History and Development of Equity Essay

It is important to appreciate, especially when reading older cases on the law oftrusts, that there were, until 1873 in England, two main separate courts – courts of lawand courts of equity. Trust law was a product of courts of equity. We will thus look at:(i)the meaning of â€Å"equity† that is associated with courts of equity;(ii)the origins of courts of equity; (iii) the development of the law of uses and trusts; (iv) the transfer of equity jurisdiction to Canada; (v) the current status of the fusion of law and equity. II. Objective: Be able to describe four different meanings that might be associated with â€Å"equity† andthe definition of â€Å"equity† that is important for our purposes. The word â€Å"equity† has several different meanings. Let’s examine some of thosemeanings and then focus on the meaning that is important to us in understanding the lawof trusts. A. Equity as â€Å"Fairness† One meaning of the word â€Å"equity† is â€Å"fairness† or â€Å"justice†. This is oftenreflected in expressions such as â€Å"employment equity†, â€Å"pay equity† or â€Å"distributionalequity†. People speak in terms of what is â€Å"fair† or â€Å"just† but there is often considerabledisagreement as to what is fair or just. This concept of â€Å"equity† is not the concept ofâ€Å"equity† that we mean when we speak of what courts of equity did. B. Equity as Net Worth The word â€Å"equity† is also used to mean net worth. That is, the amount one retainsafter creditors have been paid. For instance, shares in a corporation are often describedas â€Å"equity investments†. The shareholders are entitled to what is left over after thecreditors are paid off. Similarly, people speak of having â€Å"equity† in their house. Forexample, a person might buy a $400,000 house by making a $100,000 downpayment andborrowing the remaining $300,000 to pay the rest giving the lender a security interest (orcollateral) in the house by way of a mortgage. The $100,000 would be that person’sequity in the house. If the person were able to pay off $50,000 on the loan then theperson’s equity in the house would rise to $150,000 (i. e. the value the person would have 2 invested in the house net of paying the lender (or creditor)). The person’s equity in thehouse would, of course, vary with the market value of the house. This use of the word â€Å"equity† has its origins in a creation of courts of equity. Courts of equity developed the concept of the equity of redemption. To borrow money aborrower often had to provide some form of security interest (or collateral). A commonmethod of doing this was to convey the legal title to the lender until the debt was paid. The agreement under which the loan was made required the lender to reconvey theproperty to the borrower if the debt was paid by a specified date. If the borrower failed topay by that date the lender could keep the legal title to the property. Often lenders wouldretain the property even though the borrower was just a day late in paying. Courts ofequity addressed this by allowing the borrower to pay in a reasonable period of time,often allowing the borrower as much as several years to complete payment on the debt. This was known as the equity of redemption – the right of the borrower to pay off thedebt and get the property back (and thus the value of the borrower’s interest (or equity ofredemption) was the value of the property less the amount of the unpaid debt. While the equity of redemption was a product of the courts of equity it is still notthe concept, or definition, of equity that we are looking for. C. Equity as a Corrective to Law Legal rules can work injustices in situations that weren’t anticipated when the rulewas created. All legal systems need some mechanism to address this problem. In civillaw systems it is usually a combination of broadly drafted code provisions and liberalinterpretation together with a concept of non-binding precedent. In England courts ofequity arguably had their origins in the performance of this corrective to law function. But as courts of equity developed they developed their own rules that were often rigidlyinterpreted and thus arguably came to no longer perform this corrective function. D. Mere Equities There are also what are referred to as â€Å"mere equities†. These are defences to legalactions that were created by courts of equity. Consider, for instance, the defence of setoff in the context of an assignment. In the 17 th century courts of equity developed the concept of assignment. Suppose, for example, A owed B $10,000. B could assign to Cthat right to receive $10,000 from A. But suppose that B owed A $3,000 in a separatetransaction. If B had claimed the $10,000 from A, A could have set the right to receive$3,000 from off against B’s claim for $10,000 (i. e. allowing A