Question 1 – Compulsory
Northumberland County Council’s main concern is their entitlement to the money that was entrusted to Aleena, their employee, and any remedies that will enable them in the repossession of the expended money.
In order for the Council to retrieve the monetary sum, the trusted money can be traced through Aleena’s own account and her distribution of the money in question. Tracing is possible in this case but there are certain conditions that have to be met. The Council must also be aware that tracing is not an absolute remedy, but rather the ability to follow the trust property into the hands of the person who then becomes a constructive trustee of it. Here, the tracing will be successful in equity rather than in common law, because it holds the inability to trace money into mixed funds, and the problems this can cause are seen in the Agip Ltd v Jackson case. Equity enables a more flexible route and more accustom to the case at hand.
A fiduciary relationship should exist. It must be noted that the necessity for this has been criticized by Lord Millett in Fosket, where he said there was no logical reasoning behind it, and in the more recent case of Televantos it was also argued the requirement lacked justification. However, as Aleena is ‘an administrator in the Planning and Building division of Northumberland County Council’, they fit into a category of a fiduciary relationship; employee and employer. The duty requires Aleena to act solely in the interest of her employer, and not in a capacity of her own interests as presented in Ransom, where employee’s duties were laid out as serving in good faith and mutual trust. The case also denied there was a breach of fiduciary duty on the grounds of the employment contract, so this would have to be considered. Nonetheless, it is highly likely Aleena has breached her role as a fiduciary. Aleena abused her position and profited from her role; conduct that ultimately gives her an undue benefit. Her gain is also easily identifiable as she has used the sum for her own personal property.
Tracing secondarily requires the existence of an equitable beneficial/proprietary interest. This can sometimes be hard to identify, as apparent in the case of Taylor v Plumer because it can be difficult to demonstrate the required proprietary interest. This is not the case here, as there is a monetary trace available in some of Aleena’s purchases from the initial bribe money which are held under a constructive trust for the beneficiaries. Equity have seemingly turned to the imposition of constructive trusts willingly, where even in the Twinsectra case a thief holds on to constructive trust. Tracing must also be in a traceable form and not inequitable. Aleena consciously knew the money was not hers to spend so would be entitled to repay said money, so the rule of equity would not step in here, as it did in the Re Diplock case. Issues arise with the traceability of some of the bribe money. Aleena spent ten percent of the money on a holiday and a further twenty percent of the money gambling in a casino, meaning the property is not necessarily ascertainable or traceable. However, as again found in Diplock, the beneficiary can issue personal claims against Aleena. It’s apparent that Aleena does not have much money, but the Council can look at other assets she has that could be claimed, for instance, her car, which was valued at ‘£5,000’.
The Council will have the first charge on the property for the recovery of the trust money as in Re Oatway, it was held that if a trustee (in this case Aleena), mixes her own money in an account, and then spends all the money on identifiable property the beneficiaries are entitled to the financial reclamation. Tracing can be done on the shares too, because a) the money is retrievable and b) per Foskett any increase in money or profit (even though Aleena’s shares in BHP) can still be claimed by the beneficiary.
Evidently in Reid, the fact the property is bribe money has no effect and can still be held under a constructive trust. Here the property bought by Reid was still required to be returned to the beneficiary, meaning the traceable money is held on trust, including all Aleena’s purchases, which would have to be returned to the Council in this case. Lord Templeton delivered the importance of the case citing that even if the property were invested, as Aleena did, the fiduciary would be required to make good the deficit. FHR advanced upon the case from a commercial standpoint. It emphasized that a proprietary remedy is still available for bribes and encompassed the employer-employee relationship. This emphasizes how a proprietary remedy would be available to the Council from tracing the money and would be more apt than a personal claim. From this tracing, per Re Hallett, the Council will be able to put an equitable charge over Aleena’s account making them a secured creditor against her as a wrongdoing trustee in protection from her becoming bankrupt. As said earlier, this is a prospective risk as she only has £3,000 in her account after spending £100,000, and only one other monetary asset. In general terms, it is likely that the majority of the money will be recoverable to the Council.
On the contrary, the Council should take into consideration that there is a possibility that they may not have a proprietary remedy. Although Aleena had an established duty to her employer the money was given directly to her. In Sinclair's controversial decision, as the proceeds were not beneficially owned by the claimant they had no proprietary interest and its judgment made it harder to strip a recipient of a bribe. The Council would need to prove as Aleena’s employer, she was given the money under a professional nature and they thus have an equitable interest in the bribe sum. Essentially, as following the findings in FHR, Aleena’s benefit has been obtained by taking advantage of the £100,000 which was properly that of the principal, as she was under their supervision and acts within a division of the Council itself.
In terms of the other parties involved, Newcastle Credit Union may be liable under the doctrine of knowing/unconscionable receipt and concerns receiving property that has been conveyed by an apparent or known breach of fiduciary duty. The Union’s ignorance may make them liable because Aleena’s account, never had more than £5,000 in it, and she deposited £100,000. There may not need to be outright dishonesty from the Credit Union either, as Belmont Finance Corp Ltd held that negligence could suffice. Re Montagu ruled that the relevant party must have, at the minimum, negligently and recklessly failed to make queries that a sincere person would. The Credit Union failed to question Aleena about the huge sum, even though they knew she did not have that kind of money, specifically as she had applied for a mortgage with them earlier.
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A proprietary remedy is the best outcome for the Council unless they make a personal claim against Aleena, but her funds limit that. The Council should also be aware that remedies are discretionary, so the outcome is not concrete only advisory.
Question 2 - If the common law has its own internal powers of adaptation, why does it need a different system of law with distinct rules laid over top of that? What is it that Equity achieves in the modern law?’
