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Specific Performance Monetary remedies Assoc Prof Cameron Stewart.

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Presentation on theme: "Specific Performance Monetary remedies Assoc Prof Cameron Stewart."— Presentation transcript:

1 Specific Performance Monetary remedies Assoc Prof Cameron Stewart

2 Specific Performance In Wolseley Investments Pty Ltd v Gillespie [2007] NSWCA 358, at [33], Santow JA (Ipp and Tobias JJA agreeing) said that the trigger for the commencement of a specific performance suit will be some threat of refusal, express or at least implied, or some actual refusal, on the part of a contracting party to perform the contract in whole or part. His Honour, at [19], also noted that, in cases of a threatened breach of a contract, the threat does not need to be explicit, but there must be more than merely a theoretical or remote possibility of a breach. However, in such cases, his Honour, at [47], also observed that a court has to consider the likelihood or degree of risk of non-performance before granting specific performance. Also to be considered is the discretionary factor of hardship and balance of convenience.

3 In personam Like most equitable remedies specific performance is in personam in nature. This essentially means that the remedy attaches to the person of the defendant rather than to his or her property (in rem). This has the result that, provided the defendant is within the jurisdiction of the court, specific performance can be ordered even though the property the subject of the contract may be outside the courts jurisdiction. Thus, in Richard West & Partners (Inverness) Ltd v Dick [1969] 2 Ch 424, an English court ordered specific performance of a contract for the sale of land where the property was located beyond the courts jurisdiction in Scotland. Because of the in personam nature of specific performance, the sanction for non-compliance with an order for specific performance focuses on the person and not on the contract or property the subject of the contract. Thus, a defendant who fails to comply with the order will be guilty of contempt of court with the ultimate consequence of being imprisoned for such contempt

4 Binding contract not for valuable consideration Need valuable consideration

5 Inadequacy of damages at common law If a plaintiff can be adequately compensated by an award of damages at common law the court has no jurisdiction to order specific performance. The adequacy or inadequacy of common law damages is determined by reference to the date of the order for specific performance and not the date of the contract: ANZ Executors & Trustees Ltd v Humes Ltd [1990] VR 615, at 632

6 Inadequacy of damages at common law The question to be answered on the issue of the adequacy of damages is whether relegating the plaintiff to damages would leave it in as favourable a position in all respects as would exist if the defendants obligation were specifically performed: International Advisor Systems Pty Limited v XYYX Pty Limited [2008] NSWSC 2, at [41] Contracts for personalty Contracts for land

7 Personal services contracts Equity will not enforce a contract if to do so would result in compelling the defendant to maintain a personal relationship with the plaintiff. The underlying rationale for this principle lies in human nature and the undesirability of maintaining a personal relationship against the will of one of the parties to the contract. As was observed by Fry LJ in De Francesco v Barnum (1890) 45 ChD 430, at 438, courts are bound to be jealous, lest they should turn contracts of service into contracts of slavery

8 Constant court supervision Contracts in which the parties obligations are imprecisely defined will generally not be specifically enforced. The rationale for this principle stems from the fact that that non-compliance with an order for specific performance is punishable as a contempt of court. Given the quasi-criminal consequence of contempt, it is entirely appropriate that the obligation to be specifically enforced be sufficiently certain and precise so as to make the defendants duty, in complying with the order, clear. In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, at 12–13; [1997] 3 All ER 297, at 1302–3, Lord Hoffmann said: It is the possibility of the court having to give an indefinite series of rulings to ensure the execution of the order which has been regarded as undesirable. Why should this be so? A principal reason is that … the only means available to the court to enforce its order is the quasi-criminal procedure of punishment for contempt … The prospect of committal or even a fine, with the damage to commercial reputation which will be caused by a finding of contempt of court, is likely to have at least two undesirable consequences. First, the defendant … has to make decisions under a sword of Damocles … Secondly, the seriousness of a finding of contempt for the defendant means that any application to enforce the order is likely … to be expensive in terms of cost to the parties and the resources of the judicial system.

