What Does Specific Performance Mean?

In Short

• Specific performance is a court order requiring a party to carry out their contractual obligations.
• It is usually only available where monetary damages are inadequate.
• Courts will consider fairness and will not order specific performance in certain situations, such as where obligations are unclear or hardship is unreasonable.

Tips for Businesses

If you are dealing with a contract dispute, assess whether damages would be sufficient or if specific performance is necessary to protect your interests. Keep detailed written contracts that clearly set out all parties’ obligations to make enforcement easier. Before commencing court action, consider whether you can resolve the dispute through negotiation or mediation. Legal advice is essential to help you understand your options and pursue the most suitable remedy.

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Table of Contents

• Is a Valid Contract in Place?
• What Type of Breach is Required?
• Circumstances Where the Court Will Not Order Specific Performance
• Consequences of Not Complying With an Order of Specific Performance
• Alternative Remedies
• Key Takeaways
• Frequently Asked Questions

A contract generally outlines the rights and obligations of both parties. As you may expect, if one party fails to fulfil their obligations, the other party may ask a court to enforce the contract. Specific performance is an order of the court requiring a party to a contract to perform their obligations under the contract. This article will consider the factors that may entitle you to seek an order for specific performance.

Is a Valid Contract in Place?

You must have a valid contract in place to be able to prove that there has been a breach. At the most basic level, the main elements of a valid contract are: 

• agreement, consisting of a valid offer and acceptance between the parties;
• consideration, which is the exchange of something of value between the parties; and
• intention, which is the intention of both parties to be legally bound and carry out obligations. 

Other elements include that both parties must have the legal capacity to enter into the contract and be entering into the agreement consensually. 

What Type of Breach is Required?

The breach of contract must be either actual or anticipated. As the name suggests, an actual breach will have occurred when one party has refused to perform its obligations under the contract. An example of this would be if you order jewellery online, but the retailer purposely does not send you the products you paid for. 

This may be explicit through words or implied through their actions. However, an idle threat will not be sufficient. The threat must pose a real possibility that a party will breach the contract. An example is when the online retailer announces they are no longer making the jewellery products you have already paid for. 

Circumstances Where the Court Will Not Order Specific Performance

Specific performance is a very complex area of law. The court will not automatically make an order for specific performance just because one party has breached the contract. Instead, the court will consider principles of fairness. Many circumstances prevent the court from making such an order, including:  

Damages Are Adequate 

A court will only make an order for specific performance in circumstances where an award of damages would be insufficient. In most cases, an award of damages will be sufficient to compensate the plaintiff. However, if the actual amount of damage cannot be calculated or accurately estimated, then the court may consider a remedy of specific performance. This could include situations where you have a contract for: 

• the purchase or lease of a unique property; 
• the exclusive right to distribute goods in a territory; or
• the acquisition of a particular business. 

Compels the Defendant to Maintain a Relationship With the Plaintiff

A court will not make an order for specific performance if the effect of doing so compels the defendant to maintain a personal relationship with the plaintiff. Contracts requiring personal service, such as employment, are an obvious example.

Party’s Obligations Are Ambiguous

A court cannot make an order compelling a party to fulfil some obligations when it is unclear what that obligation is. Doing so would set the defendant up for certain failure. As such, a court will not order specific performance in this instance.

Unconscionable Hardship on the Defendant

Here, the requirement is unconscionable hardship; any hardship will not suffice. As such, the court will balance the defendant’s hardship against the plaintiff’s if specific performance is granted.

Other Factors

Other factors the Court will consider include:

• if a contract came about by mistake, misrepresentation, or undue influence;
• if the plaintiff is not ready and willing to perform their own obligations under the contract. For example, you could not argue for specific performance in the above jewellery example where you did not have the funds to pay for the items you ordered;
• the plaintiff has also substantially breached the contract, enabling the defendant to terminate the contract; and
• the obligation on the defendant is, in effect, impossible to perform.

Consequences of Not Complying With an Order of Specific Performance

Failure to comply with a court’s order for specific performance is a very serious matter. A defendant who has not complied with a court’s order for specific performance can be found guilty of contempt of court and can be either fined or imprisoned in some cases.  

Alternative Remedies

As previously mentioned, damages are the most common remedy in contract breach claims. Let us explore the types of damages available. 

Compensatory Damages 

Courts often award these damages for breach of contract. As the name suggests, they are intended to compensate the plaintiff for the loss suffered due to the breach. Moreover, they and are not intended to punish the defendant. This type of award aims to put the plaintiff in the same position as if the breach had never occurred, not a better position. It also requires the court to assess an estimate of damages accurately.

Nominal Damages 

Nominal damages are suitable if the contract breach did not cause real damage. For example, suppose the plaintiff can prove that a breach occurred but cannot establish a tangible loss. The word nominal reflects that these damages are relatively small or low. 

Expectation Damages 

This remedy is for an expected loss due to the contract breach. Here, the plaintiff needs to reasonably anticipate the amount of loss if the defendant had fulfilled their contractual obligations. As with compensatory damages, expectation damages intend to place the plaintiff in the same position as if the breach had never occurred. 

Liquidated Damages 

Liquidated damages are pre-agreed between the parties to the contract. Sometimes, a contract will outline what the breaching party needs to pay the other side if they cannot perform their obligations under the contract. One requirement is that the liquidated damage is not a penalty or punishment. If it is, it will be considered invalid by the court.

Alternative Dispute Resolution 

Before deciding to go to court for specific performance or damages, you should think about whether you can work out your issue directly with the other party. Often, businesses can come up with timely and cost-effective solutions through negotiation, mediation, or arbitration. 

Negotiation

By far, the simplest, cheapest, and fastest option is to talk directly with the other party to attempt to find a solution. Negotiation works best when both parties want to preserve their business relationship and are willing to compromise. However, you should be careful not to make concessions that could weaken your legal claim if negotiations do not work.

Mediation 

Mediation is a more structured way of resolving disputes. It involves appointing a third party mediator to help the parties understand each other’s positions and explore creative solutions. If you are already considering specific performance, mediation might work well for you. Mediators can suggest practical solutions that require the parties to take action, similar to specific performance.

Arbitration

Arbitration is typically reserved for larger commercial disputes or international contracts and works quite similarly to a court case. An arbitrator will hear evidence from both sides and make a decision which is usually final and binding. Although arbitrators might understand your business concerns better, mediation is usually a better option for smaller businesses as it is more cost-effective and less likely to limit your other rights.

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Key Takeaways

If you believe that a party breaching your contract should be ordered to specifically perform the contract, you should seek legal advice immediately. It is a complex area of law and it is best if you have a specialist helping you to navigate the dispute. 

If you have any questions or need assistance making an application to the court for an order of specific performance, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions