Remedies

Question 1

What is the purpose of damages?

Answer 1

The aim of an award of damages for breach of contract is to compensate the claimant for the damage, loss or injury they have suffered as a result of the defendant’s breach.

Punishing the defendant is not the aim.
A claimant who has not suffered any loss by reason of the breach is nevertheless entitled to a judgment; but the damages recoverable will be purely nominal. Nominal damages are a token amount (a very small amount eg £1) which are awarded to acknowledge that there has been a breach of contract in a case where no other remedy is available.

The default approach to compensating the innocent party means putting the innocent party in the same position post-breach that they should have been in had the contract been performed. This is sometimes called protecting the innocent party’s ‘expectation’ interest – putting them in the position they ‘expected’ to be in.

Question 2

What are the three mechanisms for calculating expectation interest?

Answer 2

Cost of cure, diminution in value and loss of amenity

Question 3

What is the cost of cure mechanism?

Answer 3

The usual method of calculating the expectation interest in contracts involving defective works (eg where a building is not built to the contract specification) is the cost of cure (Birse Construction Ltd v Eastern Telegraph Co Ltd [2004] EWHC 2512). The cost of cure represents the cost of substitute or remedial work required to put the claimant in the position they would have been in had the contract been properly performed.

It should be noted that the claimant must act reasonably in relation to the defective works. In McGlinn v Waltham Contractors [2007] EWHC 149 (TCC), the claimant was found to have acted unreasonably in demolishing and rebuilding an entire property to cure defective works for purely
aesthetic reasons and limited the award to the costs which would have been incurred in remedying the defects in the original building. In the case of Ruxley, the cost of cure was the cost of rebuilding the pool - £21,560. But the court refused to award this, for reasons we will encounter later.

Question 4

What is the diminution in value mechanism?

Answer 4

Alternatively, the claimant’s expectation interest may be calculated by reference to the difference in value between the performance received and that promised in the contract. In Ruxley the diminution in value was £0 – the pool had the same value whether 6 or 7.5 feet deep. But the court
did not use this approach to valuation either.

Question 5

What is the loss of amenity mechanism?

Answer 5

In Ruxley, their Lordships stated that the cost of cure and diminution in value were not the only available mechanisms of assessing the expectation interest. Their lordships awarded £2,500 in loss of amenity damages, reflecting the non-economic loss of pleasure Mr Forsyth suffered in not
getting the pool he contracted for.
The loss of amenity measure developed in Ruxley is a reflection of the court’s growing willingness to accept that a consumer should have an available remedy where their loss is not economic in value, but nevertheless has a value to them. In a commercial setting, it would be ‘unusual, if not impossible’ for damages to be awarded for loss of amenity (Regus (UK) Ltd v Epcot Solutions Ltd [2007] EWHC 938 (Comm)).

Question 6

What is reliance interest?

Answer 6

An alternative basis for the assessment of damages is the reliance measure. This measure allows the claimant to recover the expenses which have been incurred in preparing for, or in part performance of, the contract which have been rendered pointless by the breach. The reliance
measure is inherently more cautious in its approach. It is backward looking (unlike the expectation measure, which is forward looking) and aims to put the claimant in the position they would have been in had they never contracted.

Reliance losses are most likely to become relevant because the courts will not award expectation damages if they are highly speculative; instead, the claimant will be limited to their reliance loss.

Note that the reliance interest only allows recovery of wasted expenditure, not all expenditure

Question 7

Can damages be awarded for mental distress?

Answer 7

The general rule is that damages will not be awarded in relation to mental distress, anguish or annoyance caused by breach of contract (Addis v Gramophone Co Ltd [1909] AC 488). In Addis, the House of Lords refused to uphold an award which had been made in relation to the ‘harsh and
humiliating’ way in which the claimant had been dismissed from his job in breach of contract. Johnson v Unisys Ltd [2003] 1 AC 518 confirmed that damages for distress and injury to feelings resulting from the manner of dismissal are unavailable in the law of contract.

