The common law remedy for breach of contract or tort is damages — a sum of money intended to compensate the claimant for loss suffered. Damages are available as of right: if the claimant proves their case and establishes loss, the court must award damages. Equitable remedies, by contrast, are discretionary. They include injunctions, specific performance, rescission, rectification, account of profits, and constructive trusts. The court may refuse to grant an equitable remedy even where the claimant has proved their case, if it would be unjust to do so.
| Feature | Common Law Damages | Equitable Remedies |
|---|---|---|
| Availability | Available as of right once loss is proved | Discretionary — court may refuse even if the claim is proved |
| Purpose | Compensate for loss suffered | Prevent harm, compel performance, or restore position |
| Form | Always monetary | Non-monetary (orders, declarations, property rights) |
| Defences | Standard contractual and tortious defences | Equitable defences apply: laches, clean hands, acquiescence |
| Timing | Awarded after trial | Can be granted as interim relief before trial |
The discretionary nature of equitable remedies is a fundamental principle. Even where a claimant has an overwhelming case, the court may refuse to grant an equitable remedy if doing so would be unfair or unreasonable. The court considers factors such as the conduct of the parties, the balance of hardship, whether the claimant has delayed unreasonably, and whether damages would be an adequate remedy. This discretion is not arbitrary — the court exercises it according to settled principles and must give reasons for its decision.
The clean hands doctrine provides that a claimant who has acted inequitably or unconscionably in relation to the matter in dispute will not be granted equitable relief. As expressed in the maxim, "he who comes into equity must come with clean hands." The doctrine does not require the claimant to be blameless in all respects — the inequitable conduct must be relevant to the equitable claim being made. For example, in Patel v Mirza [2016], the Supreme Court held that the relevant question is whether it would be unconscionable for the claimant to retain the benefit, taking account of all the circumstances.
The clean hands doctrine does not require the claimant to be morally perfect. The relevant inequitable conduct must be connected to the subject matter of the claim. For the SQE, focus on whether the claimant's conduct makes it unconscionable for them to seek equitable relief in relation to the specific dispute.
A key principle of equity is that it acts in personam — against the person, not against property. This means that equitable remedies operate by imposing personal obligations on the defendant rather than by directly affecting legal title to property. An injunction orders a person to act or refrain from acting; specific performance orders a person to perform a contract. This is in contrast to common law remedies which may operate in rem (against the property itself). The in personam nature of equitable remedies means they can bind third parties who have notice of the equitable right.
For the SQE, remember that "equity acts in personam" means equitable orders are directed at the defendant personally. If the defendant disobeys an injunction, they can be held in contempt of court and imprisoned or fined. This is why equitable remedies are generally more effective at compelling compliance than damages.
An injunction is a court order requiring a party to do something (a mandatory injunction) or to refrain from doing something (a prohibitory injunction). Injunctions are the most commonly sought equitable remedy. They are particularly important in trust and property law where the claimant wishes to prevent the defendant from dealing with trust property or breaching a fiduciary duty. Injunctions can also enforce equitable servitudes such as restrictive covenants binding on land.
An injunction is available where damages would not be an adequate remedy. This is the foundational test. If the claimant can be adequately compensated by money, the court will normally award damages instead. Injunctions are therefore particularly important where the subject matter is unique — such as land, family heirlooms, or trust property — or where the harm is ongoing or irreversible. The court also considers whether the injury is sufficiently serious to justify the grant of an injunction.
The leading authority on interim injunctions is American Cyanamid Co v Ethicon Ltd [1975]. The House of Lords established that the court should apply a multi-stage test when deciding whether to grant an interim injunction. First, the claimant must show that there is a serious question to be tried — the claim must not be frivolous or vexatious. Second, the court considers whether damages would be an adequate remedy for the claimant if the injunction is refused but the claimant succeeds at trial, and for the defendant if the injunction is granted but the claimant fails. Third, where damages would not be adequate for either party, the court applies the "balance of convenience" test to decide which course of action carries the lesser risk of injustice.
Step 1: Is there a serious question to be tried? (The claim must be more than merely arguable)
Step 2: Would damages be an adequate remedy for the claimant if they win at trial but no injunction was granted?
