Equity Notes

Equity?
Page 1 of 37 2010LAW Equity 2007 – Exam Notes

"When I hear of an 'equity' in a case like this, I am reminded of a blind man in a dark
room looking for a black hat that isn't there."
Lord Bowen.

Table of Contents
Maxims of Equity................................................................................................................3
Solicitor/ Client relationship................................................................................................6
Estoppel.............................................................................................................................11
Part Performance...............................................................................................................13
Laches................................................................................................................................14
Injunctions.........................................................................................................................15
Mareva Order.....................................................................................................................17
Anton Piller orders.............................................................................................................18
Specific Performance.........................................................................................................19
Rescission..........................................................................................................................20
Receivership......................................................................................................................21
Rectification on common mistake.....................................................................................24
Specific Restitution............................................................................................................25
Delivery and cancellations of documents..........................................................................26
Equitable compensation.....................................................................................................27
Equitable Damages............................................................................................................28
Account of profits..............................................................................................................29
Constructive Trusts............................................................................................................30
Tracing...............................................................................................................................32
Appendix 1 – FLOW CHART........................................................................................34

Maxims of Equity
• Equity will not suffer a wrong to be without a remedy.
• Equity follows the law.
• Where there is equal equity, the law shall prevail.
• Where the equities are equal, the first in time shall prevail.
• He who seeks equity must do equity.
• He comes into equity must come with clean hands.
• Delay defeats equities.
• Equality is equity.
• Equity looks to the intent rather than to the form.
• Equity looks on that as done which ought to be done.
• Equity imputes an intention to fulfil an obligation.
• Equity acts in personam.

Equitable Assignments of property
A “chose in action” describes “all personal rights of property which can only be claimed
or enforced by action, and not by taking physical possession.” (Torkingtonv Magee
[1920] 2 KB 427 at 430);They are intangible rights enforceable through an action.
The subject matter of the statutory assignment must be a debt or “other legal chose in
action”. Meaning “lawfully assignable chose in action” defined in FCT v Everett (1980)
143 CLR 440 at 447.
A chose in action may be transferred subject to the Law (under the Property Law Act
1974 or equivalent) or in Equity.
An equitable chose in action can be assigned by a statutory assignment. But only equity
can assign a “future” chose in action.
Steps for answering question
If the subject matter of the transfer is current property start here – if future
property, skip this part.
Has a property transfer failed under the law?
Requirements for a legal transfer: (S199 of Property Law Act 1974 (Qld))
 The assignment must be absolute and unconditional. (No partial transfers,
can’t be subject to conditions)
 The assignment must be made in writing and signed by the assignor.
o No particular form is necessary (Forster v Hale)
 Express notice must be given to the debtor.
If failed – Equity can fix:

In the case of a statutory transfer of a chose in action, there are three situations where
Equity will act to bind the assignor they have not done everything required by the
statute to do to complete the assignment (the assignment is not “completely constituted”):
Olsson v Dyson (1969) 120 CLR 365
 Where the assignee has provided consideration for the assignor’s promise to
assign.
 Where the assignee has completed all that they are required to do to fulfil the
statutory requirements.
 Where an estoppel arises from the assignor promising to assign the chose.

Requirements for an Equitable transfer:
 Intent to transfer by the assignor must be shown.
 Some act of assignment (Norman v FCT)
 Notice should be given:
o Debtor not bound until notified.
o Priority of assignments depends on notice.
Is the transfer of a future chose in action?

Consider whether property in question is present or future property
Whether or not the right being assigned is a future property or a presently existing
property must be determine with regard to the language of the assignment and the way it
is drafted. The facts will often have little relevance (Booth v FCT, Toohey & Gaudron JJ;
Shepherd v FCT, Barwick CJ)
Elements to consider:
 how certain the description of the property in the assignment is.
 whether the contract of assignment must be capable of being specifically
enforced for the assignment to be valid
 the nature of the assignee’s right as a result of such an assignment
If the transfer is of future property, the above equitable requirements are required, plus
consideration!
Mechanics of the equitable assignment of a future chose in action
The assignment of a future chose, that of property that does not currently exist and may
come into being (an expectancy) is not technically an assignment. It is an agreement to
assign when the chose comes into being: Tailby v Official Receiver (1888) 13 App Cas
523.
Equity treats the assignor as a trustee once the consideration is received, therefore a
contact to assign exists. (Palette Shoes Pty Ltd (in Liq) v Krohn (1937) 58 CLR 1.) The
assignee’s entitlement to the property crystallises once the property comes into being.
Once the property exists, an equitable charge covers the property and binds the property
itself to the assignee (NB: the action is in rem!).
The mechanism for the transfer however, is not a contractual right to receive the property,
but Equity regarding as done that which should be done.

Fiduciary Relationships
Solicitor/ Client relationship
Fiduciary duty- an introduction

The core of a fiduciary relationship is that the fiduciary must act selflessly and with
undivided loyalty in her or his dealings with the beneficiary.
La Forest J in Hodgkinson v Simms (1995) 117 DLR (4th) 161:-
“Fiduciary duty may be understood as but one of a species of more generalised duty by
which the law seeks to protect vulnerable people in transactions with others”.
Once relationship with client formed lawyer must not;

a) Make any unauthorised profit out of that relationship or;
b) Engage in any conduct which places them in a position where there may be a conflict
between their interests, those of a 3rd party and the client.
1) No Profit duty: Boardman v Phipps

2) No Conflict rule (Lawyer/Client): Law Soc. NSW v Harvey
(Client/Client): Farrington v Rowe
This existence and scope of this fiduciary duty stems from the client retaining the
solicitor. This form of fiduciary relation is incredibly strictly interpreted.
1) No Profit:
Boardman v Phipps [1967] 2 AC 46 is the major case in relation to this duty
Lord Hodson (Majority):
That the confidential information acquired in the case which was capable of being and
was turned to account can property be regarded as property of the trust
Whenever the possibility of conflict is present between personal interest and the fiduciary
position the rule of equity must be applied
Lord Upjohn (Dissenting):

