CONTRACT LAW ( PART 14 )

By Law Teacher

7.2.1 Other Remedies Lecture – Introduction

Welcome to the second part of the seventh topic in this module guide – Other Remedies! As was mentioned last chapter, there are numerous remedies available under English law, with damages being only one type. This chapter will focus on the remaining kinds of remedies available. These are broadly separated into two camps: those that are positive specific, and those that are negative specific.

Positive specific remedies consist of Actions for an agreed sum, Specific performance and Mandatory injunctions.

The only negative specific remedy available is that of a Prohibitory injunction; however, even though this is the only negative remedy available, it is interestingly the most common form sought.

This chapter begins by outlining and distinguishing the remaining remedies available from that of damages. The chapter then takes each of these remedies in turn; defining them, laying out the tests required, and considering their practical operations. Key case law is considered in detail throughout as to its interaction with each of the discussed remedies.

Goals for this section:

• To understand the different remedies, outside of damages, and how they apply in contractual situations

Objectives for this section:

• To be able to comprehend the differences between positive specific remedies and negative specific remedies

• To be able to appreciate when each type of remedies may be used and the tests that must be applied

• To understand the developed case law in this area and how the cases interact with the remedies

• To be able to apply the different remedies to factual scenarios

7.2.2 Other Remedies Lecture

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.

Positive specific remedies

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

Negative specific remedies

• Prohibitory injunction

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. 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.

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. 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.

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.

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.

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 – Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178.

The legitimate interest qualification

This qualification is the more debated of the two – White & Carter v McGregor.

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.

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.

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.

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.

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.

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.

The case of Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 All ER 954 is also worth considering.

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.

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.

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.

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 k

now, 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.

7.2.3 Other Remedies Lecture – Hands on Example

The following section will provide you with a problem scenario which involves issues relating to the application of remedies other than damages. This will test your understanding and knowledge of what you have learnt and allow you put the law into practice. You should now understand each of the different remedies, be able to identify which is the appropriate remedy to apply, and the limitations to each of them. The problem scenario will cover a variety of issues, and the answers can be found at the bottom of the page.

In order to identify a problem question relating to other remedies, you should look out for a breach of contract for which damages would not be an appropriate remedy. A common example of this would be a contract for a service, or a contract with some kind of negative obligation.

Here is a suggestion approach when tackling a problem scenario on other remedies which should allow you to answer the question fully and spot all the relevant issues:

• Is the claim one in relation to debt? If so, apply the award of an agreed price.
• Is the contract for the provision of services? If so, consider the remedy of specific performance.
• Does the contract fulfil the requirements of a remedy of specific performance?
• Are there any bars to specific performance?
• Does the contract involve a negative covenant? If so, consider the mandatory injunction remedy.
• Does the contract involve a negative obligation? If so, consider a prohibitory injunction.

If you consider all of these remedies in turn, you can be sure you will not miss one of the potential remedies out. Once you identify the appropriate remedy, apply the requirements of the remedy and mention any relevant case law precedent. Have a go at using this structure with the problem scenario below.

Scenario

Robert has been the victim of some extremely unfortunate events recently. He has been involved in a number of contracts where the other party has not kept their side of the bargain. Robert wants to know if there is anything he can do about these contracts.

Contract one – Robert recently got a new job working at a local veterinary clinic. It was Robert’s dream to work with animals so he was delighted to be offered the job. Roberts’s employment contract stated he would be given a minimum of 35 hours of work a week. After an argument with the manager, Robert’s hours have been reduced significantly, only being given two hours a week. Robert is not interested in a monetary award, but would like to continue working his 35 hours a week at the vets.

Is there a remedy which may help Robert in this situation?

Contract two – Robert is very proud of his garden and spent a significant amount of money developing it. Robert’s neighbour has a number of cats that often dig his garden up and therefore offered his neighbour £50 a week to ensure his cats stayed inside and did not ruin his garden. Robert’s neighbour was happy with this and has kept his side of the bargain however, the cats have started digging his garden up again.

Is there a potential remedy that could help Robert out in this situation?

Contract three – Robert sold his car to Jimmy and Jimmy is yet to pay him the £1000 agreed.

What is the most appropriate remedy in this case?

1. As Robert is not interested in monetary compensation, and instead wants his employer to uphold his employment contract, the most appropriate remedy would be a claim for specific performance, which would force the employer to give Robert his 35 hours a week.

Generally, the requirement for a claim for specific performance to succeed is that it must be the most appropriate remedy (Beswick v Beswick). In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd the most important consideration is the harm caused to the defendant. Applying that to this case, it does not seem that an order for specific performance would cause disproportionate harm to the employer.

Next, the bars to specific performance should be considered. There are two relevant bars here – firstly, the obligation may require constant supervision from the court. Each time the defendant breaches the order for specific performance, Robert would have to apply to the court to compel the defendant to perform. Whether this is an issue or not is dependent on the term of Roberts’s employment, if it is shorter, this bar to specific performance is unlikely to apply. The second bar that may apply is that the contractual obligation involves a personal service. If the specific performance would force unwilling parties into a personal relationship, the courts are unwilling to grant a specific performance remedy. In this case, this would depend on the size of the clinic and whether it would force the manager and Robert into a personal relationship. If the clinic is small it is unlikely a remedy for specific performance would be possible.

2. The contract in question involves a negative obligation, as Robert’s neighbour must not let his cats on Robert’s property. The relevant remedy here would be a prohibitory injunction which would force Robert’s neighbour to stop breaching the negative obligation.  The first requirement of a prohibitory injunction has been established – that the contract involves a negative obligation. The second requirement is that damages cannot be an adequate remedy.

Here, damages would not be an adequate remedy, because damages would not compensate Robert, he entered to contract to prevent his garden from being destroyed. Therefore, on the face of it, it seems a prohibitory injunction would be an appropriate and available remedy. The courts may attempt to refuse the granting of a prohibitory injunction if it would be disproportionately oppressive on the defendant, as per Jaggard v Sawyer. In this case, this would not be an issue, as there would be no adverse effect on the defendant other than complying with the contractual obligations.

3. The most appropriate remedy in this case would be the award of an agreed price. The requirements are that there is a specific sum due under the contract, which is owed to the claimant. In this case, there is clearly a specified sum of £1,000 due under the contract. Whether or not the sum is due is dependent on the terms of the contract. If, for example, the contract stipulates that the monies are due in March 2017 and it is only January 2017, the specified sum would not be due and therefore the award of an agree price would fail.

Therefore, if the £1,000 is due under the contractual terms, Robert may claim for the award of an agreed price of £1,000.