However, exceptions have developed to this general rule meaning that in a limited number of situations mental distress will be compensated:
(a) Initially, such compensation was limited to cases involving contracts whose whole purpose was the provision of pleasure, relaxation and peace of mind (Jarvis v Swan Tours [1973] QB 233).
(b) More recently, the House of Lords has allowed damages for non-pecuniary loss (in this case loss of amenity) where a major object (though not the whole purpose) of the contract was to provide pleasure, relaxation and peace of mind (Farley v Skinner (No. 2) [2001] UKHL 49).

Question 8

Can damages be awarded for loss of reputation?

Answer 8

The general rule is that damages will not be awarded for loss of reputation.
However, in Malik v Bank of Credit and Commerce International [1998] AC 20, an employee had worked for the Bank of Credit and Commerce International (BCCI), which collapsed in 1991, amidst allegations that the bank had operated in a corrupt and dishonest manner. The employee claimed that having worked for BCCI had adversely affected his employment prospects. The
House of Lords found that the employee did have the basis for a cause of action against his former employer for the loss caused by the way it was alleged that its business had been run. This was based on the fact that contracts of employment contain an implied term of trust and
confidence such that the employer is under an obligation to carry out its work in an honest way. Damages were awarded but were limited to the claimant’s financial loss, which was suffered due to an inability to obtain alternative employment resulting from breach of this implied term.

Question 9

Can damages be awarded for loss of chance?

Answer 9

The loss of an opportunity is recoverable in damages if the lost chance is quantifiable in monetary terms and there was a real and substantial chance that the opportunity might have come to fruition. Otherwise, the loss of opportunity will be treated as too speculative. The courts are reluctant to treat the loss as too speculative and will award damages based on the expectation
interest even if the precise quantification of loss may not be straightforward. The leading case on loss of chance, Chaplin v Hicks [1911] 2 KB 786, exemplifies this approach.
In Chaplin v Hicks [1911] 2 KB 786, the claimant was denied, in breach of contract, the chance to go through to the final round of a contest. The court held that she could be compensated for the loss of the chance of winning the competition. The courts have clarified that to claim loss of chance, the chance must be ‘real and substantial’. Applying Chaplin, awarding loss of chance
may be appropriate in the context of losing the chance of ‘winning’ along with other competitors. Note also that in Chaplin, the claimant had a less than 50% chance of winning. Where the chance of winning or obtaining the benefit is 50% or greater, the claimant should seek to recover their expectation loss in full and they will succeed if this can be proved on the balance of probabilities.

Question 10

Can damages be awarded on behalf of another?

Answer 10

The general rule is that damages cannot be recovered on behalf of another party/for losses suffered by another party. There are exceptions to this general rule, but they are not considered in this section. If you have studied/go on to study privity of contract, that material relevant to privity will clarify this issue.

Question 11

What amounts to causation in contract law?

Answer 11

The claimant must establish a causal link between the defendant’s breach of contract and its loss in order to recover damages. This means assessing:
(a) Whether in fact the breach by the defendant has caused the loss suffered by the claimant (known as factual causation); and also
(b) Whether as a matter of law the defendant should be held responsible for it (legal causation).

In contract the courts have treated the determination of factual causation in a broad way, advocating a ‘common sense approach’ (Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360). The court in Galoo suggested that the defendant’s breach should be a ‘dominant’ or ‘effective’
cause of the loss if that loss is to be recoverable.

If the intervening event was ‘likely to happen’ (Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196), it generally will not be held to break the chain of causation

Question 12

What constitutes remoteness of damage?

Answer 12

Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may [1] fairly
and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or [2] such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.

The Court of Appeal held that the claimant could recover for the ordinary extra laundry business that they would have taken on. As the defendant knew at the time of contracting that the claimant was a launderer and dyer and required the boiler for immediate use in its business, these
were losses occurring in the ‘usual course of things’ and satisfied the first limb of the Hadley v Baxendale test. The defendant must be presumed to have anticipated that some loss of profits would occur by reason of its delay, and these ordinary business profits were therefore recoverable.
The claimant’s loss of the lucrative dyeing contracts was considered too unusual and far reaching to satisfy the first limb of the Hadley v Baxendale test. It was therefore necessary for the claimant to prove that the defendant had sufficient actual knowledge of the particular and special circumstances to be aware of the risk. No notice had been given of the possible, highly lucrative,
dyeing contracts. In the absence of special knowledge on its part, the defendant could not have reasonably contemplated the additional losses suffered by the claimant’s inability to accept the highly lucrative dyeing contracts, and so these losses also failed to satisfy the second limb of the
Hadley v Baxendale test and were therefore irrecoverable.