9 Hardship An order for specific performance will be refused if it would result in unconscionable hardship upon the defendant. It is not any hardship to the defendant that will suffice. As was made clear in Dowsett v Reid (1912) 15 CLR 695, the court must balance the potential hardship to the defendant that would result if specific performance were granted with the potential hardship to the plaintiff if specific performance were refused. If the two cancel each other out, specific performance will be ordered despite the hardship to the defendant.28

10 Vitiating factors Equitable relief will be refused if the contract is affected by vitiating factors due to the defendants conduct or actions. Thus, contracts induced by a defendants misrepresentation, mistake, duress, undue influence Unconscionability

11 Lack of mutuality Specific performance is not available to a plaintiff unless the defendant could also have obtained relief against the plaintiff. This principle of mutuality cannot be raised by a defendant if the reason that the defendant could not get equitable relief against the plaintiff is to be found in the defendants own conduct or default. Thus, if the defendant cannot get equitable relief because of some misrepresentation, unconscionable conduct, undue influence, laches and the like on his or her part, the plaintiff will not be denied relief on lack of mutuality grounds. The classic example of a lack of mutuality is a contract with a minor. The minor will be unable to receive an order for specific performance against the other party as that person will be unable to insist upon his or her rights against the minor. Thus, there is a lack of mutuality, which impairs the minors own ability to seek the equitable remedy: Boyd v Ryan (1947) 48 SR (NSW) 163

12 Lack of mutuality The critical aspect of the mutuality principle is the question of when mutuality must be present. In Price v Strange [1978] Ch 337; [1977] 3 All ER 371, it was held that the critical time for mutuality to be present is the date on which the court is to make the order for specific performance. The fact that mutuality may not have existed at an earlier time is irrelevant. In Price v Strange, mutuality was not present at the time of the breach of contract because the plaintiffs obligation to repair and renovate an aparatment would have required the constant supervision of the court, thus precluding the defendant from obtaining specific performance However, by the time of the hearing, the repairs and renovations had been completed, and thus there was no reason why the defendant would not have been able to obtain specific performance against the plaintiff. Thus, mutuality was present at the date of hearing and the plaintiff obtained his order for specific performance.

13 Plaintiff in substantial breach and/or not ready, willing and able to perform A plaintiff will be denied equitable relief if he or she is in substantial breach of the contract. A substantial breach means a breach that would enable the other party to terminate the contract for that breach. Other breaches do not disqualify a plaintiff from obtaining relief in equity. In Green v Sommerville (1979) 141 CLR 594, at 610; 27 ALR 351, at 363, Mason J said: It is well settled that a plaintiff in a suit for specific performance is not required to show that he has strictly complied with all of his obligations under the contract; it is enough that he has performed and is ready and willing to perform the substance of the contract.

14 Contracts unenforceable at law and Part performance The relief given is such cases was described by Young CJ in Eq in Ciavarella v Polimeni [2008] NSWSC 234, at [119], as follows: [I]f it would be fraudulent in the eyes of equity for the opposing party to rely on the statute, equity will order that that party execute a note or memorandum of the contract and will then proceed to grant specific performance. The plaintiff is not given relief because of the contract, rather the conduct of the parties subsequent to the contract raises an equity.

15 Equitable compensation and damages There are two possible bases for an order for the payment of money to an aggrieved party at equity. The first arises from the inherent jurisdiction of equity to make orders for monetary compensation as an appropriate means to remedy a purely equitable wrong such as breach of fiduciary duty. This is known as equitable compensation. The second is the ability conferred by statute for an order of damages to be substituted for, or added to, specific performance or injunction where those remedies have been sought in respect of contracts, torts or any wrongful act. Thus, in certain situations, equity has the power to provide for a remedy of damages in respect of a common law wrong. This is referred to as equitable damages.