to just pay $7,000). C wassaid to take â€Å"subject to the equities† when B assigned to C the right to receive $10,000from A. That allowed A to assert the right of set off against C thus allowing A to just payC $7,000. C would have to seek the other $3,000 from B. Other â€Å"mere equities† that Ctook subject to would include claims that A might have as defences to B’s claim. Forinstance, A might have claimed against B that the debt arose due to duress, mistake,misrepresentation or fraud. A could also assert these defences against C. In other words, 3 C took subject to the equities of the situation between A and B. These defences of Awere so-called â€Å"mere equities†. E. Maitland’s Definition of Equity The meaning of equity that is relevant for our purposes is the meaning thatMaitland gave: â€Å"Equity is now that body of rules administered by our †¦ courts of justice which,were it not for the operation of the Judicature Acts, would be administered onlyby those courts which would now be known as Courts of Equity. † Equity came to be a body of rules. Here is a simple story that perhaps roughlycaptures how this came about. Spouses A and B have two children, X and Y. Oneevening X goes to spouse A and asks to stay up beyond the specified bedtime of 8:00p. m. X argues that there are special circumstances that particular night in favour of beingable to stay up beyond the normal bedtime. A says no. The rule, according to A, is thatbedtime is 8:00 p. m. – no exceptions. X goes to spouse B, the established ultimateauthority in the house, and makes the argument in favour of extending bedtime to 8:30p. . on the particular evening. Spouse B thinks the arguments in favour of extending thebedtime are fair and allows X to stay up until 8:30 p. m. The next night child Y goes tospouse A to ask for an extension of bedtime beyond the normal bedtime of 8:00 p. m. Spouse A sticks to the rule of 8:00 p. m. so Y goes to spouse B. Y makes arguments infavour of extend bedtime on this particular night to 9:00 p. m. The perceptive spouse B(whose pe rception greatly shortens the story) sees the potential for things to unravelthrough a series of claims for exceptions. Spouse B realizes that some restrictions, orrules, will be needed on just when the decisions of spouse A will be interfered with. Spouse A in the story is, of course, intended to be somewhat analogous to a court of lawwhile spouse B represents a court of equity. While spouse B, or a court of equity, mightbegin with the simple notion of doing what is â€Å"fair,† or providing a â€Å"corrective† to thelaw, eventually some rules are created as to when a â€Å"corrective† order will be provided. TheChancellor would draft new writs for actions in the common law courts but by 1350 thecommon law courts had begun refusing new writs on the basis that they were not inconformity with the law. This led to more substantive bases for complaints wherelitigants felt they could not get justice in the common law courts. It was in the context ofthese complaints that the Chancellor began performing equity in the sense of a correctivejustice. For example, courts of law at the time took written documentation of a debt asirrefutable evidence that the debt was owed. Normally when the debt was paid thewritten document would be cancelled. Sometimes, however, the document was notcancelled and the lender would claim again on the debt. Because the written documentwas irrefutable evidence of the debt, the debtor could not prove by other means that thedebt had been paid. The debtor could then file a bill with the Chancellor and provideother evidence that the debt had been paid. The lender would then be called upon toanswer a series of questions posed by the Chancellor. If the defendant (the lender) couldnot provide satisfactory answers the Chancellor would make an order telling thedefendant not to enforce the judgment received from the common law court. This cameto be known as a â€Å"common injunction. † 5 3. Equity Follows the Law and Acts in Personam Here one can see a couple of important things about equity. First, equity followsthe law. The Chancellor did not say the common law rule that written evidence of thedebt was irrefutable. That rule remained. Thus equity took the common law as given andsimply acted in response to decisions of the common law courts. This is sometimesreferred to as the rule that equity follows the law. Second, equity acts in personam. Theorder of the Chancellor did not create a legal right or a property right. If the Chancellorfound in favour of the plaintiff the Chancellor would make an order against thedefendant. 