Question 13

Is there a duty to mitigate the loss in contract law?

Answer 13

Where one party has suffered loss resulting from the other party’s breach of contract, the injured party should take ‘reasonable steps’ (British Westinghouse Electric and Manufacturing Co v Underground Electric Rail Co [1912] AC 673) to minimise the effect of the breach.
Technically, there is no obligation to mitigate, but losses attributable to a failure to do so are not legally recoverable. The innocent party cannot, therefore, seek compensation by the party in default for loss which is really due not to the breach itself, but its own failure to behave
reasonably after the breach.
The question of what steps are ‘reasonable’ is one of fact. In Pilkington v Wood [1953] CH 770, it was held that there was no expectation that the claimant should embark on ‘a complicated and difficult piece of litigation’ in order to minimise the effects of the defendant’s breach.
The case of Payzu v Saunders [1919] 2 KB 581 demonstrates that reasonable steps to mitigate may, in some circumstances, include accepting the performance offered by the defendant under a new contract even when that performance amounts to a breach of the original contract.

If the defendant’s offer of performance remains the best substitute performance (as it was in Payzu) then it would seem unreasonable not to go to that source.
Banco de Portugal v Waterlow & Sons [1932] AC 452 establishes that when considering whether the claimant has taken reasonable steps to mitigate, the claimant’s actions ‘ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the
difficulty’.
There is no duty to mitigate a claim for a payment of a debt. This includes a claim for liquidated damages. This is because the amount is payable as a contractual right rather than as damages.

Question 14

What are the rules for recovering reliance interest?

Answer 14

It is only possible for the claimant to claim reliance interest if the contract would have enabled them to recoup those expenses had it been performed properly.

It is for the defendant to prove that the claimant would have not recouped the expenditure had the contract gone ahead.

Question 15

What is the restitution interest?

Answer 15

Stated shortly, the restitution interest represents the interest a claimant has in the restoration to them of benefits which the defaulting party has acquired at their expense.
In general, the gain to a defendant from a breach of contract is irrelevant to the quantification of damages. However, as a result of the decision of the House of Lords in Attorney-General v Blake [2001] 1 AC 268, it is now clear that there are at least certain circumstances in which a claimant can recover the profit which the defendant has made from its breach of contract.

Question 16

When can the court require the defendant to account to the claimant for benefits received from a breach of contract?

Answer 16

The inadequacy of other remedies thus appears fundamental to the award of an account of profits. The claimant must also show that he has a ‘legitimate interest’ in depriving the defendant of his profit. The Crown was held to have such a ‘legitimate interest’ in Blake and no other remedy
was adequate on the facts. If restitutionary damages had not been awarded, the Crown would have recovered nothing, since they had suffered no loss.
Although their Lordships in Blake declined to give more clear guidance as to when an account of profits would be awarded, they did indicate that the existence of a so-called ‘efficient breach’ would not alone justify allowing an account of profits. An ‘efficient breach’ is one where:
(a) the breach was cynical and deliberate;
(b) the breach enabled the defendant to enter into a more profitable contract elsewhere; and
(c) by entering into a new and more profitable contract, the defendant put it out of his power to perform the contract with the claimant.
An efficient breach puts the breaching party in a better position than if there had been no breach.
It is therefore efficient for the breaching party to breach the contract. An efficient breach alone will not justify the award of damages on a restitutionary measure. Subsequent case law is so far equivocal as to the circumstances in which courts will find situations sufficiently ‘exceptional’ to
justify using the Blake approach.
An example which fell short of the requirements is Experience Hendrix LLC v PPX Enterprises Inc (2003) EWCA Civ 323 in which the dispute concerned improper granting of licences in relation to
recordings made by the guitarist Jimi Hendrix. The court decided that it was not an ‘exceptional’ case within the meaning of Blake, and the court therefore refused to order an account of profits (ie a claim based on the restitution interest to take away the profit made by the party in breach).
In particular, Mance LJ pointed out that:
We are not concerned with a subject anything like as special or sensitive as national security. The State’s special interest in preventing a spy benefiting by breaches of his contractual duty of secrecy, and so removing at least part of the financial attraction of such breaches, has no
parallel in this case.
In Morris-Garner v One Step (Support) Ltd [2018] UKSC 20 the exceptional nature of Blake was again emphasised, and the key point made by Lord Reed: Common law damages for breach of contract cannot be awarded merely for the purpose of depriving the defendant of profits made as a result of the breach, other than in exceptional circumstances.

