Other Contractual Remedies Lecture

Introduction

Congratulations on reaching the final chapter of this module guide on contract law! Our final chapter covers alternative contractual remedies.

In the previous chapter we examined the remedy of damages. Damages place an obligation on the defendant to pay damages instead of performing their obligations under the contract, which is all very helpful, but sometimes damages might not be an appropriate remedy. Take the following situation:

• Party A sees an advertisement in the paper for the sale of a gold ring for £50;
• Party A realises that this gold ring is actually her Mother’s, and therefore holds great sentimental value;
• Party B agrees to sell the ring to Party A for £50;
• Party B then breaches the contract and refuses to sell the ring to Party A.

In this situation, the £50 damages would compensate Party A financially, but Party A was more interested in the ring for sentimental reasons. In this case, another remedy such as an order for specific performance would more helpful, where the court could force Party B to give the ring to Party A.

Alternative remedies under contract law are usually split into two categories - positive and negative specific remedies. Positive specific remedies place a duty on the defendant to act or do something, whereas negative specific remedies place a duty on the defendant not to do something. Below are the different types of remedies available;

Positive specific remedies

• Action for an agreed sum
• Specific performance
• Mandatory injunction

Negative specific remedies

• Prohibitory injunction

Despite there only being one negative specific remedy, this is the most common form of specific remedy, as the courts are more willing to impose a negative duty on an individual, rather than a positive one. The courts are often reluctant to impose any kind of specific remedy at all; therefore the scope of specific remedies can be limited and needs to be examined in relation to each of the remedies. This chapter will begin by examining the positive specific remedies in turn, before examining the negative specific remedy.

Positive specific remedies

Award of an agreed price

The award of an agreed price is a straightforward remedy to understand. It allows the innocent party to claim a specific amount of money from the party in breach. This is similar to the remedy of damages, but in damages the claim is calculated by reference to the loss, whereas an award of an agree price is the recovery of the money that is due under the contract. In other words, the award of an agreed price is a claim for the payment of a debt. There are two key elements of this remedy which often makes it more favourable than claiming damages or any other remedy:

1. The claimant does not need to prove they have suffered any loss. The fact that there is a sum owed under the contract which has not been paid is sufficient.
2. The claimant does not need to prove they have mitigated or attempted to mitigate the loss under the contract.

As we know from our previous chapter, proving a loss for damages can often be difficult with the requirements for actionable losses, causation and forseeability. This makes the award of an agreed price a popular choice in debt claims. Furthermore, the case of Overstone Ltd v Shipway [1962] 1 WLR 117 has confirmed that once the claimant has used this remedy to claim the amount due under the contract, they may then make a claim for damages in respect of any further loss suffered.

The requirements for a claim for the award of an agreed price

1. There must be a specific sum due under the contract.
2. The specific sum must be owed to the claimant.

The first requirement is fairly straightforward, and will require an examination of the contract. The second requirement is the one which is slightly more controversial.

Whether or not the specific sum is ‘owed’ is a question of when the monies are due under the contract. The two alternatives are:

1. When the claimant has completed all of their contractual obligations.
2. At some time before the claimant has completed all of their contractual obligations.

Therefore, in order to establish whether a specific sum is owed the contract will need to be examined. As you can imagine, this rule can operate very harshly for both the claimant and the defendant. Consider these two examples:

Situation 1:

• Party A is contracting with Party B for the construction of a house for £100,000.
• Party A has completed 80% of the work, when Party B breaches the contract.
• Under the contract, the £100,000 is due only when the construction of the house is completed.

Therefore, until the construction of the house is fully completed, the £100,00 is not actually ‘owed’ and a claim for the agreed price would fail.

Situation 2:

• Party A is contracting with Party B for the construction of a house for £100,000.
• Party A has completed 1% of the work, when Party B breaches the contract.
• Under the contract, the £100,000 is due upon beginning of the construction.

In this situation, the £100,000 is ‘owed’, and therefore Party A would be able to claim the full £100,000 from Party B, despite only 1% of the work being completed.

Obviously, there are preferable alternative remedies which would be applied in situation 1, and it is very unlikely that a contract would be drafted with the terms present in situation 2. However, the issues with a claim for an agreed price are evident.

The courts have attempted to alleviate the issues with the remedy is the event of circumstances such as in situation 1 in three ways:

Firstly, the courts will rarely construe contractual obligations as ‘entire’. Even where the contract requires full performance, usually a substantial performance will be sufficient to ensure the sum is ‘owed’, as seen in Hoenig v Isaacs [1952] 2 All ER 176.