16 Equitable compensation Although equity courts never ordered damages as a remedy for the infringement of equitable obligations, they did provide for monetary forms of relief. In Ex parte Adamson (1878) 8 Ch D 807, at 819, James and Baggallay LJJ noted that relief in such cases was by way of a suit … for equitable debt or liability in the nature of a debt. It was a suit for the restitution of the actual money or thing, or value of the thing, of which the cheated party had been cheated. Equitable compensation orders were originally restricted to cases involving breaches of fiduciary obligations. Thus, in Re Dawson (decd) [1966] 2 NSWR 211, a trustee who had improperly dealt with trust funds was ordered to pay equitable compensation to the trust to restore the trust to the position it would have been in had there been no default on his part.

17 Equitable compensation The modern authority for the availability of equitable compensation is Nocton v Lord Ashburton [1914] AC 932 in which Ashburton sought to recover compensation from his solicitor Nocton for advice that had resulted in a loss for him, but an advantage for the solicitor. Ashburtons claim for common law damages in the tort of deceit failed, but the House of Lords was prepared to award monetary compensation on the basis of Noctons breach of fiduciary obligations. Viscount Haldane LC, at 952, affirmed the longstanding ability of the equity courts to order monetary compensation, and said: Operating in personam as a Court of conscience it could order the defendant, not, indeed, in those days, to pay damages as such, but to make restitution, or to compensate the plaintiff by putting him in as good a position pecuniarily as that in which he was before the injury.

18 The nature of equitable compensation In achieving its goal of restoring the position of the plaintiff to the position that he or she was in before the breach of equitable obligation occurred, equitys approach to compensation, like all other equitable remedies, is conditioned by its flexible character: Cole v Manning [2002] NSWCA 150, at [63]. The appropriate date for the assessment of equitable compensation is the date on which the court makes the order for compensation and the quantum of compensation should reflect the amount that is necessary to put the plaintiff back into the position in which he or she would have been had there been no breach of equitable obligation: McNally v Harris (No 3) [2008] NSWSC 861, at [12]-[17].

19 The relationship to the common law conception of damages An important question in relation to equitable compensation is the extent to which equitys purpose of restoring a plaintiff to his or her original position differs from that of common law damages. Common law damages are also focused upon returning the plaintiff to the position he or she would have been in had the wrong not occurred: Wenham v Ella (1972) 127 CLR 454. Although both common law and equity share the aim of providing monetary compensation to a plaintiff, there are significant differences between them in relation to the principles to be applied in assessing the quantum of monetary relief. The most important of these differences is that the liability under equity for breach of trust or fiduciary duty is more absolute than liability that arises under the common law of contract or tort.

20 Causation. In Maguire v Makaronis (1997) 188 CLR 449, at 473; 144 ALR 729, at 744, Brennan CJ, Gaudron, McHugh and Gummow JJ observed that, in equitable compensation cases, a common sense view of causation required that there be an adequate or sufficient connection between the equitable compensation claimed and the breach of [equitable obligation].

21 Causation A consequence of this approach is that a defendant in equity cannot resist a finding of adequate causation by arguing that there was a break in the causal connection between breach of loss suffered by reason of some intervening act (novus actus interveniens). Equity is not readily susceptible to such speculation about other possible causes for loss when there is a clearly identifiable breach present

22 Plaintiffs contribution to loss In New Zealand and Canada courts have held that a plaintiffs claim for equitable compensation may be successfully defended on the basis that his or her contribution to the loss may be a complete or partial defence to liability on the part of the defendant: Day v Mead [1987] 2 NZLR 443, at 451; Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534, at 585; (1991) DLR (4th) 129, at 151.

23 Plaintiffs contribution to loss In Australia, however, this approach has been rejected by the High Court in Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; 180 ALR 249. In this case, the facts concerned the takeover by Kia Ora Gold Corp Ltd of Western United Ltd, a company in which many of Kia Oras directors held an interest. Under such circumstances, law required the preparation of a report by independent qualified persons for the information of shareholders whose approval was ultimately required at a general meeting. The firm of chartered accountants engaged by Kia Ora had, in fact, a long history of dealing with both that company and Western United Ltd. The report asserted that the price to be paid for the shares in Western United was fair and reasonable. In reality this was not the case with Kia Ora paying out around $26m for $6m worth of shareholdings and thus enabling huge personal profits to be made by the Kia Ora directors who held shares in Western United. Kia Ora subsequently brought an action against the partners of the accountancy firm seeking to recover for its loss.