4. From Ecclesiastic Chancellors to Non-ecclesiastic Chancellors Until the early 16 th century chancellors were bishops, archbishops or even cardinals. They were thus usually trained in Roman law and canon law (perhaps lendingsome weight to the notion that the law of trusts may have had its origins in Roman lawand canon law concepts). After the early 16 th century chancellors were seldom ecclesiastics. By the mid 15 th century (around 1430) a court of chancery was set up at Westminster. B. Development of the Law of Uses and Trusts Objectives: 1. Note the early form of the â€Å"use. † 2. Identify and explain three ways in which the â€Å"use† was employed in its earlydevelopment. 3. Note the non-recognition of the use and one of the benefits of its non-recognition. 4. Briefly discuss the recognition of the use. 5. Discuss the reasons for the Statute of Uses and its effect. 6. Note two word formulas that were used in an attempt to avoid the Statute of Uses andthe eventual recognition of these formulas. 7. Explain the reason for the enactment of the Statute of Wills. . â€Å"Uses† – Franciscan Friars, Crusades and the Form of the â€Å"Use† Uses and trusts was an area in which the Chancellor began developing a body ofsubstantive law. As noted earlier, early forms of trusts may have included the concept ofthe use employed by donors to Franciscan friars or by owners of estates leaving on thecrusades. These early forms of t rusts were expressed as conveyances to the use ofanother. In other words, X would convey property â€Å"to A to the use of B† (â€Å"use† derivingfrom the Latin term opus, ad opus meaning â€Å"on behalf of†). In addition to the possible 6 early employment of uses by Franciscan friars or in relation to the crusades, people cameto realize a number of other ways of employing â€Å"uses† to their advantage. 2. Other Ways in Which the Use was Employed a. To Avoid the Feudal Burdens of Wardship and Marriage For instance, the use could be employed to avoid the feudal burdens of wardshipand marriage. The male heir of a tenant under the age of 21 and the female heir of atenant under the age of 16 became the ward of the Lord if the tenant died. The Lord tookthe profits of the land until the child reached the age of 21 (or 16 in the case of a female)and had the right to determine the marriage of the child. This could be avoided byputting the land in the hands of one’s friends, say A, B and C, for one’s own use (i. e. Xconveys to A, B and C for the use of X). This way if X died the feudal burdens ofwardship and marriage did not apply to X’s children since X did not â€Å"own† the land (i. e. was not the legally recognized tenant). A, B and C were the legally recognized tenantsand it was they who owed the feudal burdens. If A died, however, A’s children did notbecome wards of the Lord because the rights in the land passed to B and C by right ofsurvivorship. b. To Avoid the Feudal Requirement of Forfeiture for Treason or Escheat for Felony Feudal land law required that the rights to land be forfeit for treason or wouldescheat to the Lord if the tenant commited a felony. This could be avoided by theemployment of the use since once X conveyed the property to others for the use of X, Xwould no longer be the legal owner (or tenant). Thus commition of treason or a felonycould not result in forfeiture or escheat since X had no property to forfeit. X, however, could still enjoy the profits or use of the land by virtue of the device of the use. c. To Avoid Creditors The use also allowed one to avoid creditors. X would convey to A, B and C to theuse of X. If creditors sought to claim the rights to the land as an asset of X, X’s simpleanswer was that the rights to the land did not belong to X. This was facilitated in theearly days not only by courts of aw not recognizing the use but by the fact thatChancellor also did not, in those early days, recognize the use. Thus X had no legal titlethat the creditors could seize and also had no equitable title that the creditors could claim. d. To Effect Testamentary Dispositions of Land Courts of law held early on that one could not, on one’s death, make a gift of landby testamentary disposition. This was avoided by conveying the property during one’slife to another for the use of oneself and then, on death, to the use of those to whom onewished to make a gift. In other words, X would convey the property to A for the use of Xduring X’s life and then to the use of Y. 7 3. Non-recognition in Courts of Law or byt the Chancellor The use was not recognized in courts of law. Initially it was also not recognizedby the Chancellor. Thus there was no legal mechanism for enforcing uses. It was largelya matter of honour and one had to rely on other mechanisms of enforcement rather thanan order for damages from a court of law. On the other hand, it was the non-recognitionof the use in courts of law that gave it some of its advantages. For instance, theavoidance of creditors or feudal burdens depended on the law not recognizing the cestuique use as having any right or title to property enforceable in a court of law (or even anequitable interest recognized in the Court of Equity). 