Question 17

What is unjust enrichment?

Answer 17

Restitution provides a remedy when there is a total failure of consideration. A total failure of consideration occurs where one party has provided something of value under the contract but has received nothing in return. In such circumstances, the court may use the principles of restitution to prevent a party from benefiting from the lack of consideration. In such a case restitution will operate to reverse the unjust enrichment of one of the parties.

Question 18

What remedies are available for contracts for goods?

Answer 18

The Consumer Rights Act 2015 provides that where goods sold to a consumer fail to meet any of the requirements in s 9 (satisfactory quality), s 10 (reasonably fit for their particular purpose) or s 11 (correspondence with description) then the goods are regarded as non-conforming. Where the goods are non-conforming, there are three remedial options available to the consumer, namely:
(a) The short-term right to reject
(b) The right to repair or replacement
(c) The right to a price reduction or the final right to reject.

Question 19

What constitutes the short term right to reject?

Answer 19

Broadly speaking, the short-term right to reject is available to the consumer for 30 days running from the time (i) that ownership has passed (or, in the case of contracts for hire or the like, possession has been transferred) and (ii) the goods have been delivered and (iii) in cases where
the trader is required to install the goods or to take other action to enable the consumer to use the goods, the trader has notified the consumer that the required steps have been taken (s 22).

Question 20

What constitutes the right to repair or replacement?

Answer 20

The right to repair or replacement is available unless repair or replacement is either impossible or disproportionate (in the sense that it imposes an unreasonable cost on the trader relative to the other remedies and the interests of the consumer) (s 23).

Question 21

What constitutes the right to a price reduction or the final right to reject?

Answer 21

The consumer is not entitled to both a price reduction and final rejection; and, in either case, the remedy may only be exercised where:
(a) After one repair or one replacement, the goods do not conform to the contract;
(b) The consumer can require neither repair nor replacement of the goods (because it is
impossible or disproportionate); or
(c) The consumer has required the trader to repair or replace the goods, but the trader is in breach of the requirement to do so within a reasonable time and without significant inconvenience to the consumer (s 24).
It should also be noted that s 24(10) provides that the general rule is that, where the final right to reject is exercised within six months (the clock running—as with the short term right to reject—from the time that ownership has passed, and so on), there should be a full refund with no deduction for use—but this does not apply to motor vehicles or any other goods that may be specified by statutory order.

Question 22

What remedies are available for contracts for digital media?

Answer 22

Section 42 provides that, where the digital content is non-conforming, there are two remedial options available to the consumer, namely:
(a) The right to repair or replacement
(b) The right to price reduction
In relation to these remedies, s 42(9) provides that ‘digital content which does not conform to the contract at any time within the period of six months beginning with the day on which it was supplied must be taken not to have conformed to the contract when it was supplied’.

The right to repair or replacement
Section 43 elaborates and qualifies the right to repair or replacement in the way that we have seen already in relation to contracts for goods. In particular, s 43(2)(a) requires the trader to repair or replace the digital content ‘within a reasonable time and without significant inconvenience to the consumer’; s 43(3) precludes the consumer from requiring repair or replacement where this would be impossible or disproportionate; and s 43(5) identifies the nature of the digital content together with the purpose for which the digital content was obtained or accessed as material to judging ‘what is a reasonable time or significant inconvenience’.

