Understanding Equity In Australian Contract Law

What is Equity?

Question:

Explain the commercial and corporate law.
 

The term “equity” is often misunderstood and as a result misapplied by Courts when asked to grant an equitable remedy. In a broad sense, equity means power to do justice and in a restricted sense it means exercising of discretionary power to alleviate the strictness of rules and laws[1]. Equity means the power to adapt to the respite to the situations of the particular case. However, this does not mean that equity provides boundless discretion to the judge to decide cases. According to Llewellyn, equity may give tyrannous power to the judges as it is like a giant’s strength. Famous writers on the subject of equity have agreed that “equity” and “equitable” are terms that are difficult to define[2]. The use of terms such as “equity”, “equitable”, “fair” and “compassionate” has resulted in decisions of the Court where rationale remains hidden. A court may often rely on equitable remedies and equitable precedents in a case where it is difficult to rely on the bargain of contract as it was too hard. A decision that relies only on equity is marked analytically weak and suspicious. Equity is often criticized for its flexibility, as this flexibility is used against a background of particular rules on misrepresentation, mistake, undue influence and estoppel. Despite all the negative reviews against equity, it is seen that equity has sought to repair injustice from gaps left in the common law of contract[3]. 

1^st Case Analysis: Waltons Stores Interstate Ltd v Maher[4]

This is a famous case in Australian contract law. The court held in the case that the doctrine of promissory estoppel can be a cause of action in certain cases. Maher was an owner of a property on which Waltions Stores wanted to establish a department store. Depending on the representations made by Walton, Maher demolished the existing the store and started to built a new building in its place. However, the contract was never completed as Waltons did not sign the lease because of Maher’s hostile attitude towards them. The High Court estopped the unconscionable conduct of Waltons from denying the contract. Since Maher had acted depending on the representations made by Waltons, equity would intervene. According to Mason CJ, there are differences between contract and an equity created by estoppel[5]. A contractual obligation is a creation of parties and an obligation created by equity is irrespective of any contract that the party may be bound to.

In the case of Barnes v. Alderton[6], a dispute between sister and brother over a property in NSW arose. According to the defendant, at the time when they purchased the property he was 21 while his sister was 15. He further stated that since his father was working on the central coast and mother in Sydney, the family was divided. However, the only people who looked after the property were the defendant and his father. As per the memory of the defendant, the dues of the property were paid from their joint account. The Court held that the doctrine of promissory estoppels cannot assist a person who hears a statement from someone who says that they are intending to make the hearer owner of the property. Such statement cannot be enforced as the person did not rely on the promise that was made to him. Hence, in this case the Court rejected the applicability of doctrine of promissory estoppel[7].

Promissory Estoppel in Australian Contract Law

The case laws mentioned above are examples that show us that a wide range of discretionary powers are vested in the hands of the Courts to decide cases where there is ambiguity of application of contract law and rules[8]. In such cases, equity has provided justice to people and common law remedies were undermined. The doctrine of promissory estoppel is a defined and well stated doctrine however; there may be situations where in the Courts may decide cases going beyond the scope of the wordings of the doctrine. In the case laws mentioned above the Judges depended on the facts and circumstances of the case and had gone beyond common law jurisdictions. 

This was a famous case of equity and Australian Contract law. The issue in this case was “unconscionable conduct” due to lack of education and knowledge was evaluated and the effect it had on bargaining power. The son of Amadios conducted a business in which his parents became guarantors without their knowledge. The son entered in a contractual relationship with the bank and made their building a mortgage property. According to Amadios, the guarantee cannot be enforced as it was unconscionable. Unconscionable conduct does not have any particular meaning and it is completely the authority of the pressing Judge to determine whether the facts were in compliance with the statutory provision or not. The judgment in this case was that Amadios cannot be held liable as they did not know the legal implications of such a contract. This case relied more on equity and less on statutory provisions[10].

