The Fusion Fallacy. When considering the relationship between equitable compensation and common law damages, evidence suggests that there are strong similarities now emerging between the two, and it is difficult to draw meaningful distinctions between th

Such an argument is in line with the view put forth by La Forest J in Canson Enterprises v Boughton & Company, an important case in which the Supreme Court of Canada was divided. La Forest J argued that ‘equitable principles were not frozen in time’ but rather a ‘mingling of law and equity’ in some cases

‘allows for direct application of the experience and best features of both law and equity, whether the mode of redress originates in one system or the other.’ 

In this case La Forest J took a realistic approach and emphasised that jurisdictional fusion was an ongoing and subtle process as some areas of law and equity were more likely to result in successful doctrinal fusion than others.  He also proposed that the flexibility of the remedy and desire for justice should prevail over any concern for the historical origins of causes of action. Such views highlight the backward nature of dualists who are convinced as Professor Ashburner was, that ‘the two streams of jurisdiction, though they run in the same channel, run side by side and do not mingle their waters’ simply because common law and equity were historically ‘inherently distinct’ and unique creatures.

Critics of jurisdictional fusion however, may argue that the origins of common law and equity and the underlying principles on which they are founded, notably common law being based on precedent and judges supposedly ‘declaring’ the law, whereas equity being more discretionary in nature allowing judges to ‘make’ law based on the ‘rules of equity and good conscience’, are critical arguments in favour of the fusion fallacy and should ensure that the two systems are not fused together. According to Sir George Jessel MR in Re Hallett’s Estate; Knatchball v Hallet, 

‘the rules of Equity are not, like the rules of the Common Law, supposed to have been established from time immemorial.’ 

In rebuttal, fusionists claim that equitable doctrines and remedies have now long been based on more than mere judicial discretion. Rather, the appointment of legally trained Chancellors and now the concurrent administration of law and equity by judges of similar educational background and experience has meant that equitable remedies are more likely to be based upon rules of law. Hence the maxim that ‘equity is as long as the Chancellor’s foot’ is a myth in the modern administration of equity. Fusionists also assert that the historical origins are no longer relevant so long as an appropriate remedy can be ascertained. This is most certainly the view held in the decision of the New Zealand Court of Appeal in Aquaculture Corporation v New Zealand Green Mussel Co Ltd in which it was established that the substantive fusion of law and equity in relation to breach of confidence had been achieved. Cooke P held that ‘for all purposes material, equity and common law are mingled and merged’ and,

‘a full range of remedies should be available as appropriate, no matter whether they originated in common law, equity or statute.’ 

Lord Denning also supported the fusion of law and equity in Central London Property Trust Ltd v High Trees Hose Ltd in which he considered that a defendant could be compelled to adhere to his/her representation of future intention within the context of a pre-existing legal relationship on the basis of ‘a natural result of the fusion of law and equity’ in the area of estoppel. This view was later reiterated in the landmark Australian High Court decision of Waltons Stores Ltd v Maher, signifying the dominance of equitable principles, particularly the principle of unconscionability, in the law of estoppel. Deane J noted that the ‘advent of the Judicature System encouraged the development of a unified legal system’ and law and equity has not only fused but to consider otherwise would be risking the future development of an orderly legal system. 

In contrast to this view, in another recent Australian case, Pilmer v The Duke Group Limtied, the High Court expressly recognised that a fiduciary duty will not arise simply because the adviser has had past dealings, and an expectation of future dealings, with the client. This is significant because, as recognised by Kirby J, fiduciary obligations which are equitable obligations

‘are more onerous (and the legal consequences more drastic) than those arising from common law duties of care or from contractual relationships.’ 

This case highlights the current rigid stance in Australia, not allowing a legal obligation to arise from an equitable obligation as this would result in a ‘fusion fallacy’.

On the contrary, fusion adherents such as Lord Diplock expressed the practical reality of the fusion of law and equity in United Scientific Holdings Ltd v Burnley Borough Council, in which he referred to Professor Ashburner’s metaphor when he stated, ‘the waters of the confluent streams of law and equity have surely mingled now.’ Similarly, in the English case Seager v Copydex Ltd a crossover of remedies occurred as damages were available in response to a breach of an equitable obligation. Furthermore, the benefits of a fused system were expressed by Mason CJ in Verwayen in which he argued in favour of a fused cause of action with a wide variety of remedies including damages to rectify the breach of a defendant. In contrast, evidence from the United States, a substantively fused system, suggests that fusion has lead to the demise of equity. That is, the hallmarks of equity jurisprudence – based primarily on ‘good conscience’ and judicial discretion are dying out as the two systems are becoming increasingly fused. However, it is argued that this is not necessarily an intentional or aversive outcome but rather, as Roscoe Pound perceives, an inevitable element in the substantive fusion of equity and law which holds many benefits. Moreover, the complete demise of equity as foreshadowed by some legal commentators has not occurred. According to Professor Hohfeld in the Michigan Law Review, to teach and administer equity independently of the law is ‘unscientific, both from the point of view of analysis and from that of educational expediency.’ Furthermore, such liberal views such as those expressed in United Scientific Holdings, Aquaculture and Verwayen suggest that fusion of equity and common law is not only inevitable but also both practical and preferable. Amalgamation of law and equity is in the interest of judges, the courts and the plaintiff seeking a remedy as it allows them access to a wider range of remedies from which the most appropriate one will be applied.

