Compulsion

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This article is a topic within the subject Equity and Trusts.

Contents

Required Reading

M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012), pp. Textbook Chapter 2 and 3 (omit [3.18-31] and [3.33-42]).

Revise topics from Contract: valuable consideration, specifically performable contracts.

Dougan v Ley (1946) 71 CLR 142, Dixon J.

Posner v Scott-Lewis [1987] 1 Ch 25 [33(F), 34 (quote from C. H. Giles & Co. Ltd. v. Morris), 35-38.]

Price v Strange [1978] Ch 337, 346-358 (fairness, sometimes described as “mutuality” but would prefer this language be abandoned).

Diagnostic X-Ray Services Pty Ltd v Jewel Food Stores Pty Ltd (2001) 4 VR 632 (supervision).

The objectives of equitable remedies

[1]Some remedies, such as account of profits, fulfil only one objective but the aims of others are more various. The range of available equitable remedies demonstrates equity’s concern with achieving justice between the parties in the best possible way, and emphasises the discretionary nature of equitable relief.

Coercion

Coercive remedies compel the defendant to behave in a certain way. They include:

  • Specific performance, requiring the defendant to perform their contractual obligations according to the terms of the contract.
  • Injunctions, either requiring the defendant to act, or cease acting.

Compensation

Equitable compensation compensates a plaintiff for loss caused by the commission of an equitable wrong, such as a breach of trust.

Disgorgement

Equity requires a wrongdoer who has made a profit from breach of an equitable obligation, such as a breach of confidence or fiduciary obligation, to disgorge those profits to the plaintiff. Disgorgement or profit-stripping can be achieved by:

  • Ordering an account of profits.
  • The award of a constructive trust (if the property is identifiable e.g. money in a ban account or land).
  • The award of account of profits secured by the imposition of an equitable lien over the property purchased with the plaintiff’s money.

Restitution

A trustee who has misappropriated trust money will be ordered to make restitution to the trust fund. Unless the trustee still holds the original money, the remedy which effect restitution will be equitable compensation. The defendant must restore to the plaintiff property which ought to belong to her.

  • If a fiduciary has entered into a contract with the beneficiary in breach of obligation, and has received property under the contract, the court will order rescission at the instance of the beneficiary and will require the fiduciary to make restitution of the property as one of the terms or conditions of rescission.
  • Where no property has to be restored under the voidable contract, rescission is a personal remedy; but where property must be returned, it will be done under a constructive trust which is a restitutionary remedy.
  • Equitable compensation is sometimes awarded as a restitutionary remedy.

Nullification

Some equitable remedies nullify the legal consequences of a transaction, without otherwise imposing obligations on the parties. For example:

  • Rescission of a contract which has not been executed by either party.
  • Equitable relief for breach of confidence sometimes includes directions that the documents containing confidential information, and property manufactured by unauthorised use of the information, be delivered up and destroyed.

Reformation

Rectification reforms a legal document so that it reflects the objectively ascertained agreement of the parties. Some orders of rescission may have the incidental effect of reforming a transaction, for example, partial rescission.

Vindication

Some equitable remedies validate the plaintiff’s rights:

  • Declaration is the court’s statement of the respective rights of parties before it.
  • Injunctions, particularly final or perpetual injunctions, can serve the same purpose.

Introduction to specific performance, injunctions and equitable damages

[2] Specific performance and injunctions are equitable remedies. The remedy of equitable damages is a creature of statute available either in lieu of or in addition to the equitable remedies of specific performance and injunction. Therefore the three are closely related.

Specific performance

[3] Specific performance is an order directing a party to a contract to perform the contract according to its terms. The party will be directed to perform all his obligations under the contract. It is only available in respect of the common law action of breach of contract (therefore it exemplifies equity acting in its auxiliary jurisdiction).

Two considerations are generally relevant to the award of specific performance: a) fairness to both parties; and b) the supervision requirement.

Fairness to both parties

[4]It will be unjust to hold the defendant to their side of the bargain unless the plaintiff has performed their obligations under the contract, or is in a position to do so.

  • The test of mutuality is that specific performance will not be ordered unless the court is satisfied that the defendant will be sufficiently protected in the event that the plaintiff does not perform their obligations.
  • The possibility of obtaining other remedies, such as an injunction or even equitable compensation, may be sufficient in some cases.
  • The ready and willing test is to refuse specific performance to a plaintiff who has not fully performed their contractual obligations unless they are ‘ready and willing’ to perform them.
  • Therefore a plaintiff who is in substantial breach of contract will not obtain specific performance, although a plaintiff who has committed relatively minor and easily rectifiable breaches will be entitled to the remedy. (A plaintiff who comes to equity must do equity).

Supervision

[5]The court must be satisfied that it can supervise the order of specific performance, if called upon to do so. ‘Supervision’ means that the court must be able to determine whether its order has been broken.

  • Failure to comply with the order is punishable as a contempt.
  • Courts are reluctant to grant a decree of specific performance if the contract does not state what the performance requires or if the defendant is required by the terms of the contract to carry out an activity over a period of years, possibly also involving compliance with complex and detailed terms.

