What is ‘the fusion fallacy’ and is it really a fallacy? Should Equity be ‘fused’ with the common law?

Answer

The ‘Fusion Fallacy’: Equity and Common Law

The two major forms of law that are used in the determination of disputes in the Australian jurisdiction are equity and common law. In equity, judicial decisions are made based on the assessment of fairness. The aim is to arrive on a fair determination. Essentially, it can be argued that equity does not focus on procedural technicalities, but rather on the substantial issue at hand. Common law, on the other hand, is a regime of law wherein judicial decisions are arrived at based on custom and judicial precedent with respect to the particular matter at hand. For a long time, there has been an outstanding debate regarding the fusion of common law and equity. The debate has been bordering around whether the two regimes of law can be fused or whether attempts at fusion are merely a fallacy since the two regimes are distinctive.[1] The concept of fusion is not a fallacy and equity and common law should indeed be fused, especially in instances when strict adherence to procedural technicalities would lead to an injustice.

For a long time in the common law jurisprudence, equity and common law were practiced in separate courts within the judiciary. However, the Judicature Act of 1873-1875 made provision for the creation of the Supreme Court of justice which was granted the jurisdiction of hearing both common law and equity matters.[2] This is arguably the point when the fusion or no fusion controversy began. The argument for many scholars currently is that common law and equity have not yet fused but they have gradually been working together.[3]

The idea of ‘fusion fallacy’ speaks to the fact that common law and equity are very distinctive in nature and that an attempt at fusion is not only misleading, but it is also practically impossible. One of the scholarly views in this regard is referred to as the ‘Orthodox view’.[4] In this view, specific mention is made of the Judicature Act of 1873-1875 and the fact that both equity and common law were being practiced in the same court (the Supreme Court of justice). The contention herein is that whereas the two regimes of law were being practiced under the same roof in the literal sense, this did not have an effect on the substance of the decisions that were being made by the court. Therefore, the idea that the two regimes of law had been fused by virtue of the practice thereof under the same roof was a fallacy. This position was illustrated in the House of Lords decision in the case of Salt v Copper where the court categorically refused to alter the substantive rules of either system with respect to a matter appertaining to restrictive covenants with regard to equity.[5] It was made apparent that equity was not fused with common law. This, in essence, meant that the legal rights and equitable rights were distinctive in nature. As indicated by Professor Ashburner, “the two streams of jurisdiction though they run in the same channel, run side by side and do not mingle their waters.”[6] In explaining the fusion fallacy that would be occasioned in the event that there was a mingling of waters with respect to the two regimes, Meagher, Gummow and Lehane outlined the following illustration;

“The administration of a remedy, for example common law damages for breach of fiduciary duty, not previously available either at law or in equity, or the modification of principles in one branch of the jurisdiction by concepts which are imported from the other and thus are foreign, for example by holding that the existence of a duty of care in tort may be tested by asking whether the parties concerned are in fiduciary relations.”[7]

Essentially, this objection of the fusion is centered on the fact that remedies that are applicable in one jurisdiction ought not to be used in another separate jurisdiction or regime of law. Ideally, legal remedies should not be granted for equitable remedies and vice versa. One of the arguments herein is that the objects of equitable remedies are very different from the objects of legal remedies. For instance, equitable remedies do not serve punitive functions. The proponents of the fusion fallacy, therefore, connote that the two regimes ought to be practiced separately.

Should Equity be ‘Fused’ with the Common Law?

The history of the practice of common law and equity is very rich and it speaks to the very extent of the civilization of the human race. The practice of common law for instance is very authentic since it has helped in the building of a formidable jurisprudence by building on and being appreciative of the gains that were made by our fore fathers. It is indeed true that there is “nothing more curious in legal science, hardly anything more interesting in the history of human kind than to trace the processes by which the two-fold fabric of English Jurisprudence arose.”[8] However, despite the fact that there is need to be cognizant of the past gains, there is also need to ensure that the legal regime that is practiced in this age is modified so as to meet the needs of the current age. Fusion is, therefore, not a fallacy. In this regard, the contentment herein is that equity should indeed be fused with common law. This movement is indeed on course and should not be stopped. One such scenario is witnessed in the case of Aquaculture Corporation v New Zealand Green Mussel Co Ltd[9] In this case, there was a breach of the duty of confidence (a duty that emerges from the doctrine of equity) and the court offered the legal remedy of the payment of damages for this breach.[10] In reaching this decision, a majority of the court made the following averments;

“For all purposes now material, equity and common law are mingled or merged. The practicality of the matter is that in the circumstances of the dealings between the parties the law imposes a duty of confidence. For its breach a full range of remedies should be available as appropriate, no matter whether they originated in common law, equity or statute.”[11]

