LEVEL 6 - UNIT 5 – EQUITY AND TRUSTS SUGGESTED ANSWERS - JANUARY 2013 Note to Candidates and Tutors: The purpose of the suggested answers is to provide students and tutors with guidance as to the key points students should have included in their answers to the January 2013 examinations. The suggested answers set out a response that a good (merit/distinction) candidate would have provided. The suggested answers do not for all questions set out all the points which students may have included in their responses to the questions. Students will have received credit, where applicable, for other points not addressed by the suggested answers. Students and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners’ reports which provide feedback on student performance in the examination. SECTION A Question 1 This essay will examine the general characteristics of equitable remedies before examining each remedy in turn to analyse whether they are in fact strict and of limited flexibility as the question suggests. The best way to examine the general characteristics of equitable remedies is to draw comparisons with the common law. Equitable remedies are, of course discretionary, whereas the common law remedy of damages is available as of right. This does not mean that the court has absolute discretion, there are clear principles which govern the grant of equitable remedies. Equitable remedies are granted where the common law remedies would be inadequate or where the common law remedies are not available because the right is exclusively equitable. One of the key characteristics of equitable remedies is of course that they act in personam. This is significant because it means that failure to comply with an order giving effect to an equitable remedy is contempt of court punishable by imprisonment or, where the order can be enforced without a personal restraint on the defendant, then an order against his property can be made. (a) Specific performance is a remedy provided by courts of equity in instances where the common law remedy of damages for a failure to fulfil an obligation (usually, a contractual obligation) is deemed inappropriate. The remedy is discretionary and “Equity will only grant specific performance if, under all the circumstances, it is just and equitable to do so” (Stickney v Keeble (1915)). Courts will generally allow individuals to breach contracts (although those individuals may be sued for the breach) but equity also provides the remedy of specific performance in cases where to allow a party to breach a contract would be unconscionable as in Beswick v Beswick (1968). The remedy of specific performance is used especially in cases involving land, as due to its unique nature, replacement land or equivalent Page 1 of 13 property cannot be purchased on the open market. Damages for breach in these cases are thus rarely sufficient, for example, in Wolverhampton Corp v Emmons (1901). Further, where a remedy of damages will be insufficient to achieve justice, a court may order specific performance instead. In Sky Petroleum v VIP Petroleum (1974) for example, a court ordered specific performance of a contract to avoid the insolvency of the claimant, as damages would not have provided relief from financial peril. There are limits to the application of the remedy which limit its flexibility. For example, specific performance will not be awarded where the claimant has not acted fairly or honestly (Walters v Morgan (1861)) or if it will cause severe hardship to the plaintiff (Patel v Ali (1984)). (b) Injunctions are one of the most popular equitable remedies and provide a very good tool for examining whether equitable remedies are strict and of limited flexibility. Injunctions are court orders which require a party either to do or not do a particular act. Injunctions can be sought by anyone who claims that a legal or equitable right of theirs has been infringed. Common examples of when injunctions are used include: to restrain breach of contract; to restrain breach of trust; and to restrain from breach of confidence. It would of course be wrong to think there was only one type of injunction; there are of course various different types of injunctions which all have slightly different characteristics. This analysis will focus on interlocutory injunctions. Interlocutory injunctions are designed to preserve the status quo until the trial. They have been granted to prevent a dismissal alleged to be in breach of agreed procedures (Irani v Southampton and South West Hampshire Health Authority (1985) and to restrain removal of a child from the jurisdiction of the court (Re N NO 2 1967). Two of the most important instances are freezing and search orders. Interlocutory (interim) injunctions demonstrate the tensions between certainty and limited flexibility and strictness. Interlocutory injunctions can be prohibitory, mandatory or quia timet which would imply a fair degree of flexibility for the courts but they could also arguably be called strict because once granted they normally remain in force until the trial. This starts to show the strain between the need for flexibility in certain scenarios and the need for a degree of certainty in every situation. One of the strongest arguments that could be made for arguing equitable remedies are strict and of limited flexibility can be seen in mandatory interlocutory injunctions, although these are not often granted. These are used when speed and secrecy are of the essence but can be granted without notice although this is rare. Perhaps this last comment is the most important. It would be simple to merely state that interlocutory injunctions are strict and of limited flexibility but that would be to tarnish all for the characteristics of just one element, a policy the law and society would generally refrain from doing. This tension can again be seen in freezing orders which are a form of interlocutory injunction designed to prevent the defendant from disposing of assets which would otherwise be available to meet the claimant’s claim or removing them from the courts’ jurisdiction. Since they first came into force in 1975 they have become very widely used especially given the ease with which assets can be moved in today’s society. These again arguably are strict and of limited flexibility because they are normally granted without notice to the other side because of the need for speed. However, to purely argue this makes them strict and of limited flexibility is short sighted. In modern society there is a need for speed and efficiency in certain procedures. It could be said that equity has adapted to the rigours of the contemporary legal environment. Page 2 of 13 Defences to perpetual or interlocutory injunctions include delay; acquiescence; claimant’s conduct; and hardship to the defendant. Delay by itself is not always fatal as demonstrated in HP Bulmer LTD v J Bollinger SA 1977 where an injunction was granted to restrain the use by the respondents of a particular description which the appellants had used for years as it was felt the wrong was a continuing one. This shows the ability of the court to apply defences to ensure that equity is still seen to be done. One could therefore argue this would be evidence towards the idea that equitable remedies are still very discretionary and flexible. This argument can be furthered by looking at acquiescence where the claimant will not obtain an injunction if they acted in such as way that the wrongdoer believed that the claimant did not intend to enforce his legal rights. This would appear to again demonstrate the flexibility of the courts in finding this defence and in turn trying to ensure that the correct result is achieved. This essay would suggest that equitable remedies have been wrongly described in the question. Equitable remedies still maintain a strong discretionary element but in today’s society there is an inherent need for a degree of certainty and speed. Injunctions have tried to balance the need for discretion and flexibility with the need for certainty and speed. This essay would argue that when compared to common law remedies equitable remedies are in fact still flexible and of limited strictness. Question 2 Whether a trust should be given charitable status has been a contentious issue for many years. One of the key areas of contention is when trusts which are perceived to have political purposes and are seeking charitable status. This essay will look at why charitable status has been denied to trusts which appear to have political purposes before offering a discussion on whether this approach is appropriate in today’s society or rather short sighted. Before examining what the legal meaning of charitable is and what are charitable purposes it is of course necessary to quickly discuss why trusts would want to gain charitable status. There are considerable fiscal advantages, comprising of exemptions from various taxes provided that the income of the charity is applied for charitable purposes such as income tax, corporation tax and capital gains tax. Charities are also entitled to 80% relief from council tax and under the gift aid scheme a charity can reclaim income tax paid at the basic rate when the gift is made by a UK taxpayer. Another advantage of charitable status is that that objects need not be certain. Charitable has a technical legal meaning distinct from its popular meaning. It has judicially been claimed that “the legal meaning and the popular meaning of the word charitable are so far apart that it is necessary almost to dismiss the popular meaning from the mind” (Lord Wrenbury Verge v Somerville 1924). It must of course be remembered that the same definition of charitable applies to trust law and indeed tax and administrative law.