Step 3: Would damages be an adequate remedy for the defendant if they win at trial but an injunction was granted?
Step 4: If damages are inadequate for either party, apply the balance of convenience — which course carries the lesser risk of injustice?
Step 5: Consider any special factors (e.g., undertakings in damages, delay, the public interest)
Injunctions play a vital role in enforcing equitable servitudes, particularly restrictive covenants binding on land. Where a covenantor promises not to use land in a particular way (e.g., not to build above a certain height), the benefit of the covenant can pass to successors in title if it "touches and concerns" the land and was intended to run with it. The court will grant an injunction to enforce such a covenant against a successor in title who has notice of it. In Tulk v Moxhay (1848), the Court of Chancery established that a restrictive covenant could be enforced in equity against a purchaser who had notice of it, even though the purchaser was not a party to the original covenant.
In trust law, injunctions are frequently used to restrain trustees from committing breaches of trust, to prevent the dissipation of trust assets, or to enforce personal equitable obligations. A beneficiary who learns that a trustee is about to sell trust property in breach of trust can apply for a mandatory or prohibitory injunction to prevent the sale.
Specific performance is an equitable remedy that compels a party to perform their obligations under a contract. Whereas damages compensate the innocent party for loss caused by the breach, specific performance forces the party in breach to carry out what they promised to do. Specific performance is not available for every breach of contract — it is granted only where damages would be an inadequate remedy and where it would be fair to make the order.
Specific performance is most commonly granted in relation to contracts for the sale of land. Because every piece of land is considered unique, damages are generally inadequate to compensate a buyer who is deprived of the specific property they agreed to purchase. Specific performance may also be available for contracts for the sale of unique goods (such as works of art, rare items, or specially manufactured goods not readily available on the open market), for contracts involving shares in private companies, and in some cases for contracts for the sale of a business as a going concern.
| Feature | Specific Performance | Damages |
|---|---|---|
| Nature | Compels actual performance of the contract | Compensates for loss caused by breach |
| Discretionary? | Yes — the court may refuse even if the claim is proved | No — once breach and loss are proved, damages must be awarded |
| Best for | Contracts for land, unique goods, shares | Commodity contracts, service contracts |
| Supervision | Court can supervise compliance | No ongoing supervision needed |
| Defences | All contractual defences plus equitable defences (clean hands, laches) | Standard contractual defences only |
For contracts for the sale of land, specific performance is almost automatic unless there is an equitable defence. Once the contract is valid and enforceable, the court will ordinarily order specific performance because land is unique and damages cannot truly compensate a purchaser who wants a particular property. The court will not refuse specific performance merely because the contract price has risen or fallen since the contract was made. This reflects the principle that a person who has agreed to sell land is bound to do so.
Although specific performance is often described as almost automatic for land contracts, the court retains a discretion to refuse it. Factors that may lead the court to refuse include: the contract is uncertain or incomplete; the claimant has delayed unreasonably (laches); the claimant has unclean hands; it would be impossible or oppressive to supervise performance; or the contract was induced by misrepresentation and the claimant could alternatively claim rescission. The court will also refuse specific performance where the contract is for personal services, because it would be contrary to public policy to compel a person to work for another against their will.
Specific performance will NEVER be ordered for contracts for personal services. An employer cannot force an employee to work. The correct remedy for breach of an employment contract is damages. This is a firm rule of public policy and is a common SQE exam trap.
Rescission is an equitable remedy that sets aside a contract ab initio — that is, from the beginning, as if it had never existed. The effect is to restore the parties to their pre-contract positions. Rescission is not damages — it does not compensate for loss. Instead, it unwinds the transaction entirely. Rescission is available where the contract was vitiated by misrepresentation, mistake, undue influence, or duress. It is a self-help remedy in the sense that the injured party must communicate their election to rescind to the other party.
