Breach of contract: What is specific performance?

Friday 7 January 2022

The recent outbreak of the Omicron variant of the Coronavirus has caused disruption to many businesses during their busiest trading period and will undoubtedly have resulted in some being unable to comply with their contractual obligations.

If there is a breach of contract the usual remedy would be for the innocent party to sue the defaulting party for the loss and damage suffered as a result of the other party’s default.  However, there will be situations where damages are not an adequate remedy for the innocent party and they may instead wish to apply to the Court for an order compelling the defaulting party to comply with their contractual obligations. This is called specific performance.

There is no general right to specific performance, it is a discretionary remedy available to the Court and it will be used when no other remedy (such as money) will adequately compensate the innocent party.  If this remedy will put the innocent party back into the position that they should have been in, had the contract been fully performed, then the Court may order specific performance.

The most common instance when the courts grant specific performance is where the subject of the contract is unique, when it is not merely a matter of money or where the true amount of damages is unclear.  An example of the subject matter of the contract being unique may be the sale of an interest in land. Examples of where damages would be ineffective might be where the terms of the contract restrict or limit the amount of damages recoverable for the breach in question by the defaulting party.

In order to qualify for specific performance the innocent party must demonstrate that there is a valid and enforceable contract in place and that the award of damages would not be an adequate remedy for the breach.

The key benefit of using specific performance as a remedy is where a breach of contract is pre-empted but has not yet occurred and the innocent party wishes the existing contract to be performed, rather than to seek damages. Where a breach is anticipated, the innocent party can apply for an order for specific performance before the contract has been breached. By comparison, a claim for damages can generally only be made after there has been a breach of the contract.

Another advantage of specific performance is that the innocent party need not prove any loss caused by the breach; it simply needs to show that the obligation has not been or will not be performed.

Specific performance is a discretionary remedy which is not exercised readily by the courts even in cases where damages are not an adequate remedy.  However, when it is applied, it is a powerful tool which can be used to force a party to comply with their contractual obligations.

It will be interesting to observe how the courts will deal with applications seeking orders for specific performance in the context of the current pandemic where one party forces the other party to perform its side of the bargain and the other party refusing to perform the contract on grounds it is unable to so.

There are also other interesting legal principles which may come into play such as a temporary frustration event having occurred, which the defaulting party may argue has temporarily suspended their contractual obligations thereby making the contract, for the time being at least, impossible to perform.

If you are involved in any contractual dispute, please contact a member of our Dispute Resolution team via email or on 0113 207 0000.