Information is not property at all… The true test is to determine in what circumstances
the information has been acquired. If it has been acquired in circumstances that it would
be a breach of confidence to disclose it to another, then the Court of Equity will restrain
the recipient from committing another
In my view [the real rule] … that knowledge learnt by a trustee in the course of his duties
may be used by him for his own benefit or for the benefit of the Trusts unless it is
confidential information which was given to him in circumstances would make it a
breach of
The majority in Boardman v Phipps found there was a breach of fiduciary duty even
though Solicitor acted Bona fide and the trust benefited greatly from the Solicitors

Actions and the trust was unable because of restriction in its trust deed to purchase more
shares
Where money is received as a secret commission it is held on constructive trust. Attorney

General (Hong Kong) v Reid [1994] 1 AC 324.
2) No conflict duty:
Operates to avoid situations where even the perception of a conflict may arise.
Covers “associates” of the conflicted lawyers, including partners, associates,

employees and related companies.
Even the immediate family of the lawyer is covered by the rule.
If a lawyer is placed in a position where they cannot act in the best interests of both
parties, they cannot continue representing both clients as it will be a breach of their
fiduciary duty: Stewart v Layton
Because the rule acts to protect client’s interests, they can relax the rule. It requires
“full candour and appropriately complete disclosure to the client” so that they can
give informed consent to avoid the conflict. O’Reilly v Law Society of NSW
Most common occurrences of this is:

- When a solicitor represents two parties or;
- The interests of a client conflict with the interests of a previous client creating a
conflict, or
- The lawyer puts their personal interest ahead of the clients; (See Law Society of
NSW v Harvey)
- Frequently arises where the Lawyer has dealings with the client such as lending or
sale of assets. NB: Qld Law Society rules s 86(1), s 3 (a) prohibits lawyers
borrowing from clients
DUTY OF CONFIDENTIALITY
Derives from:
- Contract
- Equity - information imparted in circumstances imposing confidence
- Professional rules
o LRBR rule 91 (Barrister to refuse to retain brief in has conf. info re any
other party
o LPBR rule 109 not to disclose or use conf. info.
Exceptions:
Unless info published
If the info is later obtained by person not owed confidentiality
Seek permission/consent.

Chinese Walls – where one firm has different offices, they may act for clients which
would ordinarily be a conflict. However they may once full disclosure of the conflict has
been provided, and on the basis that the firm give an undertaking that no information will
be shared – otherwise known as a Chinese wall. Australian Liquor Markets v Tasman
Liquor Traders; Fruehauf Finance Corp Pty Ltd v Feez Ruthning (a firm) [1991] 1 Qd R
558 – Full and Frank disclosure is required despite the Chinese wall.
The loyalty notion means that if a lawyer is placed in a position where they can’t act in
the best interests of both parties, (as acting in the interests of one is to the detriment of
another) they cannot continue representing both clients as to do so would cause a breach
of their fiduciary duty; Stewart v Layton (1992) 111 ALR 687.
Lord Upjohn in dissent however is the authority, as it was adopted in Hospital Products:
This test amounts to whether a reasonable person would say that there was a real and
sensible possibility of conflict occurring.

Unconscionable Dealing
Prevention of unconscionable conduct and transactions – ‘the overriding aim of equitable

principles’ ACCC v CG Berbatis Holdings Pty Ltd.
The jurisdiction is invoked were the party has a special disadvantage, the stronger party
knows of this disadvantage and the stronger party exploits it. Requires all three
elements to be proven:
1. Equitable jurisdiction is invoked for unconscionable conduct when a special

disadvantage arises in a situation which makes a weaker party unable to
make an informed judgement of their best interests when choosing to enter
into the transaction. The onus of proving the transaction lies on the stronger
party. Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.
2. Factors as to special disadvantage include special disadvantage, that the stronger

party knew of the disability. Commercial Bank of Australia Ltd v Amadio
(1983) 151 CLR 447.
o A corporation is prohibited from “in trade or commerce, in connection
with the supply of goods or service to a person from engaging in conduct
that is unconscionable.” S 51 AB Trade Practices Act 1974 (Cth) Part IVA
(relevant legislation in Queensland – s39 Fair Trading Act
o Also the court may find that on the face of the transaction the stronger
party ought to have known of the special disadvantage or made inquires in
this respect – Elkofairi v Permanent Truatee
3. The stronger party exploits the special disadvantage to cause the weaker party to
enter into the transaction. Amadio; No need for intent to exploit – passive benefit
from an ignorant other party still unconscionable. Bridgewater v Leahy
Knowledge of relationship between Guarantor and debtor

Financiers who fail to ensure that the wife understands the transaction may be denied the
ability to enforce the guarantee given by the wife who is a volunteer if the husband has
exercised some sort of vitiating factor (undue influence – missrep – duress –
unconscionable dealing) – Garcia v National Australia Bank
Financial Need
Financial need may, usually when coupled with indicators of special disadvantage,
seriously affects a persons ability to make a judgement as to their best interest. Morleand
Finaince Corp v Luke
Lack of Knowledge and Experience

The weaker party level of education, intelligence and business experience will influence
their understanding of the transaction.

Need for independent skilled advice
The lack of independent legal or financial advice does not itself amount to a special
disadvantage. The persons knowledge or experience and the transaction complexity will
determine the need and scope for such advice
Inadequacy of consideration/improvidence of transaction

Many cases of unconscionable dealing involve inadequate consideration moving from the
stronger party, although improvidence or undervalue is not in itself conclusive evidence
of a special disadvantage – Blomely v Ryan
Can be in an important factor but.
Emotional Dependency
This can amount to a special disadvantage – Louth v Diprose – authority for emotional
dependence
Defences
- Demonstrate that the weaker party had legal advice.
- Prove that the transaction was fair, just and reasonable in the circumstances.

Estoppel
Acts to prevent people not fulfilling their promises where the other party has relied on the
promise to their detriment.
Requires all three points:
1. Representation
Clear and unequivocal representation
1) Must be clear and unequivocal, whether in relation to present or future

intention/conduct; Leigione v Hateley
2. Reliance
The reliance in question must be reasonable in the circumstances. It takes into account
the knowledge and position of the representee; Austotel P/L v Franklins Selfserve.
Knowledge of the representor’s position generally carries with it knowledge of the

limitations of that persons authority – Legione v Hateley
Context to which the representation is made

This may impact on the reasonableness of the representee’s reliance on it; Mobil oil
Australia v Wellcome international P/L
Nature and Bargaining strengths of the parties

The relative bargaining strengths of the parties can impact on the issue of reasonable
reliance. – larger less likely – Austotel P/L v Franklins
3. Detriment
The calculation of detriment
2 Views:
Narrow: The other benefits given up to rely on the assumption - Only the loss suffered
from reliance upon the promise. Commonwealth v Verwayen
Broad: the lost benefits of other possible actions, plus the lost expectations – plus other
effects of reliance - Lost opportunities, other effects of reliance such as stress. Je
Maintiendrai Pty Ltd v Quaglia
(Elect one!)
4. Unconscionability
Final element required – the representor must be seen to be unconscionable in
withdrawing their statement. Walton Stores.

Types of Estoppel:
 Proprietary estoppel. Propriety estoppel acts in relation to promises or

representations about property. It acts to prevent the holder of an interest in
property from asserting property rights over another, having encouraged another to
act in relation to that property as if the other person has some rights to the property.
Giumelli v Giumelli.
 It is commonly argued on grounds of constructive trust, although this is not

always the most appropriate remedy. Other remedies can include a charge,
lien or compensation.
 Promissory estoppel. This operates under equity’s concern with unconscionable

conduct. There must be a representation that is relied on to the detriment of the
plaintiff in a situation of that is unconscionable. Austotel Pty Ltd v Franklins
Selfserve Stores

Part Performance
In Qld, we have the Property law Act 1974(Qld) which (s 11 (1) (a)) states that ‘No
interest in land can be created or disposed of except by writing signed by the person
creating or conveying the same, or by the person’s agent lawfully authorised in writing,
or by will, or by operation of law …’
Where a party has done acts in performance of the contract, or in reliance on the contract,
the courts have developed the doctrine of part performance to prevent any injustice that
may occur in the application of the defence of writing.
McBride v Sandland (1918) 25 CLR 69: Following to establish PP
1. The act relied upon must unequivocally and in its own nature be referable to
‘some such agreement as that alleged’. (This is the test!)
2. The act must have been done by the party relying on it on the faith of the
agreement, and the other party must have permitted it to be done on that footing.
3. The act must have been done by a party to the agreement.
Note: In Maiden v Maiden (1908) 7 CLR 727: possession of itself may be insufficient,
especially where the person in possession is not a stranger (such as family member).
Also sharing by a person of possession of property may also not be enough: Riches v
Hogben [1985] 2 Qd R 292
Mere possession of title deeds:

for the preparation of a conveyance and the preparation of transfer documents are not
unequivocally referable to an agreement to sell the land, but rather an introductory to its
performance: Cooney v Burns (1922) 30 CLR 216
Oral Lease:
where legislation requires a lease to be in writing, possession by the alleged lessee of the
property in question may constitute part performance of an oral lease agreement provided
that possession is unequivocally referable to an agreement to lease the property.
Payment of Money:
The payment of money, even of the whole purchase price, is unlikely of itself to
constitute a sufficient act of PP because such payment is equivocal.

Laches
A court may refuse to grant equitable relief were the plaintiff comes to equity with undue
delay (laches). An equitable defence, laches is available in answer to the breadth of
equitable claims, and the court has discretion whether or not to bar a claim for laches.
Equity assists the diligent not the tardy
To establish laches the defendant must show either:
 The plaintiff’s actions constitute acquiescence to the defendant’s conduct; or

 The defendant has changed its position in such a manner that it would be unjust in
the circumstances to grant the relief sought.
Two important facts:

1. the length of the delay
o Timeframe starts when plaintiff becomes aware of the claim
o Delay by itself will not ordinarily suffice – it must be coupled with the
existence of other factors that tip the balance of justice towards
withholding the relief sought.
2. the nature of acts done during the interval

o During the delay something has happened to prejudice the defendant. Orr
v Ford.
o That the conduct of the plaintiff during the delay acquiesced the conduct,
or
o That during the delay the Defendant changed their position
- The defence of laches cannot be used to defeat a claim from a party seeking to
enforce an express trust unless there has been “gross laches”: Orr v Ford –
substantial period of time – giving rise to serious and unfair prejudice to the
defendant or a 3rd party
- Deane J’s 2 situations enforcement of an express trust in relation to trust property
that remained in the possession of the trustee:
o If there is a dispute/mistake as to the existence of the trust/extent of
property. In such a case unreasonable delay in instituting proceedings may
of itself give rise to the serious and unfair prejudice necessary to constitute
‘gross laches’ – where the means of resisting the claim, have perished
o Where prejudice to third parties, such as beneficiaries, is involved.
- “The question of prejudice resulting from unavailability of evidence necessarily
involves some degree of speculation, but it is not a question of pure speculation.
The issue is not whether evidence may have been lost but whether evidence which
may have cast a different complexion on the matter has been lost”