Even where a ground for rescission exists, the right to rescind may be lost in certain circumstances. The key bars to rescission are: (1) impossibility of restoration — where it is impossible to return the parties to their pre-contract positions because the subject matter has been destroyed, consumed, or significantly altered; (2) third-party rights — where a bona fide purchaser for value without notice has acquired rights in the property, rescission cannot affect those rights; (3) affirmation — where the claimant, with full knowledge of the right to rescind, affirms the contract (e.g., by continuing to act under it after discovering the misrepresentation); and (4) lapse of time — the right to rescind must be exercised within a reasonable time.
| Bar | Explanation | Key Case |
|---|---|---|
| Impossibility of restoration | The parties cannot be restored to their pre-contract position | Bayer v Leverkusen [1978] — shares had been dissipated by a receiver |
| Third-party rights | A bona fide purchaser for value without notice has acquired rights | Phillips v Brewin [1908] |
| Affirmation | The claimant, knowing the right to rescind, affirms the contract | Long v Simmonds [1952] — continued to occupy property after discovering misrepresentation |
| Lapse of time | The right to rescind has not been exercised within a reasonable time | Tolhurst v Associated Portland Cement [1902] — delay of two months was too long where the market was fluctuating |
A common SQE pitfall is confusing rescission with damages. Rescission unwinds the contract — it does not compensate for loss. If the claimant wants compensation, they should claim damages for misrepresentation under the Misrepresentation Act 1967, s 2(2). The claimant cannot generally have both rescission and damages, though in some cases the court may award damages in lieu of rescission under s 2(2).
Rescission is an elective remedy — the claimant must choose to rescind. The election to rescind is normally communicated to the other party, but it can also be inferred from conduct. Once the claimant has elected to rescind, they cannot subsequently affirm the contract. If the claimant takes too long to decide, the right to rescind may be lost through lapse of time. The election must be made within a reasonable time of the claimant discovering the ground for rescission. What is reasonable depends on all the circumstances.
Rectification is an equitable remedy that corrects a written document so that it reflects the true agreement or intention of the parties. It is not available to rewrite a contract — it is only available where the written document fails accurately to record what the parties actually agreed. Rectification presupposes that there was a prior common intention or continuous common intention, and that by mistake the document does not accurately reflect that intention. The court does not add new terms or rewrite the bargain; it simply corrects the documentary record.
Rectification for common mistake arises where both parties made the same mistake in recording their agreement. The claimant must show that there was a clear and unambiguous prior agreement or common intention, and that the document as written does not reflect that agreement because of a common mistake. The modern approach, affirmed in Chartbrook Ltd v Persimmon Homes Ltd [2009], is that the court looks at the subjective common intention of the parties — what they actually intended, not what a reasonable person would have understood. Evidence of prior negotiations is admissible to establish what the common intention was.
Rectification for single mistake arises where one party made a mistake in recording the agreement, and the other party knew or ought to have known of the mistake but did not draw it to the attention of the mistaken party. This is sometimes called "Knightsbridge Estates" rectification, after Knightsbridge Estates Trust Ltd v Byrne [1939]. The court will rectify the document in favour of the mistaken party because it would be unconscionable for the other party to take advantage of the known mistake. This is a more demanding test than common mistake because it requires knowledge on the part of the other party.
| Feature | Common Mistake | Single Mistake |
|---|---|---|
| Who is mistaken? | Both parties share the same mistake | Only one party is mistaken |
| Knowledge requirement | No requirement — both made the mistake | The other party must know or ought to know of the mistake |
| Unconscionability | Based on the objective failure of the document to record the agreement | Based on the unconscionability of one party exploiting the known mistake |
| Evidence of negotiations | Admissible to establish the common intention | Admissible to show what was agreed and that the other party knew of the mistake |
Rectification is only available to correct the documentary record of what the parties actually agreed. It is NOT available to improve a bad bargain, fill gaps in a contract, or rewrite terms that the parties did not in fact agree. If the document accurately records what the parties agreed (even if one party now regrets it), there is no basis for rectification regardless of how unfair the outcome may be.
Equitable compensation is a personal remedy available for breach of fiduciary duty or breach of trust. Unlike common law damages, equitable compensation is assessed on a different basis and is subject to the court's equitable discretion. The claimant must show that the loss suffered was caused by the breach of fiduciary duty. In Target Auditing v Lewington [2011], the court held that equitable compensation for breach of fiduciary duty requires a causal connection between the breach and the loss — the loss must be the consequence of the fiduciary's failure to act in accordance with their duty.