Co-operative Insurance Society v Argyll Stores (Holdings) Ltd[6]

Facts: The plaintiffs leased a supermarket to the defendant. A covenant in the lease required the defendant to maintain the premises as a supermarket and to keep open for retail trade during normal business hours. The defendant could not operate the supermarket profitably and closed it.
Issue: Injunction to carry on a business.
Held: The House of Lords refused to award specific performance compelling the defendant to continue carrying on the supermarket business, as specific performance would give rise to “the possibility of the court having to give an indefinite series of ruling in order to ensure the execution of the order.”

Construction contracts

Special principles determine whether specific performance will be ordered of a construction contract. The practical considerations are often finely balanced because the costs of giving repeated rulings on how a complex construction contract is to be performed will be high but it is easier to award specific performance of a contract to achieve a particular result, such as to construct a building, than to carry on a business.

In Wolverhampton Corp v Emmons,[7] Romer LJ gave three conditions for the award of specific performance:

1. That the contract is sufficiently precise to be enforced;
2. That the plaintiff has a substantial interest in performance, which cannot be compensated in damages; and
3. That the defendant has possession of the land on which the work is to be done.

Contracts for the performance of personal services

The general rule is that contracts of employment cannot be specifically performed because they would require continual cooperation between the parties and because equity will not force a person to work for another. This prohibition includes contracts for services to be performed by independent contractors. In these cases the services will usually be performed by the contractor or by employees of the contractor, to whom the public policy against specific performance extends.

There are two exceptions:

a) Specific performance may be permitted where the policy and pragmatic reasons for refusing enforcement are absent. Therefore, an employee may enforce a contract against an employer where performance will not require the employer’s cooperation.
b) In some cases an injunction to restrain an employee from working for a rival employer will be granted even though specific performance cannot be obtained.

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia[8]

Facts: The court was asked to restrain the administrator of a company in the Patrick Stevedores group of companies which has the effect of terminating the employment of the plaintiff employees.
Issue: Specific performance of an employment contract.
Held: The High Court granted an injunction, recognising that the order was in substance one of specific performance. There were no objections in principle to making the order: it would not reduce the employees to a condition of servitude (it would actually have the opposite effect), there were no problems of supervision and the employment did not require close cooperation between the employees and the employer companies.

Lumley v Wagner[9]

Facts: An opera singer was restrained by injunction from singing for an opera house which was a rival to the plaintiff’s theatre.
Issue: Restraining an employee from working for a rival employer.
Held: In exercising its discretion the court also considered factors which would be relevant to an award of specific performance. For example, an injunction will not be granted if in practical terms it would reduce the defendant to destitution because he is unlikely to be employed by anyone except the plaintiff and his rival. The injunction will also be of short duration, its principal purpose being to bring home to the defendant the importance of performing contractual obligations.

Prerequisites to award

[10]There are three prerequisites to the award of specific performance: the contract must be specifically enforceable, valuable consideration must have been given for its performance and damages must be an inadequate remedy for non-performance.

Specifically enforceable contracts

Specific performance is confined to the enforcement of binding contracts.

  • The remedy will not be granted where a contract is invalid at law (such as a contract for an illegal purpose) or liable to be rescinded by the plaintiff (such as a contract obtained through duress).
  • It may also be impossible to obtain the remedy for a contract that it non-compliant with the requirements of writing originating in the Statute of Frauds 1677 (UK).

Valuable consideration

Valuable consideration must have been given in order for the promise to be enforced.

  • A promise executed under seal is not specifically enforceable because a seal is not considered to be valuable consideration in equity. The promisee’s only remedy will be damages.
  • Nominal consideration, such as a promise made in return for a dollar consideration, is also not valuable consideration in equity.

Inadequacy of damages

As specific performance is granted in equity’s auxiliary jurisdiction, it will not be granted unless damages are inadequate. Australian law has adopted a ‘modified category’ approach to this issue:

  • Specific performance will be routinely ordered of certain categories of contract, unless a bar to the award of the remedy can be shown.
  • It is also possible for the plaintiff to demonstrate that, where a contract not belonging to one of the established categories has broken, damages would on the facts be an inadequate remedy and that specific performance should be ordered. This might be the case with a rare asset, not readily available on the market.
  • The best-known category of specifically performable contract is a contract for the sale of land.
  • Contracts for the sale of chattels which cannot be easily obtained on the market are also specifically enforceable as damages would not enable the plaintiff to purchase a satisfactory alternative chattel.
  • A plaintiff does not have to show that it is impossible to purchase an equivalent, for example, replacement may be unlikely to be procured in time to meet the commercial needs of the plaintiff or a commonly available commodity may be temporarily scare due to a strike.
  • Contracts to pay or lend money are not normally specifically enforceable because damages are an adequate remedy for failure to pay money. There are three exceptions:
  • Mutuality requires that if a purchaser of land can obtain an order for specific performance of the sale of land, a vendor can likewise enforce the purchaser’s obligation to pay the purchase price.
  • Difficulties in quantifying damages or in ensuring that they will be paid justify an award of specific performance in some cases.
  • A contract whereby X agrees to perform a service for Y in return for Y’s payment to Z will be specifically performable by Z if the damages that X could have obtained will be nominal, as will usually be the case.