Equitable Personal Remedies
Injunctions
 “An injunction is an order of the court compelling a party to refrain from doing
something (a negative or prohibitory injunction) or to perform some positive act
(a mandatory injunction)”
Can be final or interlocutory

“An interlocutory injunction preserves the status quo until the final hearing of the action
or determination of the dispute, to ensure that no irreparable harm is caused to the rights
of the parties before that time. It does not conclude or determine any rights”.
Requirements
A legal right that is being or will be infringed

a. No cause of action voids right to apply for injunction. ABC v Lenah Game
Meats Pty Ltd (2001) 208 CLR 199
Considerations
1. Balance of probabilities of legal right
This requires that the claim is not frivolous or vexatious- it is not necessary to
show a prima facie case (American Cyanamid Co v Ethicom Ltd [1975] AC
396)
2. Balance of convenience
They consider the nature and the degree of harm and inconvenience and
whether they are sufficiently disproportionate to the balance – Queensland
Industrial Steel v Jensen
Other relevant considerations

a. Adequacy of CL relief
i. If considering an equitable right, this does not apply
ii. “Is it just in all the circumstances, that a plaintiff should be
confined to his remedy in damages?” ( Evans Marshall & Co Ltd
v Bertola SA [1973] 1 WLR 349 at 379)
iii. Damages Inadequate:
1. doubt as to the def ability to pay
2. Damages difficult to quantify
b. Effect of injunction akin to ordering specific performance

iv. Court reluctant to order parties to uphold k’s – if injunction is
really SP then may not do it. Thomas Borthwicks v South Otago
Freezing [1978] 1 NZLR 538.
v. Equity does not like to order SP to enforce a k for personal
services as it is slavery.
c. Futility
vi. If the other party can circumvent the injunction with a wrongful
act, it will not act. (Death v Railway commissioners of NSW)
vii. Where futility is shown and adequacy of damages can be shown,
court will not act (Tucker v News Media Ownership Ltd [1986] 2
NXLR 716.)
d. Considering curial supervision
viii. Where the Court will be required to supervise the ongoing
compliance with the injunction.
ix. Cameron v Qantas (1995) 55 FCR 147.
x. This is not fixed however and is open to questions of degree.
Patrick Stevedores v MUA (1998) 195 CLR 1 at 46
e. Existence of traditional equitable defenses
xi. Laches – Castlemaine Tooheys v SA (1986) 161 CLR 148
xii. Innocent 3rd party negatively affected – Cohen v Perth (2000) 112
LGERA 234
Quia Timet injunction
 “Used to restrain apprehended wrongs, rather than wrongs which have occurred
and are continuing” (Evans p. 588)
 “May be awarded to restrain a threatened infringement of the plaintiff’s rights.”
(Text p. 388)
Need to show:-
A strong probability that what the defendant proposes to do will cause imminent
and substantial damage to the plaintiff’s property or business (Commonwealth v
Progress Advertising & Press Agency Co Pty Ltd (1910) 10 CLR 457 at 461)
A causal connection between the defendant’s allegedly wrongful behaviour and the
inevitability of the plaintiff’s loss if such action is not immediately restrained (PTY
Homes Ltd v Shand [1968] NZLR 105 at 112)

Mareva Order
Had its origins in the English Court of Appeal decision- Mareva Compania Naviera SA v
International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509.
High Court has recognised the availability of a Mareva order where the circumstances are
such that there is a danger of assets being removed out of the jurisdiction of disposed of,
or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will
not be able to get it satisfied. (Jackson v Sterling Industries Ltd (1987) 162 CLR 612)
High Court has characterised it as an “asset preservation order” (Cardile v LED Builders
Pty Ltd (1999) 198 CLR 380.)
a. Mareva order may be granted against party against whom some final relief might
be granted, and against non-parties where this is necessary to facilitate the
administration of justice;
b. Mareva orders should not be granted lightly because of the restrictions they
impose on a person’s power to deal with their own assets;
c. The order may be made against a third party if that party holds or exercises a
power of disposition over assets of the defendant;
d. You need to show that some court process may be available to the plaintiff where
the third party may be required to contribute to satisfying the judgment debt.

Anton Piller orders
 “An ex parte interlocutory mandatory injunction compelling the defendant to

allow the plaintiff or its agents to inspect the property and premises of the
defendant” (Evans, p. 622)
 Had its origins in Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55.
 Preconditions to Anton Piller relief (text p. 407)
 1) An extremely strong prima facie case;
 2) Very serious potential or actual damage for the applicant;
 3) Clear evidence that the defendant has in its possession incriminating
documents or things which there is a real possibility, unless restrained,
will be destroyed before an inter partes application can be made
(Chrysalis Records Ltd v Vere (1982) 43 ALR 440 at 447).
Duties of the plaintiff seeking Anton Piller relief (text p. 407)

 Applicant must put before the court all material evidence in affidavit form;
 Normally the applicant will be required to undertake to commence proceedings
forthwith and to pay any damages suffered by the defendant as a result of the
order;
 An inventory of items seized should be prepared and the defendant should be
given an opportunity to check and sign it before removal of items (breach can
result in a fine for contempt – Long v Specifier Publications Pty Ltd (1998) 44
NSWLR 545)
 The court may order that seized material be delivered to an independent person
to be held without disclosure to the plaintiff pending an inter partes hearing.