An account of profits is a personal equitable remedy that requires the defendant to disgorge (give up) all profits obtained through their wrongdoing. It is available where a fiduciary or trustee has used their position to make an unauthorised profit, regardless of whether the beneficiary suffered any loss. The leading case is Boardman v Phipps [1967], where a solicitor-trustee used information obtained in his capacity as trustee to acquire shares in a company on his own account. The House of Lords held that he was liable to account for all the profits he made, even though the beneficiaries had also benefited from the acquisition.
In Boardman v Phipps, the trustee and solicitor to a trust obtained information through his role as trustee about a company in which the trust held shares. He used this information to acquire a controlling interest in the company for himself and other beneficiaries. The company was highly profitable. The House of Lords held that the trustee must account for ALL profits made from the opportunity, even though the trust also benefited. The rationale is that a fiduciary must not make a profit from their position without the informed consent of the beneficiaries. The trustee was entitled to be indemnified for expenses properly incurred, but not to retain any profit.
| Feature | Equitable Compensation | Account of Profits |
|---|---|---|
| Purpose | Compensate the claimant for loss suffered | Disgorge the defendant's gains from wrongdoing |
| Measure | The amount of loss caused by the breach | The total profit obtained through the breach |
| Loss required? | Yes — the claimant must show actual loss | No — available even if the claimant suffered no loss |
| Causal link | Required — loss must flow from the breach | Required — profit must flow from the breach of duty |
| Can claim both? | No — the claimant must elect between compensation and account of profits | No — the claimant must elect between compensation and account of profits |
| Key case | Target Auditing v Lewington [2011] | Boardman v Phipps [1967] |
A claimant cannot claim both equitable compensation and an account of profits for the same breach. They must elect which remedy to pursue. In practice, the claimant will choose whichever produces the larger recovery. If the loss exceeds the profit, compensation will be preferred. If the profit exceeds the loss, an account of profits will be preferred. The election does not need to be made until judgment.
An account of profits is particularly useful where the fiduciary has made a significant profit but the beneficiary has suffered little or no loss. For example, if a trustee invests trust money in a scheme that happens to be very profitable for the trustee personally, but the trust also gets its money back, the beneficiary would choose an account of profits to capture the trustee's gain rather than compensation (which might be nil).
Unlike the personal remedies of compensation and account of profits, a constructive trust is a proprietary remedy. It gives the claimant a beneficial interest in specific property rather than a personal right against the defendant. This is significant because a proprietary right means the claimant can trace the property into the hands of third parties and recover it (or its substitute) even if the defendant becomes insolvent. The claimant does not have to compete with the defendant's general creditors — they have a proprietary claim to the specific asset.
For a constructive trust to arise as a remedy, the property in the defendant's hands must be traceable from the original trust property. The claimant must be able to show a continuous link between the original trust asset and the asset now held by the defendant. If the original trust money has been mixed with the defendant's own money and then used to purchase property, the claimant may be able to trace into that property and assert a constructive trust over a proportionate share of it. The traceability requirement ensures that the constructive trust does not give the claimant access to property that has no connection to the original trust.
A constructive trust may arise where a defendant has acquired property through fraud, breach of fiduciary duty, or other unconscionable conduct. The court imposes a constructive trust to prevent the defendant from retaining the benefit of their wrongdoing. Unlike a resulting trust (which arises from the presumed intention of the parties), a constructive trust is imposed by law regardless of the parties' intentions. It is a remedy of last resort, used where other remedies are inadequate to prevent unjust enrichment.
| Feature | Personal Remedy | Proprietary Remedy |
|---|---|---|
| Form | Equitable compensation or account of profits | Constructive trust or equitable lien |
| Effect | Creates a personal debt owed by the defendant | Gives the claimant an interest in specific property |
| Insolvency | Claimant is an unsecured creditor | Claimant has priority — they own the property or a share of it |
| Third parties | Cannot bind third parties | Can trace property into the hands of third parties |
| Defences | Equitable defences apply | Bona fide purchaser for value without notice is a defence |
Laches is an equitable defence based on unreasonable delay by the claimant in asserting their rights. If the claimant delays unreasonably in bringing their claim, and the delay causes prejudice to the defendant (e.g., evidence has been lost, the defendant has changed their position), the court may refuse equitable relief. There is no fixed time limit — what constitutes unreasonable delay depends on the circumstances. Delay of several years may be unreasonable in one case but acceptable in another. The key question is whether it would be unconscionable to allow the claimant to succeed after such delay.