6.3.2 The right to price reduction
Similarly, s 44 qualifies the right to price reduction, this right being exercisable only where the consumer either cannot require repair or replacement (because this is impossible or it would be disproportionate) or where the trader has failed to repair or replace the digital content within a
reasonable time and without significant inconvenience to the consumer.

6.3.3 The right to a refund
Where the trader had no right to supply the digital content that it supplied, s 45 gives the consumer the right to receive a refund of all money pay for the digital content. A refund must be given within 14 days. The trader must give a refund using the same payment method that the consumer used to pay for the digital content, without imposing any fee in respect of the refund.
6.3.4 Damage to device or other digital content
What is the legal position if non-compliant digital content causes damage to a device or to other content? According to s 46, where:
(a) A trader supplies digital content to a consumer under a contract;
(b) The digital content causes damage to a device or to other digital content;
(c) The device or digital content that is damaged belongs to the consumer; and
(d) The damage is of a kind that would not have occurred if the trader had exercised reasonable care and skill, then the consumer is entitled to repair or to a compensatory payment.

Question 23

What remedies are available for contracts for services?

Answer 23

Section 54 provides that, where the services are non-conforming, there are two remedial options available to the consumer, namely:
(a) The right to require repeat performance
(b) The right to a price reduction

6.4.1 The right to require repeat performance
The right to require repeat performance is elaborated and qualified in ways that are analogous to the parallel provisions in relation to goods and digital content. In particular, s 55(2)(a) requires the supplier to provide the repeat performance within a reasonable time and without significant
inconvenience to the consumer (s 55(4) offering the usual guidance on what, for this purpose, is reasonable and significant); and s 55(3) states that the consumer cannot require repeat performance if completion in conformity with the contract is impossible.

6.4.2 The right to price reduction
According to s 56(3), a price reduction becomes available only where repeat performance is impossible or where the trader has failed to provide repeat performance within a reasonable time
and without significant inconvenience to the consumer.

Question 24

What is a liquidated damages clause?

Answer 24

Contracts arise from the agreement of the parties – the starting point of contract law is to support parties’ agreements on as many matters as possible.

In this context, it is unsurprising that the parties can in principle agree not only the terms of the contract, but also the nature and scope of the consequences of a breach of contract. The starting point is that the court will uphold such agreements. You may already have come across this in
studying exemption clauses which limit or exclude liability in the event of breach.
An alternative approach is for the parties to agree that a certain sum will be payable on a particular breach of contract – no more and no less. This is called a ‘liquidated damages’ clause. Liquidated damages clause: A clause which stipulates a certain sum which is to be payable on a particular breach of contract.

Question 25

Why have a liquidated damages clause?

Answer 25

It can be commercially advantageous for a party because it fixes the amount that will be due for breach as a debt arising under the contract without the claimant having to deal with the uncertainty of establishing its case for damages in accordance with the principles that apply to damages generally.
Equally, a liquidated damages clause makes clear to a party what is at stake if it fails to comply with its obligations ie the risks involved in the contract. A party can then take the risk into account when determining the price for the contract. Liquidated damages clauses are very common in the
construction and technology industries to deal with the consequences of non-performance such as delay (eg you will pay £x for every day you are late in delivering the building).

Question 26

Can the court intervene in relation to liquidated damages clauses?

Answer 26

Whilst the starting point of contract law is to support parties’ agreements on as many matters as possible, there are instances where the court will intervene. You may already have come across the various statutory and judicial limitations on clauses which limit/exclude liability in the event of
breach. In a similar vein, the courts have, over time, developed a jurisdiction to intervene in a contract to strike down a liquidated damages clause which requires the party in breach to pay an excessive
sum such that it becomes a ‘penalty’. This is known as the law on penalties or penalty clauses. If a clause is regarded as a penalty then it will be struck out by the Court and the claimant will only be entitled to ‘unliquidated’ damages (ie damages assessed in the normal way) as compensation for the breach.
Penalty clause: A liquidated damages clause which requires the party in breach to pay an excessive sum, such that it becomes a penalty, and therefore the clause will not be upheld.

Question 27

What is the Makdessi test?

