Equity and Trusts: Specific Performance

Introduction

In Irish contract law, specific performance is an equitable remedy in which a court order is issued, directing the respondent to fulfill their commitment to a contract as per the terms of that contract into which they entered.  In other words, in equity, specific performance is a court decree that constrains the defendant to carry out their duty in a contractual agreement. It is awarded contracts involving real estate and unique goods. Specific performance as an equitable remedy in the law of contract is granted to the plaintiff at the court’s discretion and not as a legal right.  The court’s discretion, however, is guided by principles of equity and the court’s jurisdiction. Only the persons that are a party to an agreement can file a suit or be sued for an award of specific performance.  For example, in a real estate transaction, it is the reserve of solely the purchaser or the seller who can file a case in court. In the Republic of Ireland, the law allows courts to override a party’s right to liberty to constrain them to fulfill their duties to a legally binding contract specifically. A contract is a negotiated agreement that can be legally enforced and which is formed when the initiating person willingly presents a proposal that the receiving person also voluntarily chooses to accept upon the presentation of a consideration[1]. Voidable contracts, however, may not be enforced by law. A contract becomes legally binding once the receiving party ascents to the terms of the offering party and vice versa. Contracts entail the exchange of value between the responsible parties. Mostly, it is primarily the parties to the contract that can fully recognize their respective wants and wishes that inspired they are coming into agreement. When one of the signatories to the contract reneges on the pre-stated obligations, they can be sued for going back on their promise. Other types of equitable remedies are injunction and rescission[2].  An injunction is a court order issued to restrain a defendant from proceeding with a certain act or an order instructing them to carry out an act like restitution. Rescission is the dismantling of a contractual agreement between parties restoring both sides to the status quo ante. Equitable remedies aim to see to it that either of the parties is saved from unjust treatment.

Equity from a layman’s perspective would refer to fairness and fair play in the application of justice. From a legal standpoint, equity as a branch of law was developed by the Court of Equity in the United Kingdom to complement the functioning of the common law legal system. Originally, in Ireland before 1922, when Irish Free State was created, the legal system that applied was that from England. It was the common law legal system, which developed out of case laws that is past judicial decisions that served as a precedent for rulings in future cases. Equity was established to proffer justice by availing remedies that were lacking in the existing common law legal framework.  Before the founding of the Court of Equity, also called the Court of Chancery, matters of common law were granted legal redress in three common law courts. The Exchequer (handled cases involving revenue), King’s Bench (handled cases in which the Crown had interest), and the Court of Common Pleas (deals with civil legal disputes between individuals).   Damages, being the solely applicable remedies in the common law legal system for civil wrongs, were limited in ensuring claimants received due to justice. Equity was, therefore, established based on the principles of fairness and what was right. Equity informed decisions and rulings made on legal disputes brought before the Court of Chancery aside from the previous reliance on judicial precedents. In comparing the common law legal system to equity, the former operated principally and strictly in reliance on the doctrine of judicial precedent (stare decisis). In contrast, the latter’s decisions were guided by the flexible principle of fairness and fair play.

Additionally, the sole remedy issued by the common law courts was damaged, whereas the Court of Equity came up with such remedies as specific performance and injunctions. The advent of equity carried with it remedies such as specific performance and injunctions.  In coming before the Court of Chancery, the claimant had to prove that they lacked just legal redress in the common law courts, their hands were clean and free of blame, and that they had brought the case before the court without delay. Before the Judicature Act of 1873, the three common law courts operated separately from the Court of Chancery.  The Act merged both sides of the divide and granted them jurisdiction over cases that demanded either damages or injunctions and specific performance. The equity jurisdiction that was the reserve of the Court of Chancery was spread to the common law courts, too, which now could administer the dictates of equity.

Monetary awards granted to a plaintiff as damages to compensate for loss as arising from the respondent’s failure to play their duty in the contract involving the two may not suffice.  Such a case would then call for the application of specific performance. Specific performance is generally granted in instances where the remedy of monetary damages cannot suffice.  Damages as compensation for the claimant are supposed to re-establish the plaintiff to the condition they ought to be in should the terms of the agreement have been dutifully carried out. However, if damages are projected to grant satisfactory claimant compensation, then equity will not be called upon to intervene.  Specific performance as an equitable remedy comprises such characteristic features as: (i) it is discretionary that is it is not granted as an entitlement. Still, as based on the consideration of the administering jury, (ii) it is administered as a result of the deficiency of common law, and (iii) it is based on the doctrine of in personam where equity is applied against a specific person or party.  Failure to comply with this kind of court order can attract charges of contempt of court and may lead to consequences like being kept behind bars.

The roles of specific performance include: (i) coercing the defendant to fulfill their obligations as per the outlines of the contract, (ii) compensating the claimant for resultant loss suffered, (iii) enforcing that a defendant who has profited from breach of duty in a contract to surrenders the gains to the claimant, and (iv) ordering restitution in trusts where trustees have been charged with embezzling money that is trust funds.

