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The Principle of Equity

Introduction

Perhaps, most understands the meaning of law yet only few know the principle of equity. While legal rights are based on positive law and can be enforced through a court action, equitable rights are not derived from law; hence, cannot be enforced by court.

It should be noted that equity does not actually create rights rather it only provides effectual redress caused by the infringement of other existing rights. This is usually resorted by some judges where under exceptional circumstances, applying the positive law would be unjust and inadequate.[1] The purpose of this paper is to assess whether or not Tom is entitled to Meg’s asset. If yes, the court is tasked to determine the extent of Tom’s share. Further, the paper examines the right of Meg to be protected against fraudulent transactions, by applying the doctrine of equity.

A Brief Background on the Doctrine of Equity

The principle of equity had been applied in different cases across the world. One of the earliest proponents of the doctrine of equity is the Greek philosopher, Aristotle. He posits that this concept is a means to correct the law in case it is defective due to its universality.[2] St. Augustine, famous philosopher and theologian, believed that equity is a virtue. A Roman philosopher and politician, Cicero, equated this concept with justice. Whereas, the famous Roman jurist, Ulpian, regarded “equity” as a component of the positive law. All these varying views suggest that in spite of its relevance in the realm of law, there has been no single definition of equity.

Equity is always intertwined with the concept of law. It is broadly understood as the treatment of others out of fairness and justice. It is resorted by parties as an alternative remedy in order to resolve dispute fairly. It is something dictated by our conscience; something that our inner self perceived to be “just”.[3] In a particular dispute, the objective of law is to determine the parties’ legal rights whereas the aim of the principle of equity is to determine his equitable rights.[4]

Even in the field of international law, equity has been used as a source of international obligation. In the landmark case of Netherlands V Belgium, the International Court of Justice applied the concept of equity in order to achieve justice. The resort to this principle was deemed not only substantive in nature but also procedural as it gives mandate to the judges to exercise their discretion in the course of determining what is more fair and equitable.[5]

Tom’s Right to Meg’s Assets

Tommy is entitled to a proportion of Meg’s any assets, except those assets prior to the cohabitation, on the basis of equity. Specifically, Tommy has an equitable estate right to Meg’s properties. To define, equitable estate pertains to the interest or right of a person over a land which is not based on legal right; thus it needs the courts of equity’s intervention to make it available.[6]

It is not disputed that there was no contract existed that govern the property relations between Meg and Tommy. Neither they were married nor executed any agreement with regard to the partition of the assets. It is also not disputed that it was Meg who put up and developed the business which later on accumulated assets. On the other hand, Tommy was regarded as the “working dad” inside the household.

There are sources of equity law that will be applied in justifying the equitable estate right of Tommy. Two of these provisions are found in the Code of Napoleon. The Code of Napoleon became one of the earliest sources of civil laws of the French. These provisions dealing with equity shall be applied in the case at bench.

The first provision provides that “When the partners have agreed that the settlement of shares will be made by one of them or by a third party, such settlement will not be open to attack unless it is contrary to equity in an obvious manner” (Article 1845). This provision implied that regardless of the presence or absence of contract, parties may freely decide to divide their shares. In fact, they may even designate third persons to do the same. The exception of this provision is in case of violence, lesion, and fraud, the partition may be avoided by the parties.[7]

Applying this equity principle in the case at hand, the decision of Meg and Tommy to partition their assets does not violate any positive law. Despite of the absence of contract which would govern their partition, they are not precluded to proceed. The only question is up to what extent of the properties of Meg should Tommy be entitled to. This will be tackled later on.

The second Napoleonic provision on equity provides that “Agreements are binding not only for what has been expressed but also for all consequences that equity, usage or the statute (la loi) give to the obligation, according to its nature” (Article 1135). This provision only gives the power to the judge to assess finally the case presented.[8] This provision finds commonality in the Swiss Civil Code, Article 4: “The judge applies the rules of law and of equity when the statute reserves his power of appreciation or asks him to decide taking into account either the circumstances or just reasons”. This means that in case confronted with difficult dispute, a liberal interpretation should be applied in order to achieve equity”.

The importance of including this provision justifies the inclusion of the court’s discretion in deciding the dispute. Due to the special circumstances present in the case, nothing prevents the court of justice to apply the principle of equity. This application would now determine the extent of Tommy’s right over Meg’s property.