Answer 27

The Makdessi approach to determining whether a clause is a penalty clause is:
- Is the clause a primary or secondary obligation? If primary, it will not engage the penalty rule at all (so it will be valid).
- If secondary, the clause will be a penalty if it imposes a detriment out of all proportion to any legitimate interest of the innocent party in the performance of the primary obligation.
Identify the legitimate business interest, then consider whether the detriment imposed is extravagant, exorbitant or unconscionable.
* The burden of proof is on the person alleging that the clause is a penalty to prove this.

(a) Is the clause a primary or secondary obligation?
(i) A clause will be primary if it is part of the primary obligations in the commercial context of the contract, ie furthers the commercial objective of the contract.
(ii) A clause will be secondary if it is an obligation triggered by breach of contract to
compensate the innocent party.
If primary, the clause will not engage the penalty rule at all (so it will be valid).
(b) If secondary, the clause will be a penalty if it imposes a detriment out of all proportion to any legitimate interest of the innocent party in the performance of the primary obligation.
To determine this the Supreme Court gave two steps:
(i) What (if any) legitimate business interest is served and protected by the clause?
(ii) Is the detriment imposed to protect that interest extravagant, exorbitant or
unconscionable?

In light of the decision in Makdessi, it seems that where parties have negotiated a contract, on a level playing field and with the assistance of professional advisors, it will be hard for the party paying liquidated damages to challenge the validity of those provisions on the basis that they are a penalty. If a clause is a primary obligation, it will not be a penalty clause. If a clause is a
secondary obligation, the clause will not be a penalty if it protects a legitimate business interest and imposes a detriment which is not disproportionate to protect the legitimate interest. The courts will hold this to be a valid liquidated damages clause.

Question 28

What is specific performance?

Answer 28

An order (or ‘decree’) of specific performance is issued by the court to the defendant, requiring it to carry out its obligations under a positive term of the contract.
What is the advantage of the court telling a party to do something which the contract already tells them to do? Breaching a court order for specific performance has more severe consequences than breaching a contract: it can be treated as contempt of court and lead to imprisonment.
These serious consequences make it unlikely that a party will refuse to comply with an order for specific performance.

Question 29

What is a prohibitory injunction?

Answer 29

A prohibitory injunction is a court order restraining a party from breaching a negative term. As with an order for specific performance, breach of a prohibitory injunction can be punished as contempt of court.

Question 30

Is an order for specific performance/prohibitory injunction always
available in the case of a breach of a positive term/negative term?

Answer 30

The most important point is that an order for specific performance or a prohibitory injunction will not be granted if damages are an appropriate and adequate remedy: Adderley v Dixon (1824) 3 S
& S 607.
To show that damages are inadequate in the specific performance context, it will need to be proved that the subject matter of the contract is unique or irreplaceable, or that an award of damages would be ineffective to provide adequate compensation. So, for example, an order for specific performance is unlikely to be appropriate for the failure to deliver a commonly available car – damages will be perfectly adequate to allow the innocent party to purchase a practically identical car elsewhere. On the other hand, specific performance might be an appropriate
remedy in cases of breach of a contract for the sale or lease of land, because in many cases land is unique.
Damages can usefully be seen as the ‘default’ remedy (and by far the most common remedy).
In addition, both specific performance and a prohibitory injunction are discretionary and equitable remedies.
Positive term (a term which requires a
party to do something)
Negative term (a term of a contract
which requires a party not to do
something)
Party A must work between the hours of 9am
and 5pm.
Party A must not work for a named
competitor.
Party A must paint the outside of her house
every 24 months or more frequently.
Party A must not use her garden for parties on weekdays.
Party A must purchase at least 25 tonnes of
steel from Party B each month.
Party A must not purchase steel from any
party other than Party B.