Specific Performance
 A decree of specific performance directs a party to a contract to perform her or his

contractual obligations. (Text p. 413)
 Prerequisites are:-
 A legally enforceable contract;
 A breach or anticipatory breach of contract by the
defendant;
 inadequacy of the common law remedy of damages
Must be proof that plaintiff is ready and willing to perform all terms they ought to
have performed. Judged at time plaintiff commences proceedings: Green v
Sommerville (1979) 141 CLR 594.
- Modern view: the inadequacy of damages as relevant to discretion rather than as a

jurisdictional limitation: CN Marine Inc v Stena Line A/B
Usually used for contracts for sale of land – unless the land lacks ‘peculiar and special
value’ Sir John Leach V_C in Adderley v Dixon
Defences
Insufficient Definition - Only if order can specifically be defined: Pakenham Upper Fruit
Co Ltd v Crosby (1924) 35 CLR 386
Futility
Undue Hardship – Where K is prejudicial to Defendant - Dowsett v Reid

Rescission
A contract that is properly set aside is rescinded ab initio (from the beginning), Alati v
Kruger (1955) 94 CLR 216.
Right to rescind comes from following equitable vitiating factors:
 Undue influence
 Mistake
 Unconscionability
 Misrepresentation
 Breach of fiduciary duty
In equity, it need only be possible to substantially restore parties to their pre-contractual

position, using such available remedies as an account of profits. (Alati v Kruger (1955)
94 CLR 216; commentaries and materials pp 995-997). In O’Sullivan v management
Agency and Music Ltd [1985] 1 QB 428 (commentaries pp 998-9), the court said “the
question is not whether the parties can be restored to their original positions; it is, what
does the justice of the case require?”
Can be partial rescission (Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102).
Bars to rescission
 Affirmation
 Third party interests
 Delay
 Contractual exclusion of right to rescind
 Executed contract

Receivership
Traditional definition: “A person who receives rents and other income paying ascertained
outgoings, but who does not manage the property in the sense of buying or selling or
anything of that kind” (Re Manchester and Milford Railway Co (1880) 14 Ch D 645)
 “A receiver is someone appointed by the court, or outside the court pursuant to
some express power created by a mortgage or other security, to take possession of
or recover the property of another, usually on behalf of a creditor or beneficiary of
that other party. Strictly speaking a receiver is someone who receives the income,
gets in the debts and other moneys due and pays the outgoings ascertained at the
time of his or her appointment on the property or undertaking subject to the
receivership. A receiver does not manage the property or undertaking in the sense
that it is not the receiver’s job to maintain it as a going concern, unless he or she
is appointed as a manager. If it were necessary to continue a business for the
purpose of selling it as a going concern, a manager would have to be appointed, or
a receiver and manager as they are generally called.” (Michael Evans, Equity and
Trusts, pp666-7)
Receivers appointed out of court

Generally appointed pursuant to the terms of a loan agreement;
Agreement will usually provide that receiver is agent of the borrower, although can be
deemed to be acting as agent for lender where lender directs or interferes with receiver’s
activities (see text p. 445)
Receiver will owe the borrower a duty of good faith- a duty to act in good faith without
wilfully or recklessly sacrificing the interests of the mortgagor; under section 420A
Corporations Act
The duty is to take all reasonable care to sell the property for not less than its market
value, or if it does not have a market value at the time of sale, the best price that is
reasonably obtainable in the circumstances.
Agency relationship
 Receivers are authorized only to take in, collect, preserve and apply income
derived from the property subject of the receivership, not carry on a business or
trade.
 The document under which a receiver is appointed will usually make the receiver
an agent of the mortgagor, thus protecting the mortgagee from liability occurred
by receiver and avoiding the responsibilities of a mortgagee in possession.
Gosling v Gaskell [1897] AC 575.
 The receivers duty to the mortgagor is to exercise their power in good faith and
for the purpose of obtaining repayment of the debt owing to the mortgagee.

 A receiver may become an agent of the mortgagee, so to render the mortgagee
liable as principle for the receiver’s defaults. This may occur if the mortgagee
directs or interferes with the receivers activities, beyond mere consultation or
communication of preferences. State Bank of New South Wales Ltd v Chia (2000)
50 NSWLR 587
Duties of Receiver
 A receiver must exercise their powers and digit’s in good faith and for a proper
purpose, or be liable to the mortgagor for resultant loss.
 Hence they must act in good faith, without wilfully or recklessly sacrificing the
interest of the mortgagor. This falls short of a negligence style duty such that a
receiver are not at general law answerable for mere negligence or carelessness in
carrying out the sale. Pendlebury v Colonial Mutual Life Assurance Society Ltd
[1912] 13 CLR 676.
 Failure by a mortgagee to take reasonable steps to obtain a proper price is
sufficiently serious to be characterised as unconscionable as the expression is
understood in equity, then the taking of accounts between the mortgagee and
mortgagor, the mortgagee will be accountable on the basis of wilful default for the
price which would have been obtained if the mortgagee had not been guilty of
unconscionable conduct. Hawkseberry Valley Developments P/L v Custom
Credit Corporation Ltd (1995) NSW.
 a receivers decision taken in good faith to continue a business or to close it down
and sell assets can not be impeached even if they are disadvantages to the debtor
Downsview Ltd v First City Corporation Ltd [1993] Ac 295.
 Corporations Act s420 A – there is a higher standard of their duty of care -
they have to take reasonable care to sell the property for no less than its market
value, or if it does not have a market value at the time of sale, the best price
reasonably obtainable in the circumstances Ultimate Property Group P/L v Lord
[2004]

Appointment by the court

 Regarded as officers of the court:-
 Owes fiduciary duties to all persons interested in the property;
 Only has such power and authority as the court gives him or her;
 Court can review receiver’s action;
 Receiver can apply to the court for directions.
 Commonly the order is made to safeguard security of assets under a loan
agreement were there is some default.
 a court order is sought because the loan documents does not provided the
appointment of a receiver out of default or the appointment in the loan document
is to restrictive ins someway
 alternatively may be appointed by the court in relation to property were the
applicant has a beneficial interests at the conclusion of the litigation
 In order to maintain the assets the court may appoint a receiver until the litigation
is finished it is a way of protecting the status quo.