In the recent case of ACCC v. Lux[11], the Courts clarified the situations in which unconscionable conduct can be applicable. This case relied on the discretion of the Judge to analyze and decide whether unconscionable conduct rule can be applied or not. The Australian Consumer Law does not have any specific meaning of unconscionable conduct; however, it may mean action does not take into consideration the rules of conscience. In this case, the Court held Lux liable for unconscionable conduct for business transactions. In this case also the decision of the Judge depended on the principles of equity[12]. 

During the period of development of the principles of equity, Judges viewed the main function of equity as a tool for justifying the harshness and smoothing the roughness of the common law in cases where the Judges believed that such justification required application of natural law. Since the time equity was established, it was criticized for its flexibility. It was held by many theorists and authors that equity gave a lot of power to the Judges to decide cases in which statutory laws and principles do not have proper meaning. According to Justice Fuller, laws should be codified into two sections, firstly people must be good and secondly, Courts of equity should be given authority and power to enforce provisions of the formulated law[13]. The issue is that if equity had so many associated disadvantages then countries such as the United States would not have relied on the decision given by the Judges and till date no Court of equity would have existed. In fact, even in the early days of development of equity, Court never used unfettered discretion in giving their decisions. The courts of equity insisted citation of lawful authorities. In this sense, equitable means, body of rules and case laws that have emerged over the period of time[14].

The most important characteristic of equitable relief is that it is considers it to be extraordinary and not ordinary. The first result of this axiom is that equitable relief is considered as a matter of right and not of discretion. Hence, a party who relies on equitable relief cannot demand it as a matter of right but as a matter of discretion. This is what the commentators meant when they said that denying equitable relief is the discretion of the Court. They did not mean that the Court can grant equitable relief in all scenarios rather it meant that parties who place their cases as part of equitable relief are not automatically authorized to it[15]. Parties cannot demand equitable relief as a matter of their right, however, they may request for the same.

Hence, with this we may now come up with the question, as to what relation does equity have with discretion? Discretion does not only mean personal choice of Judges, it may mean something more than just the applicability of personal conscience of Judges. In the equitable sense, discretion may mean “principle discretion” as opposed to unbridled discretion. Principle discretion is the guiding rule for any Judge to grant equitable relief, depending on the facts and scenarios of the case. Though Courts are regarded as court of good conduct and conscience, they may not grant equitable relief in the absence of a statutory provision or established precedent[16]. 

Conclusion:

Conclusively it may be stated that the principles of equity have always helped in prevailing justice especially in cases where the common law of contract applicability fails. The principles of equity have conferred excessive discretion on the Court which may undermine the clarity and certainty that the common law rules of contract them otherwise provide. However, this certainty shall always prevail unless a restricted set of rules are not created.  A more defined and restricted set of rules may allow equitable relief to prevail and at the same time make common law application easier. 

References:

Bogdan, Michael. “Concise introduction to comparative law.” (2013).

Brown, James R., Gustav Martinsson, and Bruce C. Petersen. “Law, stock markets, and innovation.” The Journal of Finance 68.4 (2013): 1517-1549.

Greenberg, Jerald, and Ronald L. Cohen, eds. Equity and justice in social behavior. Academic Press, 2014.

Hart, Herbert Lionel Adolphus, et al. The concept of law. Oxford University Press, 2012.

Llewellyn, Karl N. The common law tradition: Deciding appeals. Vol. 16. Quid Pro Books, 2016.

Macnair, Michael RT. The law of proof in early modern equity. Vol. 20. Duncker & Humblot, 2013.

Milsom, Stroud Francis Charles. Historical foundations of the common law. Butterworth-Heinemann, 2014.

Osborn, Percy George. A Concise Law Dictionary-For Students and Practitioners. Read Books Ltd, 2013.

Penner, James. The law of trusts. Oxford University Press, 2016.

Pettit, Philip H. Equity and the Law of Trusts. Oxford University Press, 2012.

Sheleff, Leon Shaskolsky. The future of tradition: Customary law, common law and legal pluralism. Routledge, 2013.