24 Plaintiffs contribution to loss The Full Court of the Supreme Court of South Australia in Duke Group Limited (in liq) v Pilmer (1999) 73 SASR 64 found the accountants to be in breach of the contractual, tortious, and fiduciary duties which they owed to the company. Ultimately, the court measured the damages payable by the defendants using the principles relevant to breach of contractual duty, since these resulted in the higher figure.

25 Plaintiffs contribution to loss However, although thus not strictly necessary to decide, the Full Court considered the effect which a plaintiffs contribution to loss would have upon an assessment of equitable compensation for breach of fiduciary duty. In this respect, the Full Court, at 250, said that it would be: … inherently unjust, and we would say, inequitable, to require a defendant, whose fiduciary breach unlocked the door to the plaintiff acting in obvious disregard of its own interests, to bear sole responsibility for the total loss thereby suffered by the plaintiff where the plaintiffs own conduct has made a material contribution to that loss.

26 Plaintiffs contribution to loss The appeal to the High Court by the former partners of the accounting firm succeeded on the basis that the calculation of damages to compensate for Kia Oras loss had been incorrect and also that no fiduciary obligation had been breached. Although Kirby J disagreed on the latter score, the court was of one mind in rejecting any place for reduction on the basis of the plaintiffs conduct in the determination of equitable compensation. The reasons included an appreciation of the essence of the fiduciary relationship in which the beneficiary has no obligation to protect himself or herself against the fiduciary and the nature of contributory negligence in tort law. McHugh, Gummow, Hayne and Callinan JJ, at CLR 201–2; ALR 274, said: Contributory negligence focuses on the conduct of the plaintiff, fiduciary law upon the obligation by the defendant to act in the interests of the plaintiff. Moreover, any question of apportionment with respect to contributory negligence arises from legislation, not the common law. Astley indicates that the particular apportionment legislation of South Australia which was there in question did not touch contractual liability. The reasoning in Astley would suggest, a fortiori, that such legislation did not touch the fiduciary relationship.

27 Other factors Mitigation Exemplary damages - Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 Aggravated damages - Giller v Procopets [2008] VSCA 236

28 E QUITABLE D AMAGES Chancery Amendment Act 1858 (UK), more popularly known as Lord Cairns Act s 68 of the Supreme Court Act 1970 (NSW) which states: Where the Court has power: (a) to grant an injunction against the breach of any covenant, contract or agreement, or against the commission or continuance of any wrongful act, or (b) to order the specific performance of any covenant, contract or agreement, the Court may award damages to the party injured either in addition to or in substitution for the injunction or specific performance.

29 Lord Cairns Act damages In Wentworth v Woollahra Municipal Council (1982) 149 CLR 672, at 676; 42 ALR 69, at 72, Gibbs CJ, Mason, Murphy and Brennan JJ referred to the purpose of Lord Cairns Act in the following terms: The main object of the Act was to enable the Court of Chancery to do complete justice between the parties by awarding damages in those cases in which it formerly refused equitable relief in respect of a legal right and left the plaintiff to sue for damages at common law.

30 Jurisdiction to award equitable damages Before equitable damages can be awarded, the court must have the jurisdiction to order a decree of specific performance or an injunction. Thus, if such equitable relief is refused on the basis that damages at common law are adequate, the court has no jurisdiction to award equitable damages.

31 Equitable damages in addition to specific relief The provisions of Lord Cairns Act clearly envisage the making of an order for damages in addition to specific performance or injunctive relief. This is especially useful in enabling the court to address the issue of any losses caused to the plaintiff by the defendants breach that are not properly addressed by an order for equitable relief.

32 Equitable damages in lieu of specific relief the fact that specific relief is denied on discretionary grounds does not preclude the court from ordering equitable damages. where specific relief once ordered becomes impossible to carry out due to intervening circumstances, a court will readily make an order for equitable damages in lieu of specific relief.

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