Bars to specific performance

[11]Relief will only be withheld on well-defined grounds. Some of the grounds, such as want of mutuality, or the plaintiff’s willingness and readiness to perform their own obligations, are peculiar to specific performance. Others, such as the conduct of the plaintiff and the hardship that an order will cause to the defendant, are applicable generally to equitable remedies.

Injunctions

[12]An injunction is an order enforcing legal or equitable rights, either by restraining the doing of an unlawful act or by requiring a particular act to be done. It is equity’s principal coercive remedy. In equity’s exclusive jurisdiction injunctions enforce equitable rights. In the auxiliary jurisdiction supports common law rights.

Injunctions can be classified as follows:

a) Mandatory or prohibitory. Mandatory injunctions are positive, compelling the defendant to perform an act; prohibitory injunctions are negative, requiring the defendant to refrain from carrying out an act.
b) Perpetual, interim and interlocutory. Perpetual injunctions are final, settling all outstanding issues between the parties (does not mean perpetual duration). Interim injunctions are temporary, effective only for a limited period of time. An interlocutory injunction preserves the rights of both parties pending trial.
c) Ex parte. An injunction may be required so urgently that the plaintiff does not have time to serve notice on the defendant that the application is being made. Alternatively, the plaintiff might apply for an ex parte order where there is a risk that the defendant will simply take steps to avoid the court’s order. An injunction granted without giving prior notice to the party who will be bound by its terms is an ‘ex parte’ injunction. Notice is given to the defendant once the injunction is granted so that the defendant will know precisely how they must comply with its terms, and to give them an opportunity to have the order set aside or varied.
d) Quia timet. This injunction protects the plaintiff’s rights where an infringement is threatened but has not yet occurred. For example, a quia timet injunction will be granted to prevent a property development if residents affected by the development prove that once completed it will constitute a nuisance.

Other orders were initially developed as injunctions but have lost their specifically equitable character and are now part of the law of civil procedure:

  • A Mareva order is an ex parte order preventing assets from being removed from the jurisdiction of the court.
  • The Anton Piller order is an ex parte interlocutory mandatory injunction compelling the defendant to allow the plaintiff or their agents to inspect the defendant’s property.
  • An ‘anti-suit’ injunction is issued to prevent a litigant from pursuing proceedings in another jurisdiction when they have already been initiated in Australia.

The jurisdiction to award injunctions

[13]The original jurisdiction to award injunctions belonged to the Court of Chancery and is now a statutory jurisdiction. The orthodox view is that injunctions can only be awarded in support of an established legal, equitable or (in the case of statutory injunctions) statutory rights. ‘Right’ for this purpose need not be proprietary and includes, for example, injunctions to prevent breach of confidence.

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd[14]

Facts: Trespassers filmed the slaughter of Tasmanian brushtail possums at the plaintiff’s abattoirs. The film was passed to the ABC for broadcasting. The plaintiff sought an injunction restraining broadcasting of the film.
Issue: Jurisdiction to protect a right.
Held: The High Court Held by a majority that the plaintiff was not entitled to an injunction. An award of an injunction is not at large but can only be awarded in support of a recognised legal, equitable or statutory right. While the plaintiff would be entitled to obtain an injunction the trespasser, it had no such right exercisable against the ABC which was not a trespasser and had not committed any other legal or equitable wrong.

The criteria for the award of an injunction

[15]

  1. The plaintiff must show that the defendant has committed a legal, equitable or statutory wrong (or, in the case of a quia timet injunction, that there is a substantial probability that they will do so).
  2. The plaintiff must show that the wrong is likely to continue or be repeated (or, in the case of a quia timet injunction, that a wrong causing imminent and substantial damage is likely to occur). Whereas damages looks to the past, an injunction looks to the future by preventing the commission of apprehended harm.
  3. A plaintiff who wants to prevent the commission of a common law wrong must show that damages or common law remedies are inadequate. As equitable rights cannot be protected at common law, inadequacy does not need to be shown where the wrong is equitable.

Plaintiff’s remedy if specific performance or injunction are denied

[16]In an unsuccessful claim for specific performance, the plaintiff will be remitted to a common law claim to damages. Where the injunction is sought in respect of a purely equitable right, another remedy may be appropriate such as a monetary award. An unsuccessful plaintiff may be entitled to equitable damages in lieu of the specific performance or injunction sought.


End

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References

Textbook refers to M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012).

  1. Textbook, pp 28-31.
  2. Textbook, p 33.
  3. Textbook, p 33.
  4. Textbook, pp 33-4.
  5. Textbook, pp 34-6.
  6. [1998] AC 1.
  7. [1901] 1 KB 515.
  8. (1998) 195 CLR 1.
  9. (1852) 42 ER 687.
  10. Textbook, pp Textbook, pp 36-9.
  11. Textbook, p 39.
  12. Textbook, pp 40-1.
  13. Textbook, pp 41-2.
  14. (2001) 208 CLR 199.
  15. Textbook, p 42.
  16. Textbook, pp 51.
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