(a)Compliance in Specific Performance.

A court of equity will desist from issuing a vain directive that won’t produce the result and this, for compliance’s sake. Where compliance is impossible, a court of equity will avoid awarding an order of specific performance. A party to a contract deserves the pledge of the fulfillment of the duties in the agreement. The court of equity will not enforce an illegal contract by issuing a specific performance.  A contract’s illegality already discredits it giving no room for consideration before equity.

For the defendant to comply with the court directive, what is expected of him/her has to be sufficiently defined.  Failure to abide by the court order would lead to one being sued for contempt of court, which may ultimately attract such punitive measures as confiscation of the defendant’s property until they comply, fines, and at times imprisonment. Specific performance is employed in instances where monetary rewards as damages may not be adequate. Such instances comprise where the substance of the contract is unique or impossible to replace, such as a piece of real estate.  Specific performance could not play a role in coercing the defendant to fulfill their obligations as per the outlines of the contract in Aranbel Limited – v – Darcy and Others(2010)[3]. When property business was flourishing in 2006, Darcy and Others offered to buy Aranbel Limited’s apartments and gave the mandatory deposit of 10%. The buyers could not, however, complete the purchase because of their imminent financial status. The seller could not forego the 10% deposit and sell to another buyer, given that the property value had fallen. Aranbel Limited sued for specific performance. The judge, Justice Clarke, ruled that specific performance could not be granted against Darcy and Others given their financial condition.  Their financial estate was such that they could not possibly raise the needed finance to complete the transaction even if they were to liquidate their current assets or obtain credit facilities from banks.  This was a result of a decline in property market value by half their original value during the period of the contract. They would have to sell their family property at half the value and face the impossibility of raising the balance in a hardship condition of being houseless and property lees. Besides, the defendant’s breach of contract was not caused by the defendant.  Given that it would be impossible for Darcy and Others to comply with an order of specific performance, the court refrained from issuing this equitable remedy since it would be vain.

Specific performance shall not be granted under such conditions as (i) when a contract involves personal services, (ii) where a contract is void of mutuality, (iii) where fulfillment of the contract’s obligations would call for the court’s constant oversight, and (iv) where the plaintiff has acted unfairly or where specific performance may bring hardship upon the defendant.  Since failure to comply with a specific performance directive will likely attract contempt of court, it is normally issued with a caution. Cases that attract specific performance would include instances where the claimant is likely to be barred from continuing with their business in the absence of specific performance, when uncommon goods of a particular value are involved and when the supply of goods is on a long-term contract basis[4].

(b) Specific performance and constant Court supervision. 

The ability of courts to administer specific performance, the court must ensure that the stipulated performance is accomplished, to guard against its being inadequate. In some circumstances, the task could be difficult for others not. It is unacceptable for courts and litigants to invest substantial effort and time to make sure that the defendant complies with their instructions of specific performance. Additionally, specific performance should be easy to administer. The defendant also ought not to have the leeway to circumvent the court order on purpose. In Dakota Packaging Ltd v AHP Manufacturing BV trading as Wyeth Medica Ireland (2005)[5], Justice Peart declined to grant specific performance that would call for supervision. The judge concluded that there was no contract between Dakota (a packaging materials firm) and Wyeth but rather a growing customer- seller relationship. The defendant’s choice to source for packaging materials elsewhere at a more competitive rate was not entitled to give the plaintiff. This is even though the defendant’s purchases comprised 40% of the plaintiff’s sales.    Courts will less likely instruct a strained business venture to continue trading where it would make a company to making avoidable financial losses.  The scenario is contrary to cases where defendants are proven to inexcusably renege on the terms of contracts.

 (c) Specific performance and fairness.

As part of fairness, the party suing for specific performance must prove that their hands were clean and free of blame. Specific performance is made possible when the plaintiff comes before the court with cleans hands, showing proof of having acted in good faith. Specific performance will thus be denied where the plaintiff acted unethically. The defence is, in theory, available whenever a plaintiff sues for specific performance despite having previously comported in a way that would render it unjust to award him that equitable remedy. The defendant may have to prove that the plaintiff acted improperly as per the contract terms.

Plaintiffs may, at times, pursue specific performance, but it may inflict more difficulty on the defendant that it would depend on the plaintiff if the terms were fulfilled. Specific performance has been refused on these grounds. For example, in Wanze Properties (Ireland) Ltd v Five Star Supermarket (1997)[6], Justice Costello ordered the defendants to fulfill their contract obligations by returning to the premises of Wanze Properties. The judge described the defendant’s breach as ‘deliberate and flagrant.’ The plaintiffs had furnished the court with proof that was to incur terrific losses should the court not grant the order. It was also proven that the defendant incurs lesser losses, given that they were already making profits while occupying the plaintiff’s premises. A court order was granted so that the defendant would resume carrying out the terms of the contract since it was just and fair.  As a tenant, Five Star Supermarket could not be allowed by the court to break the terms of the contract for their anticipated financial profit to the detriment of the landlord, Wanze Properties (Ireland) Ltd. By the decree of the High Court, the defendants would, therefore, continue to operate their supermarket under the terms of the lease agreement with the plaintiff.  The court order reversed their decision to vacate and establish business less than a mile away. They would continue to keep their business operating at normal hours of business. Equity was fair and just in this case because the defendant had no other reason than greed in failing to honour the terms of the contract.