4. Subsequent Recognition by Chancellor This reluctance of courts of law to enforce uses led to appeals to the King toenforce the use. Appeals to the King were made on the basis that the King was theresidual source of justice. The King could provide justice where the courts wereunwilling to (or unable to because the complaint did not fall within the recognized formsof action). Initially the Chancellor did not recognize the use but, with an increasingnumber of complaints against faithless trustees, the Chancellor began to recognize usesby about the beginning of the 15th century (in 1420). The Chancellor would make anorder against the feoffee to uses (trustee) to comply with the obligations they had agreedto in favour of the cestui que use (beneficiary). For example, if A conveyed land to B forthe use of C but B retained the profits of the land to himself C could complain to theChancellor. The Chancellor would call upon B to explain why he had kept the profitsand if he had no good explanation then he would be ordered to restore the profits to C(i. e. , what we would now call the remedy of â€Å"accounting†). The right of the cestui queuse was against the feoffee to uses and thus a personal (or in personam right) but later itwas held that these beneficial rights could be enforced against third parties other than abona fide purchaser without notice and thus the right of the beneficiary came to lookmore like a proprietary (or in rem) right. 5. Later Statute of Uses to Prevent â€Å"Uses† The recognition of the use by the Chancellor led to an increased employment ofthe use. The employment of the use to avoid feudal burdens led to a reduction in thefeudal rights to Lords, most notably to the ultimate Lord, the King. There was also theconcern that rights created through the use could be created without writtendocumentation (i. e. , orally or by an oral direction to the foeffee to uses). The King’sresponse was to urge Parliament to pass the Statute of Uses in 1535. This statuteprovided that the person in whose favour the use was made became the legal owner of therights to the land. In other words, prior to the Statute of Uses when X conveyed to A for the use ofB, A was the legal owner of the land but it was to be used for the benefit of B. After theStatute of Uses when X conveyed to A for the use of B the conveyance to A was ignored 8 and the whole expression was treated as a conveyance directly to B. Thus B became thelegal owner. So let’s go back to the employment of the use by X to avoid the feudal burdens ofwardship and marriage. X conveys to A, B and C for the use of X. This conveyance onlyoperated to convey property from X to himself and thus was no conveyance at all. Inother words, X could no longer avoid feudal burdens by the employment of the use. Xstill had the legal title to the land in spite of the purported conveyance. 6. Ways Around the Statute of Uses As suggested above, the use had a number of advantages. Not surprisinglyattempts were made to recapture its benefits despite the Statute of Uses. It was not longbefore creative ways were found to avoid the effect of the statute. Of the techniques ofavoiding the Statute of Uses perhaps the most important was the employment of a useupon a use. The use upon a use was effected by conveying â€Å"A to B for the use of C in trust forD† or â€Å"A unto and to the use of B in trust for C†. In the first wording the Statute of Usesoperated to make C the legal owner of the land. But C held the land in trust for D. Courts of law did not recognize the second use (or trust) since it was repugnant to the usegranted to C [Tyrrel’s case (1557), 73 E. R. 336]. Initially Courts of Chancery alsorefused to recognize the second use. Courts of Chancery, however,later came torecognize the second use [in Sambach v. Dalston (1634), 21 E. R. 164]. The effect of this was that the use was restored to its pre Statute of Uses statesimply by the addition of a few words in the form of conveyance. 7. The Statute of Wills One of the advantages of the use was to effect a testamentary disposition of rightsin land. With the enactment of the Statute of Uses, and before the recognition of the useupon a use, the use could no longer be employed to effect a testamentary disposition ofproperty. The apparent abolition of the testamentary employment of the use was not wellreceived. It led to a rebellion which resulted in the Statute of Wills in 1540 whichpermitted a person make a testamentary disposition of property. 9 C. Development of Equity and Trusts After 1550: From â€Å"Conscience† toâ€Å"Equity† Objective: Briefly describe the development of Equity and trusts from 1550 to 1700. 