Secondly, an issue may also arise where the defendant prevents the work being completed. For example, in our construction examples, if the defendant prevented the claimant from accessing the land to continue the building. This would then prevent the money being ‘owed’ because the claimant could not complete their obligations. In this circumstance, the claimant will be able to claim an amount for the expenditure they have incurred.

Thirdly, if the sum under the contract is not yet ‘owed’ but there has been a partial performance, the defendant must pay for this partial performance if they have had a chance to accept or reject the work and have previously accepted it.

Recovery limitation

Another important part of the claim for an agreed price is the limitation on recovery. Where the defendant has breached the contract, and the claimant starts or continues to perform after this breach, the claimant will not be limited on the amount they may recover.

Case in focus: White & Carter (Councils) Ltd v McGregor [1962] UKHL 5

In this case, the claimant was an advertising contractor who contracted with the owner of a garage, the defendant, to display advertisements at the garage for three years. On the day the contract was formed, the defendant changed their mind and informed the claimant they would be terminating the contract. Despite this termination, the claimant went ahead and advertised at the garage, and sued the defendants for the full price of the contract.

Surprisingly, the courts decided that the claimants were allowed to recover the full price of the contract. The courts justification was that although the defendant terminated the contract, the claimant was entitled to choose whether or not to terminate the contract. In this case, the claimant opted to continue to contract. Due to the fact the claimant is not required to mitigate the loss, this meant the claimant could continue to perform their obligations despite being aware that the performance was unwanted by the defendant. It is important to note that the decision was three against two, and the dissenting judges submitted that the claimant acted unreasonably by ignoring the defendant’s wishes, and that the claim should have been limited.

In White & Carter v McGregor, Lord Reid, who decided with the majority, explained two qualifications. These qualifications limit the ability of the claimant to claim the remedy of the agreed sum. If one of these qualifications can be identified, the claimant will not be able to claim the agreed sum, and must instead prove that he has suffered loss as a result of the breach.

The cooperation qualification

The claimant is only entitled to a particular sum when the performance has been completed. If the defendant restricts the claimant from performing their obligations, the claim will be restricted to a claim for damages. If we take the example from White & Carter v McGregor, if the defendant had prevented the claimant from placing the adverts, this would have prevented performance and restricted the claim to one of damages. The case of Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 illustrates this qualification.

The legitimate interest qualification

This qualification is the more debated of the two. In White & Carter v McGregor, it was stated:

‘If it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claimant damages, he ought not be allowed to saddle the other party with an additional burden with no benefit to himself…just as a party is not allowed to enforce a penalty, so he ought not be allowed to penalise the other party by taking one course when another is equally advantageous to him’

The meaning of this is unclear. The phrase ‘legitimate interest, financial or otherwise’ would suggest a claimant would always have a legitimate interest, as the claimant’s interest will always have a financial interest in making a claim for an agreed sum. Therefore, the courts have been unwilling to take a literal interpretation of ‘financial’ interest.

Case in focus: The Alaskan Trader [1983] 2 Lloyds Rep 645

In this case, the contract was for a chapter of the ship for a term of 24 months. After one year the ship had a serious engine failure. The defendant informed the claimant that they no longer wanted the ship, but the claimant went ahead with expensive repairs on the ship, which cost $800,000 and took 5 months. Following, the defendant again maintained that they did not want the ship. The claimant did not treat this refusal as repudiation, and kept the ship ready for the defendant to sail. At the end of the 24 month term, the claimant claimed the price of the seven months’ hire that the defendant had not yet paid. The defendant argued that the contract had been repudiated and the repudiated should have been accepted by the claimant.

It was held that the claimant had no legitimate interest in performing the contract, as they were fully aware that the defendant did not want the ship; it was ‘wholly unreasonable’ for them to not repudiate the contract. However, it was accepted that it would have been difficult to re-let the ship elsewhere. But in conclusion, the decision was that the claimant could not claim for those seven months.

The decision in The Alaskan Trader shows the strict interpretation the courts take of ‘financial interest’. If the courts themselves admitted that it would have been difficult to re-let the ship, surely this would have amounted to a legitimate financial interest under the contract.

In conclusion, it seems the courts will look how unreasonable it was for the innocent party to refuse to repudiate the contract.

Award of other agreed sums

The award of other agreed sums refers to where there is a contractual provision within the contract which specifies an amount of money the will be paid in the event there is a breach of the contract.

This remedy was covered in the previous chapter as part of ‘damages’. So you should refer to that chapter to refresh your memory in relation to the award of other agreed sums.