The values that inform specific performance as an equitable remedy are informed by just and fair practice. Court orders are usually held in check by these values. Through equity, one party is not permitted to benefit from a contract that will cause the promising party to experience considerable hardship. ` Also a party to the contract ought not also to profit from an agreement that came into effect riding on the other party’s error or naivety.

Still weighing in on fairness, in Thomas Thompson Holdings v Musgrave Group PLC (2016)[7], the court declined to award specific performance against the defendant because their business, a grocery store, was running at a loss. Here, the plaintiff owned the Carlow shopping centre, where the defendant (Musgarves) operated the Supervalu shop. During the last month of 2015, Musgraves made public their plan to bring to a close the lease and the business by the opening month of 2016.   The plaintiff sued to seek the court order to prevent the defendant from withdrawing and thereby continue operating. Thomas Thompson Holdings, c alleged that the defendant’s departure would cause unprecedented damage to other tenants within the shopping enterprise. The defendant, on their hand, however, alleged that their business would be subjected to prolonged major losses should they be coerced to continue operating until the lease period runs out in the last quarter of 2018. The High Court, through Justice Hedigan, denied specific performance. He made it clear that a court order could not authorize a person to continue operating an enterprise and especially where an enterprise is already a burden to the defendant by way of loss-making. It would be unwise and unjust to do so, although the defendant had breached the contract.

Conclusion

The remedies which are normally granted for breach of contract in equity aim at restoring the plaintiff to a position that would be equivalent to what he ought to have been in had the terms of the contract been fulfilled. Remedies in equity, in our case-specific performance, help to cushion parties to a contract against the anguish and uncertainty they would suffer should one of them decline to keep their side of the bargain. Additionally, the promise of getting exact rather approximate of performance is encouraging. Specific performance would convey goods involved in the contract that are presumed irreplaceable by their being peculiar and impossible to obtain their equivalent through currency.  Through equity, therefore, the transfer of property can be enforced to the letter. We will remember that equity does not issue orders on acts that it is unable to superintend.

In most cases, specific performance is disallowed where courts will be unnecessarily tasked with overseeing performance due to the court’s lack of the technical agencies to acquaint themselves with exactly what the defendant ought to be performing. Exceptions to the rule abound where a court may grant specific performance instructing that the defendant completes the requirements of a contract that had partially been fulfilled[8]. Specific performance, therefore, remains a discretionary secondary remedy in instances of breach of contract where a defendant fails to fulfill their contractual obligations owed to the plaintiff and where damages are inadequate.

At the discretion of the presiding judges, equity and specific performance in dispute resolution regards contracts are and shall continue to be guided by such principles as ( i) equity shall not permit a wrong to proceed unremedied, (ii) equity complements and follows common law, (iii) the one who comes before equity-seeking justice must act equitably, (iv) one who approaches equity ought to appear with clean hands-free of misrepresentation or fraud, (v) one coming before equity must have done so without delay since it would be unreasonable to enforce a delayed right, and (vi)equity acts in personam.

Bibliography

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Hoy K, Equity will not Act in Vain, (Mason Hayes+Curran 2010). Retrieved from : https://www.mhc.ie/fs/doc/publications/Equity_will_not_die_in_vain_Kevin_Hoy2010.pdf

Keane E, Delaney E and Hevican J, Specific Performance- Should the Irish Courts keep open covenants? (AIT Law Blog 2017). Retrieved from: https://aitlawblog.wordpress.com/2017/03/21/specific-performance-should-the-irish-courts-keep-keep-open-covenants/

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[1] Tony Cunningham, An Introduction to Building Contracts: an Irish Context (Technological University Dublin

2016)

[2] Emily M. Weitzenböck, English Law of Contract: Remedies (Universitetet i Oslo 2012)

[3] Kevin Hoy; Equity will not Act in Vain, (Mason Hayes+Curran 2010)

[4] Hayk Kupelyants, Specific Performance In The Draft Common Frame Of Reference, UCL Journal of Law and Jurisprudence (UCL, 2015)

[5] Bailii, Supreme Court of Ireland Decisions: Dakota Packaging Ltd -v- AHP Manufacturing BV Trading As Wyeth Medica Ltd. (2005).

[6] Emma Keane, Emma Delaney, and Jessica Hevican, Specific Performance- Should the Irish Courts keep “keep open covenants? (AIT Law Blog 2017)

[7] Richard Breen & Gerard James, Anchors Aweigh: Tenant not Forced to Keep Open, (William Fry 2016)

[8] Nicholas McBride, The Future of Clean Hands Paper No. 65/2018 (University of Cambridge 2018)