 The receiver is an officer of the court and has consequence which are listed in the
slide above.
 Need to the look at the courts appointment of the receiver ie they have a duty to
preserve the assets of the partnership until the court makes a decision. So the
receiver hence has to preserve but if there obligations is to ensure the business
continues then they must take steps to ensure the business continues.
Jurisdiction not to be exercised liberally

The very efficiency of the appointment of a receiver means that a corresponding caution
must attend its employment – National Australia Bank v Bond Brewing Holdings
Considerations by the court appointing a receiver

 Court performs a balancing act and considers:-
 Circumstances of case;
 Interest of justice;
 Rights of all interested parties;
 May refuse where applicant is guilty of acquiescence or delay;
 May refuse where property can be preserved by other means.
“Where a receiver is sought, not merely of a particular asset of the defendant, but all of
his assets, particular caution is required and where the receiver is to possess himself of
and to manage the assets and undertaking of a collection of companies which, whether
they are solvent or not, are in a very large way of business, very great circumspection is
required.” ( National Australia Bank v Bond Brewing Holdings [1991] 1 VR 386 at 539-
40)
 case NAB and Bond Brewing page 1018-1033
 Looks at the considerations of the court in appointing a receiver and states that it
should not be done lightly….they see it as an extremely drastic measurement.
 As they are taking away the right for a parties to deal with there property and
hence they can be reluctant to appoint a receiver.
Ex parte appointment page 448

A court will only issue an ex parte application for a reciver only in an emergency -
National Australia Bank v Bond Brewing Holdings [1991] 1 VR 386 at 539-40)
Property Legislation and Corps Act in relation to receivers see page 449

Rectification on common mistake
An instrument will not be rectified on the grounds of common mistake if this would be to
depart from what the court can ascertain as the common intention of the parties, existing
at the time when the written contract was executed.
Standard of proof
 The courts have adopted phrases such as “proof in clear precise terms” and
convincing proof”.
 The requisite degree of cogency of proof will vary within the nature of the facts to
be established and the circumstances of the case. Thomas Bates & Son Ltd v
Wyndham (lingerie) Ltd [1981] 1 WLR 505.
 Rectification for common mistake if they court believe that they were in
agreement upon until the mistake then rectification can be done.
 Requires there be a common intention prior to signing.
 if the written sale says ie all fixtures and is sold but you meant to keep it. if the
common intention was for it not to be included then may be able to use
rectification
 The onus of proof will vary in the circumstances.
 the assumption may be the written agreement contains all and you would need a
strong onus of proof prior to signing was the true intention of the parties
 Unilateral mistake need unconscionable on one party ---were the party knows of a
mistake in there favor and do nothing they will not be able to resist rectification
on the grounds of mistake.
Mistakes for which rectification is available

It is available were an instruments misstates the parties actual agreement. This commonly
occurs when the words have been added or omitted or wrongly written as a result of
careless copying or the like – Example – Bosaid v Andry – land with incorrect address.
May rectify were the parties are mistaken of its legal affect – Example – Commissioner of
Stamp Duties NSW v Carlenka P/L
No basis for rectification exists if the mistake arises through an error underlying the
intention, not the expression of the intention itself – Club Cape Schank Resort v Cape
Country Club – ie the mistake as to the intention of the agreement
Rectification for Unilateral Mistake

A person knows there is a mistake in the contract to their favour and they do nothing to
rectify it will not be allowed to resist rectification on the grounds of mistake is not in
common. This is based on proof of unconscionable conduct in the sense which that is

expressed is used as a description of a species of equitable fraud – Terceiro v First
Mitmac

Specific Restitution
Equity will order specific restitution of chattels in any case in which damages at law
would not be an adequate remedy (eg because of unique quality of chattels). (Effectively
an order for recovery of possession of chattels)
Need to show:-
Damages inadequate;
Plaintiff can demonstrate title to the chattels, by ownership or possession.
Normally occurs when the chattels are a rarity, peculiar value, sentimental value –
although need not be so confined – Aristoc Industries v R A Wenham

Delivery and cancellations of documents
Equity will order the delivery up and cancellation of documents that are void or voidable,
such as documents that have been forged, are voidable by reason of misrepresentation,
undue influence or fraud, or are void for illegality. An example might be a document that
infringes another’s copyright.
The basis of this jurisdiction is to prevent the offending document continuing in existence
as a source of confusion to others or possible fraud by others. (see text p. 460)
This can be an important remedy if in breach of fiduciary relations if used client’s

copyright info to make a personal profit. Not enough then get account for profits you
would also want the documents back and the court will order delivery up and
cancellations of documents.

Equitable compensation
Eq Comp serves to place aggrieved party in the position they held prior to the breach per
Hill v Rose.
Is compensation for breach of an equitable obligation (eg fiduciary obligation) rather then
compensation for a breach of legal obligation/ infringement of legal right;
Is discretionary (not as of right as per common law damages)- may be refused where
court determines another remedy more appropriate to effect justice;
Required:
1. “an adequate or sufficient connection between the equitable compensation

claimed and the breach of fiduciary duty”. Maguire v Makaronis
2. Brickenden Principle: The breach is not subject to a ‘but for’ test. Once a breach
is shown, it is not a defence to argue that the Plaintiff would have suffered
anyway. Brickenden v London Loan and Saving
3. The breach must still be material. Macguire v Makaronis
Contributory Negligent acts are irrelevant. Pilmer v Duke Group Ltd (in Liq)
Compensation is flexible to the facts of the case – can be based on plaintiff’s loss and/or
defendant’s gain McKenzie v McDonald
Interest
Equity may award simple or compound interest ( Hungerfords v Walker (1990) 171 CLR
125).
The court will focus on interest that would have accrued had the plaintiff invested the
funds in an alternative manner ( Wan v McDonald (1992) 105 ALR 473)

