Equitable remedies for breach of contract 1 Briefing note November 2016 Equitable remedies for breach of contract The influence of equity in our modern legal system must not be underestimated. There has been a resurgence of equity in the last 15-20 years, beginning with the High Court's seminal decision on promissory estoppel in Walton Stores. Despite this, equity is often overlooked as a remedy for breach of contract. Key issues Equitable remedies have an Equity remains a rule of conscious, coming to relief important role to play in when unconscionability would otherwise prevail – it supplementing common law remedies and should not be "mitigates the rigours of strict law" (Lord Denning in overlooked in breach of Crabb v Arun District Council [1976] Ch 179, 187 and contract cases. The need for court’s ongoing enables "complete justice" to be achieved among the supervision remains a parties. Equitable remedies are broad in scope, relevant factor in the exercise of the court's discretion to flexible, direct in application and supplement the grant specific performance, common law. Unlike common law remedies, but it is longer determinative against an order for specific equitable remedies are not constrained by concepts performance. Court looks at such as remoteness of damage or causation, thereby whether the party that is subject to the order knows enabling equity to go beyond the common law in with precision what is redressing loss and damage. required. Court must assess the merits of each case and decide Given the many advantages of equitable remedies, it whether the plaintiff’s case is important for practitioners to have a good has sufficient strength to justify granting the injunction understanding of how the common law and equitable sought. remedies intersect and to know when and how to The purpose for which a performance bond was deploy equitable remedies to achieve "complete provided alters the context in justice". which the court must exercise its discretion whether to grant an injunction in respect of that bond. 2 Equitable remedies for breach of contract confidence reposed by the even if the contract had still been on Introduction – plaintiffs in the defendant; and foot, equitable remedies such as if specific performance was specific performance are discretionary fusion fallacy ordered, it would likely generate and equity will not intervene to where: The Judicature Acts enabled courts to ongoing conflict and contempt the obligation of the defaulting exercise both equitable and common proceedings given the party was not sufficiently defined; breakdown of trust and law jurisdictions, thereby avoiding the specific performance of only part confidence between parties, inconvenience of litigating in two of the contract is sought, in rather than ensuring finality. courts. The Acts did not create a new circumstances where doing so 'fused' body of law, nor did they Beech J said the need for courts to would produce a result that was transform equitable interests into legal supervise performance by the parties different from what the parties interests. remains a relevant consideration, but intended; and is no longer determinative of whether This 'fusion' has however increased to do so would be futile - in this specific performance will be ordered. the uptake of equitable principles by case neither party agreed to be Court looks at whether the party the common law. bound by the result of the audit, subject to the order knows with so there was no utility in requiring A number of recent cases have precision what is required. specific performance of the audit concerned the equitable remedies of This case is significant for two obligation. specific performance, injunctions and reasons: (a) it highlights that despite equitable damages in the context of a This case is a good example of the their breadth and flexibility, there are breach of contract. These cases equitable maxim that 'equity does not limits to the scope of equitable have brought into focus the important require an idle gesture', and is also a remedies. The court will not seek to role and scope of equitable remedies salutary reminder that contractual preserve a commercial relationship, for breach of contract. We consider obligations should be clearly defined. where the basis of trust and some of these seminal cases. confidence between the parties has Evans v Robocorp [2014] QSC 26 broken down; (b) ongoing court Specific Performance Appellant was entered into a contract supervision is not determinative of for the sale of land to the respondent. Netline v QAV Pty Ltd (No 2) [2015] whether the court will exercise its The respondent subsequently WASC 113 discretion to order specific became impecunious, and was performance, but the orders sought The plaintiffs owned an apartment, unable to complete the transaction. must be framed with precision. and contracted with the defendant to The question for determination was provide caretaking and letting York Civil Pty Ltd v Coleman Rail whether an specific performance services. The court characterised Pty Ltd [2014] SASC 112 should be ordered in circumstances these agreements as giving rise to an where it would cause great hardship This case concerned a joint venture agency. Justice Beech of the to the other party. Supreme Court of Western Australia dispute, in which the contract had found that the defendant had come to an end. An order for specific The court held that exercising its wrongfully terminated the agreements performance of cl 17.1 of the joint equitable jurisdiction, it would not and awarded damages in favour of venture was sought, which required order specific performance if the act the plaintiff, but refused to order the parties to arrange a final audit in question cannot be performed – the specific performance. after termination of the contract. The court will not order the respondent to contract provided that certain do what cannot be done, even though Factors against an order for specific specified clauses of the contract the respondent's own acts or performance included: would survive termination of the omissions created the obstacles to plaintiffs failed to prove that contract - clause 17.1 was not among performance. the surviving provisions. damages would not be an On the question of hardship, the court adequate remedy; The court held that no rights had said: the long term nature of the accrued under clause 17.1 prior to equity must take account of all agreements; with at least one termination of the contract, and as the circumstances at the time when potentially having 13 years to run; contract has come to an end, specific the order is made, and the fiduciary nature of the performance of obligations yet to be circumstances likely to occur relationship between the parties performed under the contract was no subsequently, when deciding and the substantial trust and longer available. The court noted that, whether specific performance will Equitable remedies for breach of contract 3 cause disproportionate hardship Question 1: is a mere finding of a Question 3: is the value of an and injustice; and prima facie case sufficient basis to undertaking as to damages assessed hardship will not be ignored grant an injunction, or must the court as a stand-alone consideration, or as merely because it did not exist at undertake an evaluative task to part of larger balance of convenience the time when parties entered determine the strength of the party’s test? case? into the contract. The Court of Appeal concluded that The court was satisfied that the The judge at first instance held that the question whether Mineralogy's respondent did not have the financial Mineralogy had a serious question to undertaking as to damages was capacity to perform its contractual be tried as to its entitlement to royalty meaningful cannot be resolved in obligations under the contract; and payments, but he was not in a isolation – it is part of a wider balance refused to order specific performance. position to assess the strength of of convenience enquiry, including the This case is another good example of Mineralogy's claims, and hence made probability of Mineralogy's ultimate the equitable maxim that 'equity does no such assessment. The Judge said success at trial. not order the impossible to be done". he was constrained by the detailed and technical nature of the expert In Western Australia, at least, is Injunctions evidence presented for calculating reflective of the courts' current approach to applications for interim or Mineralogy v Sino Iron [2016] royalty payment (put on at short interlocutory injunctions. WASCA 105 notice), and that in his view it was unfair to the other parties to make an Duro Felguera v Samsung [2016] Mineralogy held mining tenements assessment of the evidence when WASC 119 (appeal pending) and a general purpose lease in the they had inadequate opportunity to Pilbara. It entered into Mine adduce expert evidence in response. In this case, Duro sought an Right/Site Lease Agreements injunction restraining Samsung from (MRSLAs) with Sino Iron and Korean The Court of Appeal allowed taking steps to obtain payment under Steel (Sino) granting Sino right to Mineralogy's appeal, finding that it is a performance bond provided in the mine and a site lease for the not enough for the court simply to context of the Roy Hill Project. The construction and operation of conclude that Mineralogy had a prima court held that on its proper processing facilities. facie case – the Judge must construction, the purpose of the undertake an evaluative assessment performance bond was risk allocation. The central issue in the proceedings of the merits of the plaintiff's case and That commercial purpose would be was whether a royalty was payable by decide whether the plaintiff’s case has defeated if an injunction was granted.