Specific performance

The second of the positive specific remedies we will cover is specific performance. Again, this remedy is straightforward; it simply forces the party in breach to perform the contract. Specific performance is usually the primary remedy in contracts where the claimant is attempting to enforce an obligation from the other party which is something other than to pay money. It is most commonly used in contracts for services where the party providing the service has refused to fulfil their obligations.

Test for specific performance

The case of Ryan v Mutual Tontine Westminster Chambers [1893] 1 Ch 116 set out the test for specific performance. Originally, the claimant would have to prove that damages as a remedy would have been inadequate.  However, subsequent cases such as Beswick v Beswick [1968] AC 58 showed that the threshold for the test has been lowered; so long as specific remedy was the most appropriate remedy, this would be sufficient. The courts position on the remedy was eventually clarified in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd.

Case in focus: Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] UKHL 17

In this case, the defendant owned a number of supermarkets. Unfortunately, they were in financial trouble and were forced to close some of the supermarkets. One of the supermarkets was located in a shopping centre. The contract for this particular lease required the defendant to keep the supermarket for the duration of the lease. Therefore, the closure of the supermarket broke this clause. The claimant attempted to get a specific performance remedy to force the defendant to keep the supermarket open.

The House of Lord refused to grant the remedy of specific performance due to a number of reasons:

1. Forcing the defendant to keep the supermarket open would have an adverse financial impact on them, causing massive financial losses.
2. The obligation was not precise enough; there would be question as to exactly what was meant by keeping the supermarket open, the defendant could have chosen to re-open the supermarket with no stock and one staff member which would result in further litigation.
3. The lease had a period of 19 years remaining. This meant that the court would have to supervise the order for a long period of time.
4. The order would result in gain for the claimant at the expense of the defendant.
5. It is not in the public interest to force the defendant to continue business at a loss where there is an alternative remedy available

My main focus of the judgment can be seen to be the harm the specific performance would cause to the defendant.

The case of Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd clearly shows the court favouring a stricter approach to providing for the remedy of specific performance. There must be a holistic assessment of the circumstances, particular as to the harm specific performance may cause the defendant and whether or not another remedy may be more appropriate.

One particular circumstance in which the remedy of specific performance seems favourable is in a contract where the claimant would be unable to obtain a substitute for the promised performance. We touched on one example at the start of the chapter; the ring with sentimental value. Usually, where the goods under a contract are either unique or cannot be obtained from anyone else but the defendant, specific performance would be appropriate. Here are a few examples:

• The sale of a particular property - unless the property was one of twenty identical properties.
• The sale of a particular sculpture made by a famous artist.
• A football boot worn in a specific match signed by a famous footballer.

The case of Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 All ER 954 is also worth considering. In this case, the remedy of specific performance was granted in relation to the sale of some petrol. The defendant was forced to supply the claimant with petrol. Despite the petroleum not being a ‘unique’ item, the fact that there was an oil crisis and petrol was in short supply meant this contract was the only way the claimant could have obtained the petrol, making specific performance an adequate remedy.

Bars to specific performance

There are a number of bars to the remedy of specific performance. The courts have discretion whether or not to award the remedy and the following factors will usually create an assumption that an order for specific performance should not be granted.

Where the obligation is not precise

The obligation which is being imposed upon the party in breach must be precise enough. If there is a lack of precision, the courts will be unable to grant a remedy of specific performance because they will not know exactly what they should be forcing the breaching party to do. The result of granting the specific performance for an imprecise term would be further litigation to determine the actual obligations, therefore the courts like to avoid this.

Where the obligation would require constant supervision from the court

We touched on this bar to specific performance earlier in the case of Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd. Due to the performance being required for 19 years, this was too onerous of a duty to impose on the courts. The question the courts will ask is whether the specific performance requires a result, or it is an order to carry on activities. Where the order requires a result, supervision is not required. However, to carry on an activity would require supervision; the claimant may have to make numerous applications to the court to compel the defendant to carry on the activity.

Where the contractual obligation involves a personal service

If the contractual obligation involves a personal service, the courts are unlikely to grant an order for specific performance. The main justification for this is that it is difficult to force unwilling parties into a personal relationship. Take for example a contract for employment. If the courts granted an order to keep the individual employed, you can imagine the types of issues that might arise in the course of employment.

However, in the case of contracts for employment, the courts have shown a willingness to allow specific performance remedies dependant on the circumstances. Some companies are so large that the personal relationship between the individuals would not cause an issue. The case of Hill v CA Parsons Ltd [1972] Ch 305 is authority for this point.

