Legal studies

  • Category:
    Business
  • Document type:
    Article
  • Level:
    Undergraduate
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Principles of Equity and Court Discretion

Introduction

The reason for the introduction of equitable principles was so that they could supplement the common law by providing distinct principles that mitigate its strict nature. While common law creates rights, equity provides relief against the strict insistence on such rights when such insistence would be unconscionable.1 Equity grants power to judges to do justice in cases coming before them by exercising discretion to mitigate the rigid nature of common law. The fact that the application of principles of equity depends on the discretion of the judge makes it always unknown since the application of the principles is different depending on the judge. As such, critics argue that equity is casual and depends on upon the temper and passion of the judge.2

I agree with the statement to the extent that equity was introduced to repair injustice arising from the strictness of common law of contract. However, I disagree with the statement to the extent that it alludes to principles of equity conferring excessive discretion upon the courts hence undermining clarity and certainty. The reason for the discretion conferred on judges is to ensure that each case is handled depending on its circumstances.3 The discretionary element in equity was meant to be the distinguishing factor with common law.4 In this paper, I will rely on the decisions in Waltons Stores Interstate Ltd v Maher5 and Commercial Bank v Amadio6to show how the courts have exercised discretion in dealing with matters of promissory estoppel and unconscionable conduct. The analysis seeks to show that though many have criticised the discretion of judges, such discretion has enabled the judges to personalize their decisions based on the facts of each case.

Critical Analysis

The case of Waltons Stores Interstate Ltd v Maher7is based on promissory estoppel. The doctrine of promissory estoppel provides that a party is entitled to a remedy where such party has acted on a promise by another to act or not to act resulting to their detriment. Waltons had negotiated with Maher, who owned land, for the lease of the property subject to Maher demolishing the existing building and building a new one which the Waltons Stores would use. One important element was that the building had to be ready for opening in the next six months. Waltons sent a draft of the lease to Maher where some changes were discussed, and then the lease was sent back to Walton. In November, Maher notified Waltons that the demolitions had begun, and it was necessary to conclude the lease quickly. However, Waltons had begun to have reservations. Waltons later informed Maher it did not wish to proceed with the transaction. At the time, 40% of building work was completed. Maher went to court to enforce the lease agreement. The Court held that Maher could rely on the doctrine of promissory estoppel. As such, Waltons was estopped from going back on its promise to complete.

The case of Commercial Bank v Amadio,8 on the other hand, touches on the principle of unconscionable conduct in contracts. Unconscionable conduct arises in transactions that involve a dominant and a weaker party. According to this legal principle, the principles of equity will be applied where one party takes advantage of a special disability, such as illiteracy, held by the other party to their advantage. In the case, Mr. and Mrs. Amadio, the respondents, had executed a guarantee and a mortgage with the bank (the appellant) to guarantee the debts of their son’s (Vicenzo Amadio) company. The respondents had little formal education and little or no business experience. Due to Vicenzo Amadio’s company being in a poor financial situation, the bank had asked him to ask his parents to give security for him to have an increased overdraft. Vicenzo had told his parents that the guarantee was for $50,000 for six months. When Mr. Virgo went to obtain signatures for the mortgage, he did not provide information about the document. However, when he heard Vicenzo comment that the mortgage was for six months, he stated that there was no such limitation. After a while, the company went into liquidation, and the bank demanded payment by the parents on the guarantee ($239, 830.85) and when it was not met, they served a notice to exercise the power of sale. The respondents went to court arguing that the bank could not enforce the guarantee since it was an unconscionable bargain. The High Court held that the respondents were entitled to relief since the bank was guilty of unconscionable conduct in procuring the execution of the guarantee.

