What is equity?
Equity emerged historically as a system of English law that was separate and distinct from the common law. There were two main reasons for this.
• When the rules of common law are applied too rigorously it can lead to unfairness. Equity can mitigate this.
• While victims of a wrong can be granted damages at common law, this is not always adequate. Equity offers additional measures to protect the innocent party.
Today, equity remains a distinct body of rules and principles whose role is largely to achieve these two purposes.
Textbooks often refer to the ‘maxims of equity’. These are:
a) ‘He who comes to equity must come with clean hands’. This means justice must be done in good conscience.
b) ‘Equity will not assist a volunteer’. This is explained in more detail below.
What is property?
Property can include everything from cash to shares in companies or land, as well as personal possessions of all kinds.
There is both legal and equitable ownership in any property.
The outright owner of property has both the ‘legal’ and ‘equitable’ ownership in the property. It is entirely theirs to use or dispose of as they like: ‘equitable interest’ does not come into it.
Where the legal and equitable ownership are in separate hands, however, both parties have rights in the property.
For example, if two people live in the same house, ‘equitable’ interest can become significant. If just one person’s name is on the title deeds, that person owns legal title in the house. But the other person might have paid bills or contributed to refurbishment work. In that case, the Courts would acknowledge that person’s ‘equitable’ interest in the property.
What is a trust?
A trust is an arrangement in which a trustee holds property for the benefit of another. This involves: a duty imposed on a trustee or trustees to deal with property (over which they have control) in the interests of certain beneficiaries, who can then enforce this duty.
The following people are involved in a trust:
The Settlor is the person who creates a trust by selecting the trustees, the beneficiaries and the property to be held in the trust. They also set out the terms of the trust, which must then be followed by the trustees. The terms of the trust are often referred to as the declaration of trust. When put in writing, this is also known as the trust deed or trust document.
The Trustee(s) is the person or people who hold the property in the interests of the beneficiaries.
The Beneficiaries are the people benefitting from the trust, and from the property managed by the trustee.
The property held on trust can be almost anything. Often, it is a mixture of different things. The creation of a trust effectively splits the ownership of the property into two parts:
• legal title, which goes to the trustee; and
• equitable title (also called beneficial title), which goes to the beneficiaries
Trusts arise in a wide variety of different situations. Solicitors come across them when working in a number of different practice areas.