Equitable Remedies in Commercial Disputes




The general rule

The general rule is that businessmen are bound by the written agreements they sign. If it were otherwise, the resulting uncertainty would make business transactions unacceptably unreliable and adversely affect the economic well-being of society.   

But the general rule also provides an opportunity for the unscrupulous to take unfair advantage of others by getting others to sign agreements which can be used in way which could never have been intended by the other party. The law, therefore, seeks to strike a balance between, on the one hand, upholding the general rule, and on the other hand, providing remedies in case of blatant abuse. The law seeks to achieve this by what are are called "equitable" remedies. 


Origin of Equitable Remedies

Before the Judicature Acts in the 1870s, there were two parallel courts systems: courts of “Law” (or "common law") and courts of “Equity”. The Judicature Acts combined the separate courts into one court system so that, now, all civil courts - i.e. both the Queen's Bench and Chancery divisions of the High Court, and the County Court - can provide both equitable and common-law remedies. Although the civil courts are now generally the same in terms of jurisdiction, equitable remedies - originating in the Courts of Equity and supplemented by new equitable remedies provided by Act of Parliament - are still a distinct branch of the law because of the features they have in common.

The two features which different equitable remedies have in common are, first, that there are specific criteria which have to be met - i.e. the facts of the case have to come within the rules of the specific equitable remedy concerned. Secondly, the remedy is discretionary. This means that, unlike common law remedies where, if your case meets the legal criteria, you have a right to a remedy (such as damages - i.e. compensation), equitable remedies are at the discretion of the court. Equitable remedies are potentially very intrusive - for example the court can order a party to do something with the threat of imprisonment if they fail to obey - so the court will choose the precise order which it judges to be appropriate to the situation. This involves an evaluation of the conduct of both parties and the appropriate fair order to make. The discretion is so wide that it allows the court to make no order at all, even if the specific criteria giving it discretion are met, if, for example, the party bringing the claim is itself guilty of serious misconduct of a type which makes it inequitable for the relief sought to be granted. 

It is important to appreciate that only the second stage is discretionary: whether your case meets the criteria for the particular equitable remedy you are seeking, in the first place, is a matter of evaluation of the facts as proved by the evidence. There are, in fact, quite a number of different equitable remedies, each with its own specific criteria and it is important that the court documents are drafted by a specialist barrister so that the grounds for the specific equitable remedy (or remedies - more than one can be claimed where appropriate) are properly set out. An unparticularised claim simply that a party has acted "unfairly" is unlikely to be sufficient.   

Examples of Equitable Remedies                 

There are a number of different types of situation where equitable remedies are possible. One example is an "unfair prejudice" petition under s.994 of the Companies Act 2006Every limited company has Articles of Association, registered with Companies House, which set out the constitutional "rule book" of the company dealing with such matters as the quorum for meetings, and how directors are appointed and removed. Generally "majority rule" prevails so that shareholders who together hold more than 50% of the voting shares can control the company. In the case of large public companies whose shares are traded on a stock exchange, majority rule usually poses little difficulty because any shareholder who does not like the way the company is being run, has the option of selling their shares on the stock exchange at the market rate. In the case of smaller, private companies, however, it is possible for a small number of shareholders to cause a company to be run in a way which is unfair to other shareholders. For example three shareholders together holding 60% of the voting shares might appoint themselves directors on high salaries and declare very small dividends so that the fourth shareholder with 40% of shares receives very little in return for his investment (the other three shareholders also receive small dividends as shareholders but have large salaries in addition to compensate them). The law recognises that it is possible for a company to be run strictly in accordance with the Articles of Association but yet to be run in a way which is unfair to some shareholders,and such shareholders can bring a claim in such circumstances on the grounds that the "company's affairs are being or have been conducted in a manner that is unfairly prejudicial" to their interests.

Another example is fiduciary duty. Where one party is given (e.g. in a contract giving them a free hand) some significant degree of control over another party's affairs, a fiduciary duty - i.e. a duty of utmost good faith - can arise which imposes obligations on the fiduciary to act - in the area in which he has been given control - in the best interests of the other party, even if the contract appears to give him unrestricted freedom.

Chancery courts

Although, generally, all civil courts have jurisdiction to grant equitable remedies, where a case largely depends on an equitable remedy, particularly one of the rarer and more specialist kinds of equitable remedy, it is usual for the case to be brought in a High Court Chancery centre, or at least, in a County Court centre where there is also a High Court Chancery centre where specialist chancery judges will be more readily available.

The above explanation of the law is only an overview and in order to be reasonably concise I have had to leave some details out - details which are likely to affect what the law would say about your own situation. So please do not rely on the above but-        

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This page was lasted updated in October 2015          Disclaimer