In both the doctrine of promissory estoppel and unconscionable conduct, the courts have the discretion to determine whether the case before them is one where the application of common law would cause injustice to one of the parties. Where such is the case, the courts will apply the principles of equity to cure the injustice. In promissory estoppel, the courts must be satisfied that two conditions exist; first, the promise must be made with the intention of affecting a pre-existing legal relationship between the parties and lastly, promissory estoppel should be used as a defence.9 The courts have the discretion to apply the doctrine when they are convinced that these conditions exist.10 The Waltons Stores Case has further widened the discretion of the courts since the decision of the court established the principle that promissory estoppel could be used as a basis for an independent cause of action and that the estoppel could arise even in the absence of a pre-existing relationship. The courts in Australia have furthered this argument in Australian Crime Commission v Gray11 where estoppel was used in favour of the Grays after they relied upon the representation by the Crime Authority in joining a witness protection program.12

Regarding unconscionable conduct, the courts have the discretion to determine whether or not a special disability exists that affects one of the parties such that the other has an advantage.13 In the Commercial Bank v Amadio case, the court relied on the illiteracy of the respondents and the fact that they did not have any business experience to conclude that a special disability exists.14 This position was upheld in ACCC v CG Berbatis Holdings15 where the court held that unconscionable conduct requires a special disadvantage such as one owing to being blind or illiteracy. Where such special disability exists, the party is said to have acted unconscionably.

The discretion conferred on the courts in promissory estoppel, and unconscionable conduct cannot be said to undermine clarity and certainty in the law. Commercial transactions keep on evolving and hence equity allows judges to apply the law in a way that ensures justice even in such times. Though the exercise of discretion may be different from one judge to the other, the fact that the reasoning is based on well-defined equitable principles eliminates the chances of undermining clarity and certainty in the law.16

Conclusion

The principles of equity were introduced to cure the strict nature of common law. The discretion of the courts in applying the principles of equity was to ensure that the same defect in common law was not translated to equity by making it strict and static. Discretion allows the courts to consider each matter not based on precedents but rather on the circumstances of each case. This allows the court to act where there is an injustice. Such discretion cannot be said to undermine clarity and certainty in the law.

Bibliography

Brereton, P L, Equitable estoppel in Australia: The court of conscience in the antipodes (The Australian Law Journal Conference, 2007).

Getzler, Joshua, ‘Unconscionable conduct and unjust enrichment as grounds for judicial intervention’ (2014) 16 Monash University Law Review 283-326.

Kennedy, Kevin, ‘Equitable remedies and principled discretion: The Michigan experience’ (1997) 74 University of Detroit Mercy Law Review 609-656.

Rendleman, Doug, ‘The triumph of equity revisited: The stages of equitable discretion’ (2015) 15 Nevada Law Journal 1397-1453.

University of Sydney, Equitable estoppel (Reed International Books Australia Pty Limited, 2009).

1 Brereton, P L, Equitable estoppel in Australia: The court of conscience in the antipodes (The Australian Law Journal Conference, 2007) 1.

2 Rendleman, Doug, ‘The triumph of equity revisited: The stages of equitable discretion’ (2015) 15 Nevada Law Journal 1401.

3 Kennedy, Kevin, ‘Equitable remedies and principled discretion: The Michigan experience’ (1997) 74 University of Detroit Mercy Law Review 610.

4 Brereton, above n 1.

5(1998) 164 CLR 387

6(1983) 151 CLR 447

7 Waltons Stores Interstate, above n 4

8 Commercial Bank, above n 5.

9 Combe v Combe [1951] 2 KB 215

10 University of Sydney, Equitable estoppel (Reed International Books Australia Pty Limited, 2009) 254.

11[2003] NSWCA 318

12 University of Sydney, above n 9

13 Getzler, Joshua, ‘Unconscionable conduct and unjust enrichment as grounds for judicial intervention’ (2014) 16 Monash University Law Review 283.

14 Ibid 284.

15[2003] 214 CLR 51

16 Kennedy, Kevin, ‘Equitable remedies and principled discretion: The Michigan experience’ (1997) 74 University of Detroit Mercy Law Review 612.