Equitable Damages
Equity can award damages where it has considered an action for an injunction or specific
performance and instead grants damages.
Per Smith LJ in Shelfer v City of London Electricity Lighting Company [1895] 1 Ch 287-
where: damages may be substituted for an injunction where-
1. Injury to the plaintiff’s rights is small;
2. Injury is capable of estimation in money;
3. Injury can be adequately compensated by a small money payment;
4. It would be oppressive to the defendant to grant an injunction.
Damages only available in lieu of an injunction to protect a private right – not a public
right. Wentworth v Woollhara Municipal Council

Account of profits
An account of profits aims to identify the net gain (profit) received by the defendant in
breach of a duty owed to the plaintiff, in order to prevent unjust enrichment.
It is the profit obtained by the infringement- only those profits ‘properly attributable’ to
the infringement are subject to the account.
However where the plaintiff’s right relates to the essential feature of the product in
question, the court may refuse an apportionment and award the entire profits to the
plaintiff. (Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101)
The court is guided by normal business practices and accounting practices relating to the
overall allocation of general overheads – Dart industries
Only available for actions regarding breach of an equitable right- except IP actions under
statute.

Constructive Trusts
“A constructive trust is a trust imposed by operation of law, regardless of the intentions

of the parties concerned, whenever equity considers it unconscionable for the party
holding title to the property in question to deny the interest claimed by another. In this
sense the constructive trust operates as both a remedy and as an institution.” (Evans,
Equity and Trusts , p. 413)
Constructive trusts usually arise out of a breach of a fiduciary relationship; or where it is

against conscience that a person not be made to share their property as promised.
Additionally constructive trusts can be used where a third-person has received property
pursuant to the breach of a relationship:
Requirements different for domestic and commercial relationships:
A fiduciary relationship is not required for domestic Muschinski v Dodds
Is required for commercial. Hospital Products v USSC Surgical Corp
“Stranger” third-parties can be held to be the trustee if they are aware of the fraudulent
behaviour of the fiduciary.
Tests for third-parties:
For Knowledge required see Carl Zeiss Test in Consul Developments P/L abd DPC
Estates. (This is more lenient as it requires active fraudulence)
 Actual knowledge
 Wilful shutting of the eyes
 Wilful and reckless failure to make inquires that an honest reasonable person
would.
 Arguably knowledge of circumstances that would indicate factors to an honest
and reasonable person
Alternatively: Selangor Test in Selangor United Rubber Estates v Cradock (No 3).
Gibbs J said that he was prepared to assume that a stranger would have the relevant
knowledge where the breach of fiduciary duty would have been discovered by him on
inquiry, and an honest and reasonable person would have made such an inquiry.

Where banks are aware of commercial agency relationships, they will be held to be
constructive trustees. Stephens Travel Service Pty Ltd v Qantas Airways Ltd (1988) 13
NSWLR 331.

Tracing
Tracing is the action by which a person follows his property through a series of
transactions into the hands of another person or into whatever different form it has taken
by way of exchange or otherwise. As such, it is a proprietary action and not a personal
action.
There are two types of tracing:
 Tracing at common law, namely tracing recognised by the common law
 Requires breach of CL – tort of conversion or theft, breach of K, - CL tracing fails
once the property is mixed.
 Tracing in equity, namely tracing recognised by equity

 Equity can, for example, charge a mixed fund to the extent that part of it is the
plaintiff’s property. ( Frith v Cartland (1865) 2 H&M 417; 71 ER 525 at 526)
Equitable tracing requirements (must show before going to tracing)
1. Breach of Fiduciary duty (usually breach of trust)

2. A clear succession to the property – the property can be followed in a logical chain.
3. Property remains identifiable.
4. There has not been a bona fide purchaser for value to break the chain.
Three key rules to Tracing:
1. Re Hallets Rule
– Trustee spends own money first, but claim limited to lowest balance.
Trustee expends his or her own money first leaving the beneficiary to claim any balance
remaining ( Re Hallett’s Estate (1880) 13 Ch D 696);
However, equity limits the beneficiary’s claim to the lowest balance in the account
between the date of the wrongful deposit and the date the claim was made. (James
Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62)
2. Re Outway’s Rule
- Where Trustee invests in traceable assets, trust money is applied first

Re Oatway [1903] 2 Ch 356: where money is invested in traceable assets, those assets
will from part of the property available to beneficiaries and the trustee will be debited
with all monies withdrawn and applied to his or her own use/ dissipated/ lost.

3. Mixing Funds: Pari passu and Clayton’s Case
- Pari Passu – Where trust funds are mixed, they will be distributed
proportionately.
-Cayton’s Case: On a running account, the first deposit will form the first
withdrawal and so on.
Pari Passu (Windsor Mortgage Nominees Pty Ltd v Raymond Griffith Cardwell (1979)
ACLC 40-540): Where the total value of the trust funds are insufficient to meet all the
claims of the creditors, the available funds will be distributed proportionately to their
input.
Clayton’s Case:
rule prescribes that in a running account with deposits and withdrawals, there is a
rebuttable presumption of fact that money is withdrawn from the account in the order in
which it was paid into the account. If money was deposited on different days, the money
that was first paid in is rebuttably presumed to be the money which is withdrawn first.
Clayton’s case (1816) 1 Merc 572; 35 ER 781- Unless:
 Withdrawals are specified as relating to a particular trust (Re Global

Finance Group Pty Ltd (in Liq)(2002) 26 WAR 385)
 Deposits entered on the same day regarded as deposits at the same time
(Re Laughton [1962] Tas SR 300)
ASIC v Nelson rejected Clayton’s Case and prefers Pari Passu:
“Australian authority has reached the point that the rateable solution is to be preferred to
the first in, first out approach where trust funds are mixed, without qualification.” per
Austin J in Australian Securities and investments Commission v Nelson (2003) 44 ACSR
719 at 723.
Tracing to third-parties
Where the third party is not innocent, apply a constructive trust:

 Knowing assistance- dishonesty required (Twinsectra)
 Knowing receipt- actual knowledge; or wilfully and recklessly failing to make
inquiries as a reasonable and honest man would make; or wilfully shutting one’s
eyes to the obvious (Consul Developments)
Where innocent:
 Property may be traced into the hands of parties with no knowledge of the breach
of trust, but who do not pay valuable consideration (eg charities – Re Diplock
[1948] Ch 465)
 Exception- an innocent volunteer can plead defence of change of position (Re
Diplock; section 109 Trusts Act)

Appendix 1 – FLOW CHART.
Does a transaction produce an inequitable OUTCOME?

