the summary of such cases are mentioned below[2].
A popular Australian contract case law called the Waltons Stores Interstate Ltd v Maher (1998) 164 CLR 387 is a perfect example of how the Courts used law of equity to grant an appropriate relief to the plaintiff ignoring what the common law of contracts states[3]. In the said case Waltons contracted with the Maher to lease a property owned by them on the condition that Mahers would demolish the existing building and construct a new building according to the specifications of the Waltons. The solicitors of Maher sent the lease agreement along with the specifications of modifications and certain changes were discussed. The final draft of agreement was signed by Maher and sent to Waltons who delayed signing the contract. In the meanwhile, Maher informed Waltons about the commencement of demolishing the present building, however after approximately 40% of the new building was constructed according the specifications confirmed by Waltons, the Waltons withdraw from signing the lease contract.
The doctrine of promissory estoppels under the law of equity was used to provide remedy in the said case as the majority of the judges in the said case felt that although a formal contract was not signed by Waltons and Mahers, it was totally justified on Maher’s part to assume that the signing of contracts is just a formality in the said case. Thus, the judges stated that Maher can rely on promissory estoppels[4]. In Australia, promissory estoppels can be used by a promisee to bring about action when a promisor makes a promise, promisor creates assumptions that the promise will be formed or the contract will be signed eventually, promise relies on the said assumption and incurs losses. Thus, in the said rule makes the promisor’s conduct unconscionable in case he ignores the promise. Thus, in the said case, the law of equity is to be applied as relying on common also of contract would suggest that the contract was not formally signed between Maher and Waltons and the lack of consideration and consent. However, the said application would make the remedy unjust and allow Waltons to engage in unconscionable conduct[5].
Thus, the said case explains clearly the importance of law of equity and how it can be used to rescue a plaintiff and punish a defendant who engages in unconscionable conduct which the common law of contract would allow. Applying common law of contract in the said case would suggest that no formal contract between the parties Maher and Waltons making Waltons escape liability of the unconscionable conduct. However, the doctrine of promissory estoppels under the law of equity was used to grant relief to Maher and punish the unconscionable conduct of Waltons in the said case.
In the Bell Group Ltd v Westpac Banking Corporation, the problem arose with the issue of bonds by Bell Group. A Netherlands company of Bell group issued bonds with the objective of on-loaning the money it raised to the Bell Group. The said transactions were made by debit journal entries in the loan account of the Bell Group and with the Netherlands bell group company[6]. The transaction was without proper documentation and agreement. The loan was received at a time Bell Group was indebted from the Bank, who transferred funds to the Group on no security. In 1990, Bank decided to extend loan in exchange of security and guarantee against few assets of the Group. Eventually, bank realized the said assets of about $283 million.
Thus, in the said case, the judge stated that the doctrine of promissory estoppels is used to protect a party from the losses that will follow from the said party’s change in position in case the assumption or expectation that created the change were to be considered baseless and ignored[7]. Thus, in the said case, the conduct of the bank was considered unconscionable and doctrine of promissory estoppels under the equity law was applied to provide appropriate remedy.
Additionally, in Commercial Bank v Amadio (1983) 151 CLR 447 again the Australian Courts relied on law of equity to reach to a just and an appropriate remedy. In the said case, Amadios signed a mortgage loan to secure their son’s loan for the Commercial Bank of Australia. They were old with very few knowledge of English language and were not told about the details of the mortgage including the fact that their liability under it is unlimited. The bank manager dealing with the Amadios was also aware of their son’s financial position but choose to not disclose the same. Thus, the Courts in the said case applied the law of equity to remedy the Amadios and prohibit the bank from procuring the mortgage[8].
The relief on grounds of unconscionable conduct is usually awarded when a party makes unconscionable use of his superior power or position in a said case causing the other party who suffers from special disadvantage to suffer losses or be placed in a position of disadvantage. Thus, this equity principle was applied in the said case and the Court stated that Amadios were derived to have any independent understanding of the mortgage contract and it was unconscionable conduct on part of the Bank to not explain and advice them about the said mortgage contract especially when the bank manager was aware of the financial position of their son. Thus, as Amadios suffered from special disadvantage and the judge in the said case is allowed to use his discretion to apply law of equity to provide the plaintiff with appropriate solution ignoring the contract law setting aside the valid contracts and refusing to grant specific performance[9].
In Australian Competition and Consumer Commission (ACCC) v Lux Distributors Pty Ltd, the sales team of Lux Pty Ltd arranged for a free maintenance check of the current vacuum cleaner in the household of an elderly woman. When the representative of the said company arrived, he failed to tell the woman that he was there to actually sell the vacuum cleaner of Lux Pty Ltd. The presentation of the new vacuum cleaner lasted from more than an hour creating pressure on the consumer to buy it. Thus, the Court held that the said company engaged in unconscionable conduct while selling vacuum cleaner. In the said case law of equity was used to protect consumer from wrongful conduct[10].
Conclusion
It is clear from the cases discussed above that common law at times fails to remedy a particular situation and the judges have to use their discretion to apply law of equity and provide an appropriate and just remedy. As there is no established rule as to when law of equity is to be applied, judges discretion has to be relied on which makes the application of the already unprincipled law of equity even more uncertain and loose[11]. However, the importance of law of equity cannot be ignored even when one has to agree about the uncertainty it creates in legal system both in its applicability along with creating doubts about the certainty of many common laws. Applying law of equity sometimes is inferred as loopholes in common law which makes common law uncertain too depending on the law of equity. However, recognition is given to the law of equity as its presence completes the system of law which places justice above all. Thus, it is important that judges give justice paramount importance while dealing with cases and applying their discretion when to apply law of equity. Thus, law of equity along with common law has to be balanced by judges to reach to appropriate justice[12].
Anson, William Reynell, et al. Anson’s law of contract. Oxford University Press, 2010.
Campbell, Joseph Charles. “Waltons v. Maher: History, Unconscientiousness and Remedy-The’Minimum Equity’.” Journal of Equity 7.3 (2013): 171-208.
Guirguis, Ayman, and Alistair Newton. “Consumer law: Consumer watchdog wins unconscionable conduct appeal.” Law Society Journal: the official journal of the Law Society of New South Wales 51.10 (2013): 44.
Harris, Daniel. Equitable estoppel in the 21st Century: Revisiting the lessons of Waltons Stores V Maher. Diss. Murdoch University, 2014.
Jerker, Dan, and B. Svantesson. “‘Unconscionability’in consumer ecommerce.” Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 25.1 (2011): 8.
Langford, Rosemary Teele. “The Fiduciary Nature of the Bona Fide and Proper Purposes Duties of Company Directors: Bell Group Ltd (In Liq) v Westpac Banking Corp (No 9).” (2013).
PACE, NINA. “The Changing Face of Estoppel in Equity.”
Rajapakse, Pelma Jacinth. “Unconscionable or unfair dealing in asset-based lending in Australia.” (2015).
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