1. Growing Popularity of Courts of Equity and Conflict with Courts of Law The early simplicity of procedure in Chancery courts made them popular. Thenumber of matters brought before the court of chancery in the 16 th century grew significantly. This led to competition between Chancery and common law courts. Judges in common law courts did not like the common injunctions issued by Chancerycourts. In Finch v. Throgmorton in 1598 [3 Bulstr. 118] the validity of commoninjunctions was referred to all the judges of England and were pronounced by them to beinvalid. Lord Chancellor Ellesmere continued to issue common injunctions. Lord Coke,who became chief justice of the Court of King’s Bench in 1613, criticized commoninjunctions claiming that the tendency of courts of equity to re-examine common lawjudgments and to issue orders against the enforcement of common law judgments tendedto subvert the common law. In Heath v. Ridley in 1614 [2 Cro. 335] Lord Coke broughtthe issue to a head when he refused to accept a common injunction issued by LordEllesmere. The King ruled in favour of Lord Ellesmere and Lord Coke was laterdismissed from office. 2. Courts of Equity Survive the Civil War and Removal of the Monarchy After the English Civil War in the 1640s and 1650s Parliament voted in favour ofthe abolition of the court of chancery (in part because of its close association with themonarchy) but the House could not agree on legislation to transfer chancery jurisdictionto the common law courts. Thus the court of chancery survived through to the restorationof the monarchy. 3. Seventeenth Century Developments – Equity as a Body of Substantive Law By the late 17th century the role of Chancery was expanding with control overwardship and the development of fiduciary guardianship, the equity of redemption, andassignment of choses in action. In other words, the court of chancery was developing itsown substantive law. The court was applying â€Å"equity† as a body of substantive law ithad developed and was less the court of â€Å"conscience† it had been in the past. Many developments in equity came to be reflected in the â€Å"common law† itself oftenthrough legislation (e. g. Statute of Wills), but sometimes by common law courtsborrowing concepts from equity. The development of reporting of Chancery decisionsafter 1660 contributed to the development of a body of principles of equity. By the endof the 17th century the court of chancery had developed concepts such as the equity ofredemption and the assignment of choses in action. 10 The way the trust was being used was also changing. By the late 17th century thetrust was being used not just to hold property but to manage property by giving trusteeswide powers to manage the property, improve it, mortgage land, pay off debts, provideincome for widows and dependants, educate children, etc. D. Equity and Trusts, 1700-1900: Disaffection, Reform and FusionObjective: Briefly describe the development of Equity and trusts from 1700 to 1900. There were developments of equity in the 18th century. Equity was the mainsource of protection of copyrights and trademarks since these could be protected throughthe equitable remedy of injunction. Equity† was becoming more and more a body ofsubstantive law rather than just a collection of equitable maxims. The 18 th century also saw the development of of the business trust in part inresponse to the Bubble Act of 1720 that had prohibited an early precursor to thecorporation referred to as a joint stock company (which was really a large partnership). Trusts in the 18 th century in creasingly took the form of a fund of investments, such asstocks and bonds, that the trustee would administer for the benefit of others rather thanbeing used primarily for the holding of land. However, growing procedural complexity caused the court of chancery to becomeincreasingly slow and inefficient resulting in a reduction in cases. The Chancellor dealtwith all cases directly. Proceedings were done by way of written interrogatives followedby written depositions in response. Copies were made for all parties and werehandwritten by law writers. Fees were paid instead of salaries which gave personsinvolved an incentive to prolong proceedings. The slow process was remarked on by aToronto lawyer (Skivington Connor) in 1845 concerning the process of the court ofchancery in Ontario at the time, That’s the business I like, the pace slow and dignified, the pay handsome, and agentlemanly understanding among practitioners to make it handsomer. †There was some response to the slow pace of the court of chancery prior to the enactmentof the Judicature Act of 1873. In 1813 a vice-chancellor was appointed. A Court ofAppeal in Chancery was created in 1851 and the Court of C hancery was given powers touse juries to try facts. Similarly in the 19 th century common law courts were given powers to grant injunctions and admit equitable defences. Thus there was somemovement toward fusion of courts of law and courts of equity. Eventually the Court ofChancery was abolished in 1873 and the common law courts took over the administrationof both the common law and equity. 