Specific Performance and Injunctions
The Perceived Imbalance: Specific Performance and Injunctions in Favour of the Contract-Breaker?
introduction
The assertion that English courts have tipped the balance excessively in favour of the contract-breaker concerning specific performance and prohibitory injunctions, coupled with the claim that these remedies are underutilised, warrants critical examination. While the foundational principle of English contract law prioritises damages as the primary remedy for breach, the adequacy of this approach in all circumstances is questionable. This article will argue that while courts adhere to established limitations on specific performance and injunctions, the current framework may, at times, fall short of providing sufficient redress to the innocent party, potentially creating an imbalance that indirectly favours the contract-breaker.
The cornerstone of the courts' approach lies in the principle that specific performance and prohibitory injunctions are exceptional remedies, granted only where damages are deemed an inadequate and inappropriate form of compensation. This stance is rooted in several considerations:
Freedom of contract and personal liberty: Compelling specific performance, particularly in contracts for personal services, can be seen as an infringement on individual liberty. Courts are hesitant to force parties into ongoing relationships or compel the performance of personal obligations.
Practicality and supervision: Orders for specific performance are generally avoided where they would require constant supervision by the court, such as in many building contracts. The judiciary is ill-equipped to oversee the detailed execution of complex contractual obligations.
Adequacy of damages: The prevailing view is that in many commercial contexts, financial compensation can adequately place the innocent party in the position they would have been in had the contract been performed. This expectation interest is the dominant measure of damages in contract law.
Mutuality: Specific performance will not be granted for breach of a contract that is not binding on both parties, such as voidable contracts.
These limitations are well-established and reflect a cautious approach to compelling specific performance. For instance, a failure to deliver a commonly available car will almost certainly not warrant specific performance, as damages would suffice to enable the innocent party to purchase a practically identical vehicle elsewhere. Similarly, the courts are reluctant to grant specific performance for breaches of obligations requiring a series of acts needing constant supervision.
However, the strict adherence to the inadequacy of damages test can be argued to create an imbalance in certain scenarios. The focus on placing the innocent party in a financial equivalent of performance may overlook the unique value or importance of the subject matter of the contract, or the specific detriment suffered that cannot be easily quantified in monetary terms. While specific performance might be deemed appropriate for contracts involving unique or irreplaceable subject matter, such as land, the threshold for establishing such uniqueness in other contexts can be high.
The argument that courts do not award specific performance and injunctions frequently enough stems from the perception that damages, while the primary remedy, are not always a sufficient deterrent to breach, nor do they always provide complete justice to the innocent party. A party might deliberately breach a contract if the financial consequences of paying damages are less favourable than the benefits gained from the breach, particularly if the assessment of damages is uncertain or difficult to prove.
Prohibitory injunctions, aimed at restraining the breach of a negative contractual term, offer a different perspective. The courts possess the power to grant such injunctions, even when the positive aspects of the contract are not specifically enforceable, such as in contracts for personal service. This jurisdiction is founded on the principle of binding parties to their agreements and preventing them from departing at their pleasure, leaving the other party to the mere chance of damages. However, even here, the courts retain discretion to limit the injunction to what is considered reasonable in all the circumstances.
The debate about whether the balance has tipped too far in favour of the contract-breaker is nuanced. On one hand, the established limitations on specific performance and injunctions safeguard principles of personal liberty, prevent the courts from becoming embroiled in complex supervision, and reflect the general adequacy of monetary compensation in many commercial transactions. On the other hand, the reluctance to grant these equitable remedies more frequently may:
Undermine the sanctity of contract - If a party can knowingly breach a contract with the expectation that they will only be liable for damages, the binding nature of the agreement may be weakened.
Fail to address non-pecuniary losses - Damages may not adequately compensate for losses that are not easily quantifiable in monetary terms, such as reputational damage or the loss of a unique opportunity.
Incentivise efficient breach in a problematic way - While the concept of efficient breach suggests that a breach can be economically beneficial overall, it can leave the innocent party feeling unjustly treated if their preferred outcome was specific performance.
Stephen Waddams' argued that Anglo-Canadian law has historically maintained a stance that could be seen as favouring the contract-breaker, in the sense that monetary compensation is the primary remedy, while specific performance and injunctions are exceptional.
Primacy of Money Remedies - Waddams states clearly that Anglo-Canadian law has leaned towards a preference for money compensation as a remedy for breach of contract. He notes that money damages are available as of right, whereas specific performance is not. This fundamental principle suggests a system where breaching a contract is often viewed as acceptable as long as the injured party can be compensated financially.
Historical Limitations on Equitable Remedies - Before 1875, decrees of specific performance or injunctions were only available from the Chancery court, and this court would only intervene when satisfied that the common law remedy (i.e., damages) was inadequate. This historical context underscores that specific performance and injunctions have always been considered secondary remedies, available only in specific circumstances.
Specific Performance as an Exception: The chapter highlights that the generally accepted approach in Anglo-American law is that damages are available as of right, but specific performance is an exceptional remedy. This reinforces the idea that compelling a party to perform their contractual obligations is not the norm.
Canadian Shift on Land Sale Contracts - While traditionally specific performance was ordinarily available to a purchaser of land in common law jurisdictions, Waddams points out that the Supreme Court of Canada in Semelhago v Paramadevan revised this rule, stating that a purchaser of land should only be entitled to specific performance on proof that the land was unique. This development suggests a further restriction on the availability of specific performance, even in a context where it was historically more readily granted.
Contrast with Civil Law Systems - The chapter notes that civilian systems often view the specific enforcement of agreements as a primary remedy, contrasting with the common law's secondary status. This comparison implicitly suggests that common law jurisdictions, by prioritizing damages, may be seen as more lenient towards contract-breakers compared to systems that prioritize actual performance.
Reluctance to Use Coercive Orders - Waddams mentions that most civil law systems do not enforce specific orders by contempt of court sanctions (which can include imprisonment in systems derived from English law), which might make a direct comparison difficult. However, the fact remains that English law reserves these potentially severe sanctions for the enforcement of the exceptional remedies, highlighting their non-routine nature.
Conclusion
In conclusion, while the courts adhere to a principled approach in granting specific performance and prohibitory injunctions, reserving them for cases where damages are inadequate, there is a valid argument that this framework may, at times, inadvertently favour the contract-breaker. The emphasis on monetary compensation as the primary remedy, coupled with the strict limitations on equitable relief, may not always provide the most just and effective outcome for the innocent party. A more nuanced approach, potentially involving a more flexible application of the inadequacy of damages test and a greater willingness to consider the specific context and impact of a breach, could be necessary to ensure a fairer balance between upholding contractual obligations and providing adequate remedies. The current system, while grounded in sound legal principles, may benefit from a re-evaluation of whether its inherent limitations inadvertently shield contract-breakers from the full consequences of their actions in certain deserving cases.
Bibliography
Stephen Waddams, ‘The Modern History of Remedies for Breach of Contract’ in J Deveney and M Kenny (eds), The Transformation of European Private Law: Harmonisation, Consolidation, Codification or Chaos? (Cambridge University Press 2013) 17.