This position has been adopted by many other Australian legal scholars including Professor Andrew Burrows who indicated that unnecessary variations and inconsistencies exist in the applicability of common law and equity distinctly. He indicated that it is not necessary to be slaves to history and that modification can always be made in acknowledgement of the arising needs. He specifically stated thus;

“Indeed, my own view is that we should be doing much more than we already are to recognize unnecessary inconsistencies between common law and equity and to remove such inconsistencies, whether by judicial or legislative reform. To my way of thinking, the anti-fusion school of thought rests on an unacceptable willingness to be slaves to history and on an unacceptable implicit rejection of the need for like cases to be treated alike.”[12]

Essentially, the argument herein is that the ‘fusion fallacy’ scholars connote that there should be strict adherence to procedural technicalities even if such rigidity would likely result in an injustice. This should however not be the case. Rigidity leads to injustice and it goes against the overriding objective of the court. In the case of Walsh v Lonsdale, the claimant was granted the lease of a mill for seven years and he was required to pay rent every quarter, as well as, a year’s rent payable in advance.[13] However, a deed had not been duly executed in this regard. When the claimant was required to pay a year’s rent in advance as had been agreed, he declined and indicated that the agreement was not legally enforceable since under the common law rules the lease could only have been valid if it had been created by dint of a deed.[14] The court in this case held that if there is any conflict between common law and equity, equity should prevail. In this regard, one of the maxims of equity stipulates that ‘equity looks on as done that which ought to be done.’ In this regard, it was presumed that the lease had been created by deed thus the court could order specific performance thereto.

It is important to note that equitable remedies are not meant to have a punitive effect. One of the ends of equity is to bring justice by ensuring that the aggrieved party to a contract for instance is placed in the position he would have been in had the other party done that which he was required to do. Essentially, the maxim that ‘equity will not serve a wrong without a remedy’ connotes that equity is meant to serve the end of restitution.[15] It is very difficult to achieve this end without the provision of legal remedies like damages. In the case of Seager v Copydex Ltd the plaintiff had invented a carpet grip.[16] He later patented it and marketed and manufactured it through the trademark known as Klent.[17] Negotiations ensued between Mr. Seager and Copydex and Mr. Seager proposed that Copydex should market Klent. There were issues with respect to pricing and Mr. Seager made proposals regarding an alternative design that would cost less. This alternative design was, however, not covered under the patent. The defendant then used the confidential information to manufacture carpet grips without the knowledge of the plaintiff. The court found that indeed Mr. Seager’s claim was an equitable claim since Copydex had the obligation of confidence.[18] The court then ordered that damages be payable on a restitutionary basis. Essentially, in this age when everything is monetized, it would be convenient for the courts to grant restitution through monetary damages. In this regard, equity should indeed be fused with common law.

The grant of a legal remedy for an equitable claim can also be seen in the case of Harris v Digital Pulse Pty Ltd.[19] In this case, the defendants channeled profits away from the plaintiff who was their employer in breach of their fiduciary duty of loyalty.[20] The court held that the defendants should pay equitable compensation or in the alternative, they account for the profits thereto.[21] Essentially, the granting of legal remedies for equitable claims and vice versa cannot be overlooked. Equity should indeed be fused with the common law.

Conclusion

The two major forms of law that are used in the determination of disputes in the Australian jurisdiction are equity and common law. For a long time, these two regimes of law were practiced separately. However, there has been an argument that the 1873-1875 Judicature Act served the purpose of fusing these two regimes of law. There has been another argument that the Acts only served the purpose of creating the Supreme Court of justice wherein the two regimes of law were practiced under the same roof (fusion fallacy). Equity should be fused with the Common law.

[1] Burrows, Andrew. "We do this at common law but that in equity." Oxford Journal of Legal Studies 22, no. 1 (2002) 5.

[2] Ibid 5.

[3] Ibid 7.

[4] Tilbury, Michael. "Fallacy or Furphy: Fusion in a Judicature World." (UNSWLJ 26 2003) 2.

[5] Salt v Cooper 1880-81 L.R. 16 Ch D 544

[6] D Browne, Ashburner’s Principles of Equity (2^nd ed, 1933) 18.

[7] Justice R P Meagher, Justice J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4^th ed, 2002) [2-105].

[8] Theodore, Sedgwick, A Treatise on the Measure of Damages (3^rd ed, 1858) 7.

[9] [1990] 3 NZLR 299.

[10] Ibid 300.

[11] Ibid 301.                                               

[12] Andrew, Burrows, Fusing Common Law and Equity: Remedies, Restitution and Reform (2001) 3.

[13] (1882) 21 Ch D 9

[14] Ibid

[15] Edwards, Richard, and Nigel, Stockwell. Trusts and equity. (Pearson Education, 2007) 51.

[16] [1967] 2 All ER 415.

[17] Ibid

[18] Ibid

[19] (2003) 56 NSWLR 298.

[20] Ibid

[21] Ibid