11 III. HISTORICAL DEVELOPMENT OF EQUITY IN CANADA Objectives: Be able to briefly trace the history of the exercise of equitable jurisdiction in the Atlanticprovinces, Ontario, Quebec, the West and the North. The reception of equity jurisdiction in Canada varied from province to province inthe eastern provinces. The timing of the settlement in and creation of most of the westernprovinces was in the latter part of the 19 th century when the merging of courts of law and courts of equity was already being considered in England. A. Atlantic Provinces In Nova Scotia the Governor, as Keeper of the Great Seal, exercised equityjurisdiction (as early as 1751 when the first bill in equity was filed). This approach wasextended to Prince Edward Island and New Brunswick when these colonies were created(in1769 and 1784 respectively). In Nova Scotia matters were decided on the advice of acouncil until 1764. In 1764 three â€Å"Masters in Chancery† were appointed to assist theGovernor. Initially these Masters in Chancery were not legally trained but by later in the19th century legally trained masters of the rolls were appointed in Nova Scotia, NewBrunswick and Prince Edward Island. The merging of law and equity jurisdiction occurred in New Brunswick and NovaScotia well before the enactment of the Judicature Act in England in 1873. In NewBrunswick in 1854 and in Nova Scotia in 1855 the position of master of the rolls wasabolished and equity jurisdiction was transferred to the Supreme Court. The merging ofcourts of law and courts of equity in Prince Edward Island did not occur until 1974. Newfoundland did not follow the model of the Governor exercising equityjurisdiction. Instead equity jurisdiction was exercised by the Supreme Court and thispractice was later codified in 1825 (almost 50 years before the merging of courts of lawand courts of equity in England). 12 B. Ontario and Quebec Quebec Equity jurisdiction lasted only briefly in Quebec. From the Royal Proclamationof 1763 the Governor of Quebec sat as Chancellor until Quebec Act of 1774 restored thecivil law system to Quebec. Ontario Governors in Ontario, curiously, refused to exercise equity jurisdiction. It hasbeen suggested that this may have been due to pressure from lenders since without theexercise of equity jurisdiction there would be no equity of redemption in favour ofdebtors. Eventually pressure from debtors mounted and a legislative form of equity ofredemption was adopted. The establishment of a Court of Chancery followed shortlyafterwards in 1837. This may have been in response to pressure from lenders again. Thelegislature having created a legislated equity of redemption for borrowers, the lendersmay have wanted to have the corresponding right of foreclosure which was also adevelopment of equity cutting off the right of redemption after a reasonable period oftime. The Ontario Court of Chancery was later absorbed into High Court of Ontario in1881. C. The West and North When courts were being established in the west and north the move towardsunifying courts of law and equity was well advanced. Thus when courts were establishedin these jurisdictions they were given jurisdiction over both law and equity. It was,however, the practice in Manitoba and British Columbia to have divisions of the courtwith a division administering law and another division administering equity with theusual restrictions on courts of law not being able to give equitable remedies. Later thesedivisions were abolished (e. g. , in Manitoba in 1895). 13 IV. FUSION Objectives: Be able to: (i)Distinguish between procedural and substantive concepts of fusion. (ii) Provide an example of the potential practical effect of the distinction. (iii) Briefly discuss the current status of the debate over the fusion of law and equity. A. Procedural vs. Substantive Fusion What did the Judicature Act in England in 1873 do? Did it merge the rulesapplied by courts of law and the rules applied by courts of equity into a single body oflaw? Or did it simply allow for court proceedings to be started in one court that hadjurisdiction to apply rules of law and rules of equity without any formal merging of thetwo bodies of rules? In other words, did it provide for substantive fusion or proceduralfusion? Substantive fusion means that the rules of law and equity are merged into a singlebody of rules. Procedural fusion means that one can apply to a single court following asingle court procedure and that court