In this context, discretionary means the court can consider all relevant circumstances and there are no clear criteria which, if satisfied, entitle a party to an injunction. The discretion is, however,
exercised on certain well-established principles.
Equitable means that the remedies originate from the courts of equity, and equitable principles apply, including:
(a) The court will take into account the conduct of the claimant – because ‘he who comes to equity must come with clean hands’: Coatsworth v Johnson (1886) 55 LJQB 220. For example, a claimant which is itself also in breach of contract, or which gives an incomplete account of events to the court, is less likely to succeed in obtaining an order for specific performance or prohibitory injunction; and
(b) The action must be brought with reasonable promptness, as ‘delay defeats the equities’: Eads v Williams (1854) 4 De G Mac & g 674.
The principles above apply to both prohibitory injunctions and to orders for specific performance.

Question 31

What principles apply to the grant of specific performance?

Answer 31

(a) Specific performance will not be awarded where it would cause undue hardship on the defendant: Patel v Ali [1984] Ch 283.
(b) A promise given for no consideration is not specifically enforceable, even if made as a deed.
(c) Specific performance will not be awarded for breach of contracts of employment: s 236 Trade Union and Labour Relations (Consolidation) Act 1992. For other contracts involving services,
specific performance will not be awarded if there has been a breakdown of trust and
confidence between the parties, or if the court would need to consider subjective opinions regarding performance: CH Giles & Co Ltd v Morris [1972] 1 WLR 307.
(d) Specific performance will not be awarded for breach of an obligation to perform a series of acts which would need the constant supervision of the court (Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1).
(e) Specific performance will not be awarded for breach of a contract which is not binding on both parties. Thus where a contract is voidable at the option of party A, party B will not get specific performance against Party A. This principle is of particular importance in connection
with minors’ voidable contracts.

Question 32

How does substance not form relate to remedies?

Answer 32

The court will look at the substance of the proposed remedy when deciding whether it would amount to a prohibitory injunction or specific performance, not the superficial wording of the injunction.
For example, in Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 All ER 954, the defendant agreed to supply petrol to the claimant for a set period of time. In breach of contract, the defendant terminated the agreement early. The claimant sought an interim injunction preventing the defendant from terminating and withholding the supply.

The court held that although the injunction requested appeared to be in ‘negative’ terms (broadly, the defendant must not terminate the agreement/withhold supply), the effect of the injunction would be to require the defendant to supply petrol to the claimant. This is a requirement that the
defendant should do what the contract says it must do, and so in substance is an order for specific performance. Accordingly, the court decided the case according to the principles that apply to orders for specific performance, not those that apply to interim injunctions (and on the particular facts, the court found in the claimant’s favour).

Question 33

What is a guarantee?

Answer 33

A promise by a party to ensure that another party carries out its obligations, or a promise to fulfil those obligations itself if that other party does not do so.

A guarantee is a promise by C to ensure that A carries out its obligations, or a promise to fulfil those obligations itself if A does not do so.
- If A’s obligation ceases, C’s obligation also ceases.
- If there is a change to the contract between A and B, the guarantee will almost always be discharged.
- A guarantee must be in writing and signed by the guarantor.

Question 34

What is an indemnity?

Answer 34

A promise to reimburse someone in the event that they suffer a stated loss.

An indemnity is a promise by C to reimburse B in the event that they suffer a stated loss, for example because A fails to carry out its obligations.
- If A’s obligation ceases, C’s obligation remains in place.
- If there is a change to the contract between A and B, the indemnity will remain.
- An indemnity can also arise in a two-party context.

Question 35

What is the difference between a guarantee and an indemnity?

Answer 35

First, keep in mind that trying to ascertain whether a provision is a guarantee or an indemnity, what matters is the substance of the provision, not whether it is headed ‘guarantee’ or ‘indemnity’.
Secondly, there is an important difference if A’s obligation ceases, for example because the contract between A and B is set aside. If C has provided a guarantee, then C’s obligation under the guarantee will also cease, because it is dependent on A’s obligation. If C provided an indemnity, this would remain in place.
Thirdly, there is a further difference if there is a change to the contract between A and B after the guarantee/indemnity is given. In those circumstances, a guarantee would almost always be discharged. However, an indemnity would remain in force.
Finally, there are certain formalities that need to be followed to execute a guarantee – it must be in writing and signed by the guarantor. This is not the case in relation to an indemnity.
Do remember that C could give both an indemnity and a guarantee in relation to the loan by B to A, in which case B has the benefit of both!