Where the claimant has acted unconscionably

The specific performance remedy requires that the claimant ‘comes with clean hands’. If the claimant has acted unreasonably this may have an impact on their ability to claim for a remedy of specific performance. This was seen in Shell UK Ltd v Lostock Garages Ltd [1976] 1 WLR 1187.

The order for specific performance has a disproportionate adverse effect of the defendant

Where forcing an order of specific performance would be extremely unfair and cause hardship to the defendant, the courts are unwilling to grant the remedy.

Case in focus: Patel v Ali [1984] 1 All ER 978

In this case, the defendants, Mr and Mrs Patel, contracted to sell their house. The sale was not completed due to the defendant becoming bankrupt. Mrs Patel was healthy at the time the sale of the house was agreed; however, prior to completion, Mrs Patel had her leg amputated due to bone cancer.  With three children, Mrs Ali became heavily reliant on her friends and neighbours to help her with the house whilst her husband was working. The claimant sought a specific performance remedy to force the defendants to sell the house.

The courts ruled that forcing Mrs Patel to move from her house would result in disproportionate hardship. Despite this being no fault of the claimant, the fact there was such hardship for the defendant meant the remedy was denied.

Where the claimant has delayed too long in seeking specific performance

If the delay between the breach and the claimant seeking specific performance is long enough, and to grant specific performance would be unjust, the court will not grant an order for specific performance.

Mandatory injunctions

The last of the positive specific remedies to examine is the mandatory injunction. A mandatory injunction can be used where a party to a contract breaches a negative covenant.

A negative covenant is a term in a contract which imposes an obligation on one of the parties to not do something in the context of land. For example, Party A pays Party B £1,000 to promise not to build a garage on their land. If the Party B then went ahead and build a garage on the land, this would be a breach of the negative covenant. The courts may then grant the remedy of a mandatory injunction to make Party B remove the garage.

Therefore, there are two requirements for a mandatory injunction to be an appropriate remedy:

1. The breach of a negative covenant in a contract
2. To remedy the breach some positive action will need to be taken (in our example, removing the garage)

However, this remedy is rarely granted. The primary reasoning for this is that it will be far easier for the party in breach to pay damages for the cost of the cure, rather than the defendant themselves having to remedy the breach, as per Sharp v Harrison [1922] 1 Ch 502.

Negative specific remedies

Prohibitory injunctions

The only negative specific remedy is the prohibitory injunction. This remedy forces the defendant to stop breaching a negative obligation. A negative obligation is similar to a negative covenant, but whilst a negative covenant applies to land, a negative obligation can apply to anything. For example, one party may contract with another to not play loud music at their property.

There are two requirements in order for a prohibitory injunction to be granted:

1. The breach of a negative obligation in a contract.
2. Damages would not be an adequate remedy.

The threshold for proving damages would not be an adequate remedy is low. If we take our example of a party contracting to not play loud music at their property, it is easy to see how damages would not be an adequate remedy. What value would you put on the promise to not play loud music?

There are two main reasons that the courts will refuse to grant a prohibitory injunction. Firstly, where the injunction would be oppressive. In the case of Jaggard v Sawyer [1995] 1 WLR 269, the defendant’s house was only accessible by breaching a negative obligation. The claimant sought a prohibitory injunction to prevent the defendant breaching the negative obligation. The courts refused to grant the injunction, as it would mean the defendant could not access their house, which was seen as disproportionately oppressive.

Secondly, where the remedy of specific performance would have been refused, and the prohibitory injunction essentially forces the defendant to perform the contract, the courts are unlikely to grant a prohibitory injunction. This causes an issue in relation to contracts for personal services. As we know, the remedy of specific performance is not usually applicable to those types of contracts. Therefore, this means prohibitory injunctions cannot be applied to these types of contracts.

Case in focus: Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209

In this case, the defendant was a famous actor who contracted with an American film company, the claimant, to perform exclusively for them. The defendant then moved to England and wanted to work for another film company. The claimant sought a prohibitory injunction.

The court identified that an injunction in this situation may have the effect of forcing the defendant to perform; she must either act for the American company, or have no job. However, in this case, the court held that she was only prohibited from working in film, she could still get another job if she wished. Therefore, an injunction was granted for a limited period of three years.

This concludes the final chapter of the contract law module guide. You should now have a full understanding of the law of contract. To reconcile you should refresh your knowledge by reference to the hands-on examples for each chapter. Good luck!

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