could administer both rules of law and rules ofequity and apply remedies of the sort that were formerly available in either a court of law(e. g. damages) or a court of equity (e. g. injunction, specific performance, accounting). The difference is often captured by the Ashburner’s [Principles of Equity (London: Butterworths, 1902)] so-called fluvial metaphor: â€Å"The two streams of jurisdiction, though they run in the same channel, run side byside and do not mingle their waters.In that metaphor law and equity are perceived as two separate streams (courts) that cometogether (in one court). Ashburner’s statement using the fluvial metaphor says that thefusion was procedural only. In other words, the two streams came together but the watersof the two streams (rules of law and rules of equity) did not intermingle but ran side byside in the same channel (i. e. could be applied by the same court). In the metaphorsubstantive fusion is perceived as an intermingling of the water from the two streams intoa single integrated stream. The Judicature Acts dealt with some areas of conflict and provided a general rulethat where rules of law conflicted with rules of equity the rules of equity were to prevail. Cases: [Walsh v. Lonsdale (1882)] [United Scientific Holdings v. Burnley Council, [1978] A. C. 904 (H. L. )] 14 [Fusion resulting in equity prevailing over common law or was it in fact common lawprevailing over equity] [LeMesurier v. Andrus (1986) Ont. C. A. ] B. An Example of the Practical Legal Effect Canson Enterprises Ltd. v. Boughton [1991] 3 S. C. R. 534 In Canson Enterprises Ltd. . Boughtonthe plaintiff had purchased land and thenbuilt a warehouse on the land. The warehouse was severely damaged when thesupporting piles began to sink. The plaintiff successfully sued the engineers but theyturned out to be judgment proof. The plaintiff then sued its solicitor who had made asecret profit from the purchase of the land. They claimed that as a solicitor the solicitorowed them a fiduciary duty not to make a secret profit from a transaction in which thesolicitor was acting on behalf of the plaintiff as purchaser. That claim was based onprinciples developed by courts of equity which had long held solicitor’s to owe fiduciaryduties to their clients and had drawn on the fiduciary duty principles they had developedin the context of trustees in setting out the scope of a solicitor’s fiduciary duties. The defendant solicitor claimed that while he would be required in equity toaccount for the profit he had made he would not be liable for the damages to thewarehouse (which were much greater than the secret profit) because his secret profit didnot ause the loss to the plaintiff from the damage to the warehouse. The plaintiff arguedthat since the claim for breach of fiduciary duty was a claim in equity principles such asremoteness, mitigation, and causation which were principles developed by courts of law,did not apply. In other words, the plaintiff was saying that there was procedural fusiononly. If a claim was based on principles that had been developed in courts of equity thenthe appli cable rules were only those drawn from developed by courts of equity not thosedeveloped by courts of law. C. The Current Status of the Fusion Debate A majority of the Supreme Court of Canada held that there was no real distinctionbetween damages in a common law claim and equitable compensation in a claim inequity and thus common law concepts of remoteness and causation could be used inassessing the remedy. In other words, they did not stick the solicitor with the fulldamages to the warehouse. Madam Justice McLachlin, as she was then, felt that theresult could be reached on equitable principles with respect to equitable compensation. Neither the majority judgment nor the judgment of Madam Justice McLachlin make itclear whether law and equity were substantive fused or merely procedurally fused. Theyboth seemed to feel that the application of common law principles and equitableprinciples in the particular case were consistent so their was no need to draw on commonlaw principles into an equitable claim. However, Madam Justice McLachlin did note thatâ€Å"we may take wisdom from where we find it, and accept such insights offered by the lawof tort, in particular deceit, as may prove useful. It thus appears that where there is aconflict one the court will resolve it with broader policy considerations. 15One should thus be alert to the potential differences between rules of law andequity and how they may impact the result but also be ready to argue for a particularresult from a policy perspective (much as the plaintiffs did in Canson by arguing that toensure that fiduciaries are held to high ethical standards they shou ld be strictly liable forall losses flowing from a breach of duty).