Meg-Tommy’s relationship is akin to that of a capital-industrial partnership. Meg is the capitalist partner as she is primarily the heart and brain of their businesses. On the other hand, Tommy is like the industrial partner who did not shelter capital yet he helps the business by performing other acts – in this case taking care of their family. After all, without the capability of Tommy in handling their growing family, Meg would have do the same or spend extra money to let other people do what Tommy does in their household. In other words, their roles complement each other. Hence, it is only apt to treated them in equal footing when it comes to the partition of the assets accumulated within the time they cohabited. To be in equal footing means to let Tommy shares the assets as well as liabilities of Meg. Except those assets already accumulated by Meg prior to their cohabitation, Tommy should be given equal opportunity to the properties of the estranged partner.

Lastly, inasmuch as Tommy should be awarded a partition of the assets, he should also contribute to the losses incurred by Meg throughout the course of the business.

Megs Liability to Community Legion

Regarding Community Legion, Meg is not liable to pay the claim for $600,000 made by Community Legion. Meg can invoke the doctrine of equity to support her claim. The remedy of equity is often resorted to by a party when there is accident, fraud, or mistake. Most of the time, it is more effective and complete to apply this principle than applying the positive law.[9] This is due to the fact that fraud, accident, or mistake are often not visible to the eye. This means that a party invoking that she has been a victim of such acts would need to prove the existence of fraud, accident, or mistake in order to attain justice. Further, the degree of evidence needed must be established to convince the court. In other words, there is a need to weigh evidence from both sides and if the court does not find sufficiency in the evidence presented by the complainant, the case may be dismissed in accordance with the requirement of the law.

In the case at bar, it should be noted that indeed there was a withdrawal of $600,000 from the funds of Community Legion Bank to the account of Capricorn Cash Counsellors Pty Ltd. It was also not disputed that the proximate cause of such disbursement of fund was due to the wrong belief of Meg with regarding the legitimacy of her transaction with Ms. Lambing. It was Meg who issued the check to the perpetrator. Given that there exists no evidence yet, aside from the Meg’s assertion and belief that Ms. Lambing was a fraudster, the court would not automatically adhere to this claim. Meg has to adduce evidence first to support her averment. Her failure to do would lead to an unfavorable judgment, because it is the rule of evidence.

The rigidity of this rule cannot be found in the principle of equity. It removes whatever legal impediments in arriving at the judge’s fair decision.[10] The advantage of using this principle is the fact that it would prevent one party to set up improperly some claim or title during the trial which may appear to be legal but inequitable.[11]

Thus, if the court examine the situation and apply the principle of equity, Meg should not be held liable to pay $600,000 to Community Legion. When Meg issued the check to Ms. Lambing, she had no other reason but to expand her investment. Prior to the issuance of the check, there is no possible way she could ascertain the bad intention of Ms. Lambing nor the company she represents. In other words, she was in good faith when she issued it.

On the other hand, Community Legion is an institution which business primarily involves huge amount of money. This type of business is usually confronted with big risks, which is commensurate to the big profit they earn. This kind of institution should exercise utmost diligence in carrying out their business as it is imbued with public interest. Thus, they have to scrutinize every transaction they will take very carefully. Perhaps in applying Banking Laws, the act of disbursing fund after the presentment of check seemed the usual and legal practice.

However, the Community Legion did not also exercise utmost diligence in protecting the money in their account. First, they ought to know the legitimacy of the people or organization they are encountering. As the nature of their business is imbued with public interest, they should exercise the necessary prudence to find out which companies are legitimate or not, because there is always a possibility that they might be victim of fraudulent transactions. Second, the money involved is quite a big amount and Ms. Lambing was able to withdraw twice ($600,000 and $800,000) on separate occasions. The latter transaction (which costs $800,000) was undertaken by the persuasion of Ms. Lambing to the Community Legion’s CEO. This should have put the institution to question the validity of the transaction. Nevertheless, there is no showing in the facts presented that the institution did something to prevent the fraudulent transaction.

From the foregoing facts established, it was very clear that the transaction was part of Ms. Lambing’s deception. Thus, the court should not put to Meg the burden of paying the total amount of the lost value. Ruling so is tantamount to absolving the negligence of the Community Legion and the swindling act of Ms. Lambing. Equity dictates that Meg was also a victim of the situation, thus to hold her solely liable to the amount is unfair and contrary to the dictate of justice.

