Equity Research Paper

1. Equity As A Common Expedient

In this sense, equity is positioned between law and ethics. In the Western legal tradition, equity was even culturally perceived as the only foundation of law. Equity and justice go hand in hand in Western legal philosophy. But the Roman root aequus was translated by two words which acquired two very distinct meanings through the ages: ‘equity’ on the one hand, and ‘equality’ on the other. The distinction led to opposing political theories on law and justice.

Roman Law defined legal work as skillfulness in settling what is good and fair: Ars boni et aequi (Celsius and Ulp, Dig. I, 1, 1, pr.). Among traditional legal principles, we find also the rule according to which equity must be expected in everything, but above all in Law (Paul, Dig., 50, 17, 90). As Pretorian law, a great part of everyday Roman legal regulation was progressively built upon equity in order to complete positive law. The Roman distinction between ius honorarium and ius civile has been seen by some authors as a forerunner of what would later exist in England as a distinction between common law and equity: a ‘body of rules existing alongside the original civil law, founded on distinct principles, and claiming incidentally to supersede civil law in virtue of a superior sanctity inherent in these principles’ (Maine 1861, p. 25).

Equity is used to replace legal rules drawn from statute or common law when these rules are considered too inadequate or unyielding for the expectation of justice in a specific case. Hence, equity was always considered as a common expedient against legal (state) justice where this latter appeared too distant from ethics, moral or customs. This route to justice was historically employed to such a degree that the gambit was embodied in many legal traditions, re-emerging from time to time according to need.

In opposition to legal unfairness, equity is regarded as either a refuge (equity prompts legal rules to law givers) or a recourse (equity is the alternative source of a redress or remedy to those provided by established law).

From ancient times, equity was considered to be an efficient means to establish justice in law. Without equity, law would be unjust (Summum ius, summa injuria). Within legal anthropology, Henri Sumner Maine showed in his work Ancient Law (1861) that equity is considered an instrument to bring harmony to progressive societies. According to this author, equity is one of the three agencies by which primitive law has been adapted to the requirements of a developing society and an improving morality.

Equity was also considered in Western legal tradition as a complement or a corrective to positive law. There are a number of aphorisms on this topic, such as Hœc œquitas suggerit, etsi deficiamur jure or Æquitas nihil aliud est quam jus quam lex scripto prœtermisit, i.e., equity must be followed where there is no legal norm to reach a solution. But when the man in the street talks of ‘equity,’ he is thinking of ideal justice which may even be contrary to the law. Here lies that faith in the fairness of a claim to some natural law existing above positive laws or statutes. Equity focuses on the imperfections of law and can even be preferred to a legal norm where it provides a useful corrective to legal institutional justice by improving an equitable outcome: Placuit in omnibus rebus prœcipuam esse justitiœ œquitatisque quam stricti juris rationem. Equity is better than a solution drawn from a strict interpretation of law. Such a theory, elaborated from Aristotle onwards, runs through the western legal tradition through Roman Law, subsequent Canon Law (Grossi 1998) and right through continental legal regimes before the French revolution.

That law can be brought into harmony with society through equity is currently demonstrated by legal sociologists, whose research illustrates specific circumstances in which societies make appeals to alternative procedures where equity plays an important role. This is particularly clear when it is not ingrained within a culture to instinctively call on the law for help as the main way to resolve conflicts, such as in traditional Chinese or Japanese cultures. Moreover, equity is often grasped as an opportunity for a workable alternative to state law, where it is not envisaged by a written legal norm. In the last decades of the twentieth century, for instance, equity was cited in alternative movements by both Italian and Brazilian judges (Alternative Use of Law and Alternative Justice, in Arnaud 1993).

2. Equity As A Means Of Adapting Legal Regulation To Political Prerequisites For The Development Of An Economy

All through the building of the occidental legal tradition, whilst laws were considered a means to protect communities and insure their reproduction following a specific pattern, equity also appeared as the way to open up law to necessities born from the development of trade. Here, equity appears (a) as an earlier technique to create a society for merchants, and (b) in the last decades of the twentieth century, as a means to implement a global legal order.

2.1 Equity As A Foundation Of Trading Societies

At the end of the Middle Ages, the opposing pressures of the wish of kings to concentrate absolute powers in their hands, the opening up of everyday life to trade and merchants, as well as the emergence of a bourgeoisie, led the various national laws to adapt themselves to the development of landed and propertied interests. Western laws gradually expanded into opposing systems: the common law and equity tradition on the one hand and continental legal positivism on the other.

After centuries of legal rationalization, equity was definitively taken up from the discourse of ethics and located as one of the foundations of law, appealing to natural law and reason, even as against positive law and statutes (Hugo Grotius, Samuel Pufendorf, Christian Wolff and their disciples in Northern Europe; Jean Domat in France).