PART PERFORMANCE RELIEF AGAINST FORFEITURE SET ASIDE PENALTY CLAUSE CONTRIBUTION SUBROGATION
- may get specific performance - Legione v Hateley (1983) - genuine pre-estimate of loss? MARSHALLING
Has there been inequitable CONDUCT?

ESTOPPEL MISUSE OF UNDUE INFLUENCE FRAUD MISTAKE
1. Representation CONFIDENTIAL INFO - presumed/actual - statute used as - common
2. Reliance 1. Is the info confidential? instrument of? - mutual
3. Detriment 2. Confidential circumstances? - fraud on power - unilateral
4. Unconscionability 3. Unauthorised use (3rd parties?) - misrepresentation
4. Public interest defence?
UNCONSCIONABLE DEALING BREACH OF FD

- statutory? 1. Does a FR exist? 2. Scope? Breach? 3. Public trust in the govt?
- Amadio – special disadvantage
Do any of these DEFENCES apply?

LACHES SET-OFF ‘A PERSON WHO COMES TO EQUITY MUST COME WITH CLEAN HANDS’
REMEDIES that generally are applicable:

INJUNCTION DAMAGES EQUITABLE COMPENSATION OR ACCOUNT OF PROFITS
- where ‘just or convenient’ - has P sought - was the breach material to the - D must show reasonably
- actual/threatened infringement specific performance loss? – Maguire v Makaronis acceptable basis for
of legal/equitable right or an injunction? apportionment: Dart Industries
- interlocutory
REMEDIES that might be applicable:

SPECIFIC PERFORMANCE CONSTRUCTIVE TRUST RESCISSION RECTIFICATION
- Common law damages inadequate? - Institutional/Remedial - voidable - proof of actual
- Breach/anticipatory breach? - Accessory/Recipient Liability - substantial restoration? intentions?
OTHER REMEDIES to consider:

MAREVA ORDERS ANTON PILLAR ORDERS RECEIVERSHIP DECLARATIONS SPECIFIC RESTITUTION

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Page 1 of 37 2010LAW Equity 2007 – Exam Notes

Page 2 of 37 2010LAW Equity 2007 – Exam Notes

Page 3 of 37 2010LAW Equity 2007 – Exam Notes

• Equity will not suffer a wrong to be without a remedy.

• Equity follows the law.

• Where there is equal equity, the law shall prevail.

• He who seeks equity must do equity.

• He comes into equity must come with clean hands.

• Delay defeats equities.

• Equity looks to the intent rather than to the form.

• Equity looks on that as done which ought to be done.

• Equity imputes an intention to fulfil an obligation.

• Equity acts in personam.

Page 4 of 37 2010LAW Equity 2007 – Exam Notes

Steps for answering question

Has a property transfer failed under the law?

If failed – Equity can fix:

Page 5 of 37 2010LAW Equity 2007 – Exam Notes

Is the transfer of a future chose in action?

Mechanics of the equitable assignment of a future chose in action

Page 6 of 37 2010LAW Equity 2007 – Exam Notes

Fiduciary duty- an introduction

Once relationship with client formed lawyer must not;

1) No Profit duty: Boardman v Phipps

Lord Upjohn (Dissenting):

Page 7 of 37 2010LAW Equity 2007 – Exam Notes

Where money is received as a secret commission it is held on constructive trust. Attorney

Covers “associates” of the conflicted lawyers, including partners, associates,

Even the immediate family of the lawyer is covered by the rule.

Most common occurrences of this is:

Page 8 of 37 2010LAW Equity 2007 – Exam Notes

Page 9 of 37 2010LAW Equity 2007 – Exam Notes

Prevention of unconscionable conduct and transactions – ‘the overriding aim of equitable

1. Equitable jurisdiction is invoked for unconscionable conduct when a special

2. Factors as to special disadvantage include special disadvantage, that the stronger

Knowledge of relationship between Guarantor and debtor

Lack of Knowledge and Experience

Page 10 of 37 2010LAW Equity 2007 – Exam Notes

Inadequacy of consideration/improvidence of transaction

- Demonstrate that the weaker party had legal advice.

Page 11 of 37 2010LAW Equity 2007 – Exam Notes

Requires all three points:

1) Must be clear and unequivocal, whether in relation to present or future

Knowledge of the representor’s position generally carries with it knowledge of the

Context to which the representation is made

Nature and Bargaining strengths of the parties

Page 12 of 37 2010LAW Equity 2007 – Exam Notes

 Proprietary estoppel. Propriety estoppel acts in relation to promises or

 It is commonly argued on grounds of constructive trust, although this is not

 Promissory estoppel. This operates under equity’s concern with unconscionable

Page 13 of 37 2010LAW Equity 2007 – Exam Notes

McBride v Sandland (1918) 25 CLR 69: Following to establish PP

3. The act must have been done by a party to the agreement.

Mere possession of title deeds:

Page 14 of 37 2010LAW Equity 2007 – Exam Notes

 The plaintiff’s actions constitute acquiescence to the defendant’s conduct; or

Two important facts:

2. the nature of acts done during the interval