The common law’s developmental shift to one that is more unrestricted, has seen it coincide with the progressive process found in Equity. A fusing of the two systems allowed an assimilation of the court's procedures and principles found in Equity and the common law in 1873 by the Judicature Acts. In the modern legal system, the relationship between Equity and the common law is one of a supplementary nature and one exists in the facilitation of the other. Thus, in essence, Equity exists to achieve what the common law itself cannot provide, by acknowledging it and acting as a compliment. This creates a dependence that is necessary to strike a balance in the legal judicatory and sets the tone of both Equity and common law in a modern context as very differing but overlapping systems.
The tension between Equity and common laws both adapting systems can be seen within the idea of ‘fusion fallacy’, arguing that the fusion of the two systems was purposed for practical matters. It notes that they rather run side by side, as separate systems, both with clear views. Walsh v Lonsdale opposes this concept. The case held that the distress was legitimate, even though there was not present a common law lease, and gives in to the sense that equity and the law have been compiled into one set of principles and there is no distinguishing between legal and equitable leases. In the contrary, in Chan, the court clearly stated that an equitable interest is not recognized as a legal interest, and supersedes Walsh. It shows, the intent of the court trying to ensure justice prevails by the inclusion of remedies. It raises the question whether the flexible nature of Equity can be enforced in the strict common law system, as although Lord Reid purports a freedom to common law, it still rests heavily upon precedence and succinctness. It shows that the objective of Equity is to complement the law rather than replace it or subsist within it.
This belief has been mirrored within the common law system with judges deferring that Equity does in fact fuse with common law. Lord Denning illustrated in Errington v Errington that the law and Equity have seemed to of fully merged. Similarly, many remedies that were viewed as exclusive to Equity, namely specific performance, have been incorporated into common law rules. An overlay can especially be seen within contract and Equity. Equity has the ability to set aside contracts, where the consent of a party to the contract has been impaired or vitiated by factors such as misrepresentation or undue influence and equity can enforce some promises that the common law cannot. Furthermore, the doctrine of estoppel can be litigated through equity or at common law. However, in Amalgamated Investment, Denning argued that the maxim of estoppel had become ‘overloaded’ and chaotic. Lord Steyn tried to demonstrate separation and coherence in the India Steamship case where he referred to estoppel by common law and estoppel by equity as separate entities bound by an ‘overarching principle’. This reiterates, how the overlay of equity and common law have a clear terrain of application and work alongside one another, rather than exacerbating the point of tension. Also, that they still are separate foundations that share common principles.
Reid clarified judges have to have concern to common sense, public policy, and legal code when sculpting the progression of common law. Equity is important as an overlay to that, as it gives an insight into considerations that are not apparent within statutory law. Equity, therefore, is an adaption of a legal doctrine, consistently adjusting to prevent the law from becoming permanently stuck into a set of unyielding and pernicious regulations. Importantly, this does not discredit the common law as it remains the initial source of legal decisions by the courts. Equitable doctrines are introduced only in the case that it would be unconscionable to hold up the common law judgment. For example, Equity may intervene where the application of the rule of law would cause injustice and prevails over common law, i.e. it could consider factors revolving around a mortgage payment and on the facts might allow it to be redeemed, despite the fact the actual redemption date has passed. In Patel v Ali, the requirement of the seller to move would have been an injustice and required intense hardship, so the court exercised discretionary measures.
Equity maxims are not considered law but instead are simply guidelines when coming to a decision. Equity principles at their core revolve around intent rather than form and distinguish themselves as a concept from the cutting-edge nature and substance of contract and common law. The notion of ‘conscience’ exists within Equity, whereas the common law acts in rem, and again draws a clear line between the two systems. This clearly sets-up Equity’s ‘role’ and purpose in the modern ruling and why it is necessary alongside the common law. It should be noted that in modern law, Equity does not offer complete discretion but like the common law has built a set of principles that allows an application of discretion. It could be argued that Equity to survive in the current legal landscape has had to adapt characteristics of its counterpart common law, with its procedural use of precedents and more set principles. However, Equity still possesses a greater amount of flexibility, which Denning echoed in Eves, where in his judgment he made note to the inequitable nature of the claim and that equity is an institution that is still ‘child-bearing’.
It can be seen that certain aspects of the law, including trusts and remedies, could not possibly exist without Equity and provide an integral relief when one can not be found in the common law courts. Equity has been able to intervene and contribute to specific areas of the law and shows that rather than hinder it, the ‘freedom’ of both systems allows them to enable one another. Equity has also seen an expansion to wider grounds. In Pennington v Waine, the judge’s decision stemmed from unconscionability and saw an equitable exemption to the requirement for a whole transferral of property in law. Also, particularly in the complexity of modern-day civilization, a lot of actions are dependent upon the concept of trust, which is the most common branch of Equity. The common law does not recognize the beneficiary of the trust and though Equity concurs with the law it still ensures a further level of justice through the recognition of the beneficial owner as well. Additionally, through equity’s maxims, it has conceived the notion of secret trusts with the intention of preventing fraud that would otherwise be enabled by statute or common law, thus they would obviously not be enforceable in common law. Equity has the ability to mould and intervene where the response of common law would be one of an undue nature.
In conclusion, there is little tension between equity and common law as legal systems. Instead, they complement one another and the courts recognize and understand the nature of equity and its maxims. Equity at its centre acts as a legal conscience whilst still enforcing common law precedent, that too is developing. That is why it is important that the two remain separate but function with mutual understanding of equitable and legal principles, so equity has the ability to conciliate where the law cannot. Ultimately, equity has a stable and specific role within the contemporary legal procedure and its adaptive and resolving nature is integral to the function of developing the law.
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