As to the continental romano-canonic tradition, equity was quickly made subservient to state law. Despite the influence of Domat’s work on French jurisprudence, equity was forbidden in France by the Ordonnance civile of 1667. The French Revolution of 1789 was partially directed against the discretionary power of judges. A project to reintroduce equity as a tool in judicial interpretation in the French Civil Code was drastically cut down by Bonaparte. Finally, the judge was considered merely to be the mouthpiece of state law. It is true that we can find counterexamples in nineteenth-century France, such as judicial decisions by the ‘Bon Juge Magnaud’ who used equity to avoid enforcing the law against the poor. But this use of equity was a rarity and almost all such decisions were reversed by the court of appeal.

We can also identify some slight remains of equity in Civil Law, even in the French Civil Code (articles 565, 1135, 1854). The strongest examples are, however, drawn from the Swiss Civil Code, articles 1 and 4: ‘The law must be applied in all cases which come within the letter or the spirit of any of its provisions. Where no provision applies, the judge shall decide according to the existing customary law, and, failing which, according to the rules which he would lay down if he had himself to act as legislator. Herein he must be guided by approved legal doctrine and case-law … Where the law expressly leaves a point to the discretion of the judge, or directs him to take circumstances into consideration, or to consider whether a ground alleged is material, he must base his decision on principles of justice and equity’ (see Lloyd and Freeman, p. 1231).

At the same time, in the common law countries, legal developments went in the opposite direction. There, indeed, equity refers to that part of the law of England which is derived not from the custom of the realm nor the enactments of Parliament, but from the decisions of the old Court of Chancery, consolidated in 1873, along with the other superior courts in the supreme court of judicature. Such equity pertains to a right recognized by a court of equity through a specific procedure. Here, we are faced with procedural equity and not ‘natural justice.’ Jurisdiction in equity is one of the three clearly marked divisions into which the jurisdiction of the court falls, together with a miscellaneous jurisdiction and a common law jurisdiction. The equitable jurisdiction of the court originated in the power which the chancellor assumed in the Middle Ages to modify a strict and formal legal system on moral grounds.

There are a number of principles used as guidelines when it is necessary to make appeal to this notion of equity; equity acts in personam; equity will not suffer a wrong to be without a remedy; equity follows the law; equity looks to the intent rather than the form; equity imputes an intent to fulfil an obligation; equitable remedies are discretionary; delay defeats equities; he who comes into equity must come with clean hands; equity takes into account the balance of convenience; where there are equal equities, the law prevails and the first in time prevails; equity, like nature, does nothing in vain; equity never wants a trustee; equity aids the vigilant; equality is equity; equity will not assist a volunteer; equity will not permit a statute to be a cloak for fraud.

In England, because the remedies which the common law courts could give were initially limited by the forms of writs available, men turned to the Chancellor for equity for assistance. The two systems came to be administered by wholly independent tribunals whose decisions were frequently in conflict. The early jurisdiction of the Court of Chancery was in its nature extremely vague. From the beginning of the seventeenth century, it is possible to discern certain general principles in the exercise of the court’s jurisdiction. The early seventeenth century was the principal turning point in the history of the court, for the common law lawyers were seeking to prohibit the Chancery from interfering with common law rights. King James I resolved the conflict between the two jurisdictions in favor of Chancery. From this time onward, although the conflict did not die down until the end of that century, the court gradually developed jurisdiction co-ordinate with that of the common law courts and on settled principles. In the eighteenth and nineteenth centuries, it came to follow precedent as strictly as they.

The principal distinction between the two systems was that, whereas the rules of common law were supposed to have been established since time immemorial, those of equity could in almost every case be traced to the Chancellor who invented them. In the nineteenth century the jurisdiction of Chancery, now clearly defined, was frequently classified according to its relationship to the common law as being exclusive, concurrent or auxiliary. By the middle of the twentieth century, the Chancery division consisted of the Lord Chancellor and judges divided into groups which were respectively assigned matters within the peculiar jurisdiction of the division.

In the USA, equity was developed with relative consistency during the nineteenth century. The expansion of the equity system was subject to statutory grants bestowed to each state, which constitutes a specific feature of American legal history. During the Civil War, the equitable jurisdiction was generally attributed to courts of double jurisdiction. Since 1848, many states excluded the distinction between law and equity in favor of one ‘civil action.’ At last, there was a complete fusion of law and equity by the adoption, in 1938, of the federal rules of civil procedure, promulgated by the US Supreme Court under authority of an Act of Congress.

2.2 Equity As A Referent In The Framework Of Contemporary Political Theory

Recently, the use of equity was proposed by neoliberal legal philosophers as a way to put into common practice some fundamental legal principles. Hence, equity has become a referent in the framework of globalization, re-emerging in many new areas of legal work, e.g., private, regional and international judicial assemblies, and directly in relation to global governance. The importance of the recourse to equity in contemporary neoliberal legal and political philosophy is due to (a) the predominance of the Anglo-American legal tradition in international legal relations, (b) the special focus given to the above-mentioned principle according to which ‘equality is equity,’ and finally (c) the claim for a minimal state.