Critics of the aforementioned views have argued that a cross over of remedies and subsequent fusing of common law and equity was not the intent of the Judicature Act of 1873 and therefore should only be supported if legislation specifically provided for it. This is an argument put forth by Heydon J in Harris. However, if one examines the Judicature Act in detail it is quite apparent that it, nor any other legislation, prohibits the fusing of law and equity. As a result it is proposed that fusion is not beyond the judicial function and there is nothing inherent in the amalgamation of law and equity that suggests otherwise.  

Anti-fusionists also claim that fusion of law and equity is likely to bring about uncertainty and confusion in the law as some aspects of the legal system would be substantively fused whilst in other aspects, equity and law would remain separate. This is a valid point as there is no denying that fusion is a slow and gradual process. However, Tilbury convincingly rebuts this argument by claiming that the ‘principled’ fusion that is developing will ‘take place incrementally, against the background of the existing law’ and thus is likely to cause ‘no more uncertainty than any other principled development of the existing law.’ Furthermore, it is argued that such fusion may in fact enhance the flexibility of the legal system and minimize if not completely remove, current unnecessary distinctions between equity and the law that is more likely to result in uncertainty and unpredictable outcomes for aggrieved plaintiffs.

Critics of fusion also argue, as Heydon J did, that

‘it is not irrational to maintain the existence of different remedies for different causes of action having different threshold requirements and different purposes.’ 

For example, he claimed, a client suing in deceit has an opportunity to obtain exemplary damages but also carries a higher burden of proof and more onerous tests for breach, causation and remoteness than if the action were merely for breach of fiduciary duty.  This is a challenging argument for fusionists as it seems only fair to hold plaintiff’s to a higher threshold when the potential awarded damages are greater. However, as Mason J argued in Harris, it would be absurd if the same fact scenario rendered two different outcomes, one in which exemplary damages were awarded and one in which it was not, depending on whether the plaintiff was suing in equity for breach of fiduciary duty or in common law for deceit. Legal Philosopher HLA Hart wrote that no legal system can be considered just unless it can ‘treat like cases alike….and treat different cases differently.’ This view has been reiterated by English Professor Burrows, who claimed that,

‘where, on close examination, like cases are not being treated alike….fusion of common law and equity is required in order to eradicate that inconsistency.’ 

These arguments focus more on the necessity of achieving a fair, consistent and just outcome as was encouraged by La Forest J in Canson, than on pragmatic considerations as is promoted by Heydon J. If the purpose of a remedy is to redress a wrong and achieve a fair outcome consistently than Mason J’s principally driven approach prevails as the stronger argument.

In conclusion, proponents of the fusion fallacy pose numerous challenges to fusing common law and equity, particularly in regards to the crossover of remedies, claiming that the trust-like basis of equity along with its discretionary nature and lower thresholds suggest that the scope for amalgamating law and equity is quite limited. However, as case law across the Commonwealth reveals, there are many instances which give rise to the need for fusion of equity and law in order to provide adequate remedies for the plaintiff and achieve a just outcome. Thus, it is evident that concurrent administration and changing social realities pose a need for this amalgamation. Despite equity and law being historically distinct creatures once administered separately and independently, administrative fusion has inevitably led to close intermingling and intertwining of the two jurisdictions. Though the position in Australia continues to be somewhat rigid following Harris and Pilmer v The Duke Group Ltd, case law from other Commonwealth countries including Canada, New Zealand, the United States and England are evidence that such ‘intermingling of waters’ is a practical necessity in order to reduce uncertainty and create a cohesive, rational, consistent and efficient unified system of law. Hence, practical reality indicates that ‘fusion’ is no longer a ‘fallacy’.

Bibliography

David Wright, ‘Discretion with common law remedies’ (2002) 23 Adelaide Law Review 245.

Denis Browne, Ashburner’s Principles on Equity, 2nd ed (1933) at 50.

Fiona Burns, ‘The ‘Fusion Fallacy’ Revisited’ (1993) 5 Bond Law Review 152.

Geoffrey Gibson, ‘Fusion or fission?’ (2000) 20 Australian Bar Review 70.

H L A Hart, The Concept of Law, 2nd ed (1997) at 159.

James Edelman, ‘A “fusion fallacy” fallacy’ (2003) 119 Law Quarterly Review 375.

James Edelman & Simone Degeling, ‘Fusion: The interaction of common law and equity’ (2004) 25 Australian Bar Review 195.

Justice R P Meagher, Justice J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies 4th ed  (2002) at 103-105.

Michael Tilbury, ‘Fallacy or furphy?: Fusion in a Judicature World’ (2003) 26 University of New South Wales Law Journal 357.

Table of Cases

Aquaculture Corporation v New Zealand Green Mussel Co Ltd [1990] 3 NZLR 299.

Canson Enterprises v Boughton & Company (1991) 85 DLR (4th) at 129.

Central London Property Trust Ltd v High Trees Hose Ltd [1947] 1 KB 130.

Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 365-68.

Pilmer v The Duke Group Limtied [2001] HCA 31.

Re Hallett’s Estate; Knatchball v Hallet (1879) 13 Ch D 696.

Seager v Copydex Ltd [1967] RPC 349

United Scientific Holdings Ltd v Burnley Borough Council [1977] 2 All ER 62.

Verwayen (1990) 170 CLR 394

Waltons Stores Ltd v Maher (1988) 76 ALR 513.

Legislation

Judicature Act 1873 (UK)

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