Acquiescence is an equitable defence that arises where the claimant, knowing of their rights and of the defendant's actions, stands by without objecting while the defendant acts to their detriment in reliance on the claimant's silence. It is not the same as mere inaction — the claimant must have been aware of the relevant facts and must have encouraged the defendant (by words or conduct) to believe that the claimant would not assert their rights. Acquiescence is similar to estoppel but operates within the discretionary framework of equity.
As discussed earlier, the clean hands doctrine means that a claimant who has acted unconscionably in relation to the matter in dispute cannot obtain equitable relief. This defence applies across all equitable remedies. For example, a claimant who has obtained the contract by misrepresentation cannot claim specific performance. A trustee who has themselves breached the trust cannot seek equitable relief against a co-trustee for a different breach. The doctrine ensures that equity does not assist those who have acted inequitably.
The change of position defence arises where the defendant has changed their position in reliance on the transaction in a way that would make it inequitable to require restitution. This defence is particularly relevant in the context of unjust enrichment and tracing. For example, if a person receives money by mistake and spends it in good faith on improvements to their property, it may be inequitable to require them to repay the full amount. The change of position must be in good faith — a defendant who knew or should have known of the mistake cannot rely on this defence.
Equitable defences such as laches, acquiescence, and clean hands are ONLY available against claims for equitable remedies. They do NOT apply to common law claims for damages. For the SQE, if a question asks about a claim for damages, do not discuss laches or clean hands — they are irrelevant to the common law claim.
Tracing is the process by which a claimant follows their property into the hands of a third party or into a different form. It is not a claim in itself — it is a process of identifying property that can then be the subject of a claim (typically a proprietary claim such as a constructive trust). Tracing enables the claimant to recover their property (or its substitute) even where the original asset has been disposed of, provided the substitute asset is identifiable. Tracing is available in both common law and equity, but equitable tracing is more flexible and more widely used.
There is an important distinction between following and tracing, identified by Lord Millett in Foskett v McKeown [2001]. Following involves physically tracking the same asset as it moves from one person to another — for example, following specific coins or banknotes from one hand to another. Tracing, by contrast, involves following the value of the asset into a substitute asset — for example, following money into a bank account, then into shares purchased with that money, then into proceeds from the sale of those shares. Following is a physical process; tracing is a forensic or analytical process. In practice, the distinction matters less than it used to, but for the SQE you should be able to articulate the difference.
| Feature | Following | Tracing |
|---|---|---|
| Process | Physical tracking of the same asset | Following the value of the asset into substitute assets |
| Example | Following specific coins from A to B | Following money into a bank account, then into shares |
| Source | Both common law and equity | Primarily equity (more flexible) |
| Key requirement | The same asset must be identifiable | A causal connection between the original asset and the substitute must be established |
| Authority | Re Hallett's Estate (1880) | Foskett v McKeown [2001] |
Tracing is available where there is a fiduciary relationship or a breach of trust. The claimant must have an existing equitable interest in the property being traced — tracing does not itself create rights, it merely identifies property in which the claimant already has an interest. The requirement of a fiduciary relationship means that tracing is not available in all cases of unjust enrichment. It is available where a trustee misapplies trust property, where a fiduciary uses trust property for their own benefit, or where property has been obtained by fraud.
It is critical to distinguish tracing from claiming. Tracing is the process of identifying the asset — of establishing where the property has gone and what form it now takes. Claiming is the process of establishing a legal or equitable right to that property. A claimant can trace without having a claim (for example, a volunteer beneficiary who has not yet been assigned a beneficial interest), and a claimant may have a claim without needing to trace (for example, where the original trust property is still in the defendant's hands). In practice, tracing and claiming usually go together: the claimant traces the property into the defendant's hands and then claims a constructive trust or equitable lien over it.
