'The Case against the Equitable Lien' by Michael JR Crawford' in [2019] 42(3)
Melbourne University Law Review comments
Recent analyses of proprietary remedies have overwhelmingly focused on the constructive trust. This article investigates a less prominent proprietary remedy: the equitable lien. Though the lien is not as intrusive a remedy as the trust, because it insulates a creditor from the consequences of his/her debtor’s insolvency, it raises many of the same questions. If a lien is to be justified, there must be some compelling reason for preferring the claims of some general creditors at the expense of others. This article argues that it is very difficult to demonstrate why some creditors are more deserving than others. Excepting a small number of anomalous instances in which the lien can be justified on instrumental grounds, the effect of the equitable lien is to discriminate between creditors whose claims are, in all material respects, indistinguishable.
Crawford argues
An important project in contemporary private law scholarship has been the attempt to develop a principled basis for determining, across a range of claims, which plaintiffs should be awarded a proprietary remedy and which should be restricted to an award of damages. This attempt to place the law of remedies on a more rational footing has not come before time. As Bant observed, the law has largely failed to disclose a coherent rationale for the divergent treatment of seemingly similarly situated plaintiffs. Given that the decision to grant or withhold a proprietary remedy has significant con- sequences for both the plaintiff and the defendant’s general creditors, the failure to explain why apparently like cases are treated differently is a serious deficiency in the law.
To date, the literature on proprietary remedies has principally focused on the constructive trust. Another important, though less prominent, remedy is the equitable lien. As a security right, the lien is not as intrusive or extensive as the constructive trust. Nevertheless, because it insulates the lienee from the consequences of his debtor’s bankruptcy, it raises many of the same difficult questions.
Unlike other analyses of the lien, the purpose of this article is not to explain the nature of the lien or to attempt to rationalise what Waters described as the ‘themeless rag-bag’ of circumstances in which it arises. Instead, it asks whether this form of non-consensual security right can be justified at all. The unavoidable truth about the lien is that it can only be conferred on a plaintiff at the expense of the defendant’s other general creditors. Thus, if the creation of a lien is to be justified, there must be some compelling reason for preferring the claims of some general creditors at the expense of others. The argument advanced in this article is that it is very difficult to demonstrate why some general creditors are more deserving than others. Excepting a handful of anomalous instances in which the lien can be justified on instrumental grounds, the effect of the equitable lien is to discriminate between creditors whose claims are, in all material respects, indistinguishable.