After much controversy surrounding the Aristotelian idea of ‘corrective justice,’ equity was reintroduced as the legal principle of equal treatment of people in the allocation of legal benefits and obligations. John Rawls designates as ‘equality of fair opportunity’ the equity of opportunities which cannot be reduced to a merely hypothetical right (Rawls 1971, pp. 14, 46). Here arises a paradox: the more the State intervenes in establishing equality of opportunities, the more it stands apart from the ideal of contractualism which characterizes the minimal state. Consequently, there could be no coherent basis for imposing common global lawful and unique interpretations (for example, of human rights). This means that it would not be possible to universally expect the same behavior through all institutions, whether national, local, or international.

Popper’s claim for the importance of tradition, a tradition which offers the moral structure of a society, is grounded in the idea that herein lies the social meaning of justice and equity. On the one hand, tradition reveals the degree of moral feeling which each society attains; on the other, should there be conflict between opposing interests, tradition is the moral framework which allows us to find fair or equitable compromises (Popper 1963, Chap. 17, paragraph 3). Institutions alone give a society its legal structure appropriate to this moral background.

According to Friedrich Hayek, society is developing upon a set of individual interests pursued, although not always fully recognized, in the framework of the ‘open society’ or ‘great society’—the global society. A free society is a pluralist society without a common hierarchy of peculiar achievements. The market supposes a discipline, a system of rules of behavior. The market is a game able to create wealth. Indeed, it gives each player adequate information in order to allow him her to answer to needs of which he she is not able to be directly aware. Thanks to this game, opportunities increase for each player since nobody is treated unequally. And there is no inequality when the result of the game is different for different people: on the contrary, the market mechanism itself produces impersonal flags, signs which show the players when and how they have to modify their actions to adapt to events of which they are only indirectly aware.

States from time to time wish to introduce social justice through legal regulation. But equity cannot be considered as a means of establishing social justice. Social justice, Hayek writes (Hayek 1973), destroys the spontaneous feature of the market, proscribes the possibility of a great society, and is incompatible with liberty. In other words, equality of treatment before the law—even in the name of charity—leads to arbitrary outcomes. There are requests and revolts against the abstraction of the rules which must be observed within the framework of the Great Society. Indeed, there is always a predilection for concrete human circumstances. But such feedback would only reveal a lack of intellectual and moral maturity faced with the necessities of an impersonal global order of humankind.

Globalization supposes an interdependence within all humankind as we move towards the realization of an open society in which people must accept risk. Consequently, globalization produces inequalities. Peace will result only from the observance of rules of fair behavior. Equity will be realized provided that everybody is treated equally according to these abstract rules of fair behavior. Equality of opportunities cannot be implemented beyond equal treatment before the law.

The State must not involve itself in a process of social justice with the purpose of giving to a group of citizens what belongs to others. Success or failure must depend only upon each person’s action and cannot flow from the knowledge and power held by public authorities. Authoritarian intervention generates disorder and cannot be equitable. To speak of concrete common goals is specific to small closed societies in which people were protected by community at the price of their freedom. In contrast, a great society of free people can exist only if everybody submits to ‘equal’ abstract rules.

In this context, it is easy to understand that the state must play a minimal role. The ‘entitlement theory’ (Nozick 1974) based upon a discussion of Hart’s ‘principle of fairness’ (Hart 1961) challenges the claims for State action aimed at implementing equality among people.

Where the State is striking space, the judge becomes a masterpiece in the framework of the legal structure. The judge enjoys extended powers in such a society. He has to correct permanently the disturbances within an order which is spontaneous, not artificial, and which tells people what they have to do. Such a judge must decide in ‘equity’ in the sense that he has to decide if people’s behavior is appropriate to what can normally be expected in comparison with the common conduct of the members of the same group.

The law of the judges is a translation of what people have learned from their actions. Judges’ function is to maintain a permanent and efficient order in people’s behavior. The judge contributes to improving a given order, an order which must not be upset by changes within relationships between citizens.

Such contemporary theoretical views on equity are particularly significant. Globalization is promoting neoliberal views on law, justice and equity. Indeed, equity has already become a common referent for regional and international Courts of Justice. This leads in turn to many ambiguities, for instance in the implementation of the European Union’s Equal Treatment Directive against sex discrimination. This last rule is based upon a general feeling of equity … but supposes some affirmative action through Community (state) intervention (see the European Law Journal 1998, and Posner 1993, pp. 404–5). The same ambiguity can be found in the report by the Commission on Global Governance entitled Our Global Neighborhood (Commission on Global Governance 1995). In this report, written at the request of the United Nations, we read that ‘Justice and equity are essential human values. Respect for them is indispensable for peace and progress … Where large numbers of citizens are treated unfairly or denied their due … discontent is inevitable and conflict likely.’ However, ‘a concern for equity is not tantamount to an insistence on equality.’ Therefore, equity ‘does call for deliberate efforts to reduce gross inequalities, to deal with factors that cause or perpetuate them, and to promote a fairer sharing of resources’ (Commission on Global Governance 1995, p. 51). This is good as political principle, but what practical legal rule can flow from such abstract, inconsistent, and equivocal discourse?

Nevertheless, and despite of the lack of general agreement on its relationship with equality, equity appears as a newly contemporary and significant notion which promises great possibilities for redesigning law-making, the administration of justice, and the process of judicial decision-making.

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