Re Hallett's Estate is the foundational case on tracing into mixed bank accounts. Where a trustee mixes trust money with their own money in a bank account, the beneficiary can trace the trust money into the account. The rule in Re Hallett's Estate provides that the beneficiary is presumed to withdraw the trustee's own money first (the "lowest balance rule"). This means the trust money is assumed to remain in the account for as long as possible. If the account is subsequently overdrawn, the beneficiary can trace to the extent of the lowest credit balance of the account. This rule favours the beneficiary because it maximises the amount of trust money remaining in the account.
Re Oatway established an exception to the lowest balance rule where the trustee uses mixed funds to purchase an asset. Where the trustee withdraws money from a mixed bank account to purchase a specific asset, the court may apply the "first in, first out" (FIFO) rule. Under FIFO, the trustee's own money is treated as having been withdrawn first to buy the asset, so the trust money remains in the account. Alternatively, the court may apply a "directed" approach: if it can be shown that the trustee intended to use the trust money for the purchase, the trust money is treated as having been used first, and the beneficiary can trace directly into the purchased asset. The approach taken depends on the facts and the presumed intention of the trustee.
Foskett v McKeown is the leading modern authority on tracing into mixed funds. The defendants paid premiums on a life insurance policy using a mixture of their own money and money that they owed to the claimants (who had paid it to the defendants to invest in land). The defendants defaulted on the investment obligation. When the policy matured, the claimants sought to trace their contribution into the policy proceeds. The House of Lords held that the claimants could trace a proportionate share of the mixed fund into the policy proceeds. The claimants were entitled to a share of the proceeds equal to the proportion that their contribution bore to the total premiums paid. This is the cleanest and most flexible approach to mixed fund tracing.
Step 1: Identify the mixed fund — the account contains both trust money and the defendant's own money
Step 2: Has the mixed fund been used to purchase an asset? If yes, consider Re Oatway (FIFO) or directed tracing
Step 3: If the money remains in a mixed account, apply Re Hallett's Estate (lowest balance rule) — the trust money is presumed to be the last withdrawn
Step 4: Where a clean proportional approach is available (as in Foskett v McKeown), the claimant can claim a proportionate share of the mixed fund
Step 5: The claimant can then assert a proprietary claim (constructive trust or equitable lien) over the identified property
In Barings v Coopers & Lybrand (No 2), the court considered whether tracing was possible into complex financial instruments (derivatives). The court held that tracing into derivatives is possible in principle, provided there is a sufficient causal connection between the original trust property and the derivative position. This extends the flexibility of equitable tracing to modern financial products. The key requirement is that the court must be able to identify the value of the trust property within the derivative, even if the exact tracing path is complex.
The principal defence to a tracing claim is that the defendant is a bona fide purchaser for value without notice (BFPFVWN). If the defendant purchased the property in good faith, for valuable consideration, and without notice (actual, constructive, or imputed) of the claimant's equitable interest, the claimant cannot trace into the property. The BFPFVWN takes the property free of the claimant's equitable interest. This defence is crucial in practice because it protects innocent purchasers in the commercial chain and gives certainty to transactions.
Tracing is particularly important where the defendant is insolvent. A personal claim (equitable compensation) would make the claimant an unsecured creditor, who typically receives only a small fraction of their claim from the insolvency estate. A proprietary claim (tracing into specific assets) gives the claimant priority — they can recover the specific asset or a proportionate share of it, regardless of the defendant's insolvency. For the SQE, always consider whether a proprietary claim through tracing is available, as it provides much stronger protection.
Tracing is not available in all circumstances. Key limitations include: (1) the clean break rule — where the defendant has spent trust money on living expenses or dissipative spending, the claimant cannot trace because there is no identifiable substitute asset; (2) tracing into a bona fide purchaser for value without notice — the chain of tracing is broken; (3) the claimant must have an existing equitable proprietary interest — tracing cannot create rights, only identify property subject to existing rights; and (4) the defences of change of position and estoppel may bar a tracing claim where the defendant has changed their position in good faith reliance.
A common SQE mistake is to treat tracing as a standalone cause of action. Tracing is merely a process of identifying property. The claimant must have a separate basis for their claim — typically breach of trust, breach of fiduciary duty, or unjust enrichment. Tracing simply enables the claimant to assert a proprietary right over the identified property. Always identify both the tracing process and the underlying cause of action.