Injunction Order

Regarding the ATO, it is possible for Meg to get an injunction and other orders to the effect that the Commissioner of Taxation is restrained from reading, reviewing, using, copying or relying on her documents; if the Commissioner has already done one or other of those things, an order that he give an undertaking that none of such documents will ever be raised in any official context; and an order requiring the Commissioner to return all such documents to Meg, on the ground of equity.

MacGaskill was able to access all information that are critical to Mannion’s position in the honest belief of Meg that the former was willing to help her win the dispute with the Community Legion. In other words, in exchange of remuneration for the assigned task, MacGaskill had found and studied the ropes of the business of Meg. In other words, his act of delivering whatever he found out from such document to ATO does not concern Meg’s request nor incidental to MacGaskill’s duty. The problem rise when Meg refused to give in to the excessive  demand of the law student.

Earlier, it has mentioned that the principle of equity concerns not on the application of positive law rather the dictate of conscience in order to achieve justice. Although, MacGaskill may invoke his right to retain the subject documents absent of the remuneration, he was totally deprived of right to spill the same to third party who have nothing to do with the affair. Hence, it was a breach of duty on the part of MacGaskill when he delivered documents which would be prejudicial to Meg’s business.

In Australia, judges are not precluded from applying the common law practice if they deem fit to achieve justice. Specifically, in formulaic writs usually filed to claim rights or enforce damages against another party, the common law practice does not allow parties to present evidence because such has a tendency to serve the self-interest of a person presenting.[12] Coming from this premise, even if the Commissioner has able to access the concent of the documents sent by MacGaskill, the same cannot run counter to the interest of Meg.

In the case at bar, there exists a reasonable ground to believe that whatever information read, reviewed, used, copied, or relied by the Commissioner of Taxation is tainted with self-serving interest. It should be noted that prior to the delivery of these documents, MacGaskill already threatened Meg that the same would be handed to the ATO if the latter fails to give his demands. Based from the letter given by MacGaskill to Meg, he was already inferring that he can influence the decision of the Commissioner as he had a family friend working as an Assistant Commissioner in the said organization. Since the Commissioner would be precluded from offering any evidence, it only equitable and just to return the same to the rightful owner – Meg.

Conclusion

The foregoing decision was all based in the principle of equity. Although this doctrine is not based on some positive law, the same has been used by different jurists when they deemed that the existing statues would prejudice the rights of a particular individual. As to the case at car, Tommy should not be prejudiced just because he does not contribute capital rather industry. The same principle was applied in the case of Meg when rejecting the liability from the Community Legion and from demanding the documents held by ATO be returned to her. In other words, sometimes, there is a need to settle dispute grounded not only in positive laws but also in accordance with the principles of right and fairness. The resort to this principle, although does not automatically create rights as between parties, the same is legally binding and has the force of a law. As Razi puts it, “A legal system which would be the prisoner of the law would have grave shortcomings”.[13]

References

Adams, J, ‘The Doctrine of Equity: A Commentary on the Law’ (1881) T. and J.W. Johnson & Co.

Adask, A, ‘In Law or Equity?’ (1998) 8 Antishyster Magazine 1.

Aristotle, The Nicomachean Ethics V. Ch. 10 (Ross’s transl. 1925).

Bernas, J, ‘Introduction to Public International Law’ (2009) Ateneo de Manila University.
Lindsay, G, ‘Equity: Principles, Practice and Procedure’ (2007) The New South Wales Bar Association.

Razi, G, ‘Refections on Equity in the Civil Law Systems’ (1963) 1 The American University Law Review 3.

[1] John Adams, The Doctrine of Equity: A Commentary on the Law, (T. and J.W. Johnson & Co 1881) xxxiv.

[2] Aristotle, The Nicomachean Ethics V. Ch. 10 (Ross’s transl. 1925).

[3] G.M. Razi, Reflections on Equity in the Civil Law Systems, (The American University Law Review 1963) 25.

[4] Alfred Adask, In Law or Equity?, (Antishyster Magazine 1998) 58.

[5] Joaquin Bernas, Introduction to Public International Law, (Ateneo de Manila University 2009) 20.

[6] Alfred Adask, In Law or Equity?, (Antishyster Magazine 1998) 60.

[7] Razi 28.

[8] Ibid.

[9] Adask 63.

[10] Ibid.

[11] Ibid.

[12] Geoff Lindsay, Equity: Principles, Practice and Procedure, (The New South Wales Bar Association 2007) 9.

[13] Razi 33.


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