Week 12 equitable remedies PDF

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TOPI CTWELVE:EQUI TABLEREMEDI ES READING: GE Dal Pont & DRC Chalmers, Equity & Trusts in Australia (4th ed, 2007) Chapters 31, 32, 33, 34 and 39. EQUITABLE REMEDIES There are three distinctive features of equitable remedies. They are: (a)

that they are discretionary in nature rather than available as of right;

(b)

that their availability depends upon the inadequacy of common law remedies; and

(c)

that they are governed by the doctrine that equity acts in personam.

It is in the area of equitable remedies that equity has shown the greatest degree of flexibility and inventiveness. As to the discretionary nature of equitable remedies, we will say more below in the context of equitable defences. Item (b), the availability of remedies depending upon the inadequacy of common law remedies, gives expression to the traditional notion that equity acts as a supplement to the common law and provides relief against the technical limitations of the common law. The principal remedy at common law is the award of damages. The inadequacy of such a remedy in all cases should be evident. For example, a purchaser of an irreplaceable item could not really be compensated in damages on the basis of loss if the vendor reneged on performance of the contract. This is because, in a sense, the loss is unquantifiable. Hence equity developed the remedy of specific performance order requiring that the vendor under such a contract perform and carry out the obligations, which he or she has undertaken. Alternatively, a person whose next-door neighbour is about to construct a dwelling house which will interfere with the first person’s right to light would not be adequately compensated by allowing the dwelling to go ahead and then claiming compensation. The mere threat of a future action for damages for infringement of a common law right will be of little deterrence. Hence equity has available the remedy of an injunction which would restrain the commission or even the anticipated commission of breach by the neighbour.

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Finally, a party to a contract might be entitled to rescind the contact as a result of the fraud of the other party. However a right to rescind for fraud might not be enforceable at common law because the law requires that a complete restoration of the parties to their original position must be possible. Equity in such a case would take a less strict view and would order rescission of the contract where an approximate and fair degree of restoration of the parties to their original pre-contract positions were possible. In such a case equity would regard itself as giving better effect to a common law right than the common law could achieve. The third feature, item (c), is that equity acts in personam. The distinctiveness of equitable remedies lies in the fact that equitable jurisdiction was to make orders against the defendant personally. The equitable jurisdiction is invoked on the basis that the defendant is within the jurisdiction, even though the making of an order might affect assets located outside the jurisdiction. The order against the defendant requires that the defendant personally comply with the order. In the event of a failure to do so the defendant might be found guilty of contempt and subject to imprisonment. Alternatively, or in addition, the defendant’s property could be placed under the control of the court by way of a sequestration order. In the event of continuing failure by the defendant to carry out or comply with the order, for example by executing a transfer of the legal title to property, the registrar of the court could be empowered to perform the legal acts required of the defendant so far as they can be performed by another. Most remedies, whether at common law or equity, are personal rather than with respect to the recovery of a specific thing. For example, this is the case with respect to damages at common law just as much as the injunction in equity. You will need to understand however that some remedies are also called proprietary remedies.

An action for

ejectment from land is a form of common law proprietary remedy. There are also remedies for the recovery of specific items of property in equity. This does not deny the fact that the remedy is against the defendant personally. It is called proprietary because it requires the restitution of a specific item of property which has come into the hands of the defendant.

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SPECIFIC PERFORMANCE The remedy of specific performance is one which is available to a party to a contract and, as a consequence of the doctrine of privity of contract, only to a party to a contract . It is accepted, generally that there are two senses of the term. In the narrow sense it means doing something to settle the legal rights of parties, eg ordering that a deed be executed. More generally, it has the remedial sense of the execution in specie of any contractual obligation to perform an act, whether by way of settling or defining the rights of the parties, or by enforcing the rights so settled or defined. It is this more general or common sense that we will be concerned with here. The availability of the remedy of specific performance is to be considered independently of other possible remedies. For example an injunction may be available where specific performance is not, or vice versa. An order made for specific performance may settle the whole of the issue or issues which exist between the parties, for example, whether there is a contract, whether the rights of the parties are enforceable and so on. There is no need to seek a declaration of the rights of the parties as a precedent to obtaining an order for specific performance of a contract. The effect of an order for specific performance does not extinguish the contract in question. However, the order may override the explicit terms of the contract. For example, whether the court provides directions as an adjunct to the specific performance order proper. The contract will then be deemed to contain the terms which are the subject of the directions.

Usually these will be directions as to particular performance

conditions. The remedy of specific performance is only available with respect to agreements supported by consideration. It will not be made available to enforce a deed under seal otherwise enforceable as a contract but not supported by consideration. The element of consideration in a simple contract justifies the equity of enforcement by way of specific performance order. See Jefferys v Jefferys (1841) Cr. & Ph. 138, 41 ER 443. In terms of what is a sufficient consideration for these purposes, equity follows the law. The remedy will be available in circumstances where damages will be regarded as inadequate. This requirement stems from the nature of the jurisdiction under which equity

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is regarded as supplementary to the common law. It is necessary to show that the common law remedies would not provide adequately for the plaintiff. This particular condition is not as significant now as was once formerly the case.

The issue in

contemporary approaches is not whether more-or-less the same result would flow from a grant of damages, but whether it would be more just to grant specific performance than award damages. Historically, contracts for the sale of land have always been regarded as amenable to an order for specific performance because primarily of their fixity and their value and this is so even when the land is purchased for speculative purposes. In the case of personalty, the availability of the remedy is not automatic. At least that was the traditional view, but the remedy has been increasingly made available. It is usually necessary to show that there is some special interest in enforcement of the contract against the other party, eg because of the lack of adequacy of damages in a particular case where a chattel is of special value or where there is no adequate market for the goods in question.

READ Dougan v Ley (1946) 71 CLR 142.

Other factors which have

sometimes been taken into account are: l.

The solvency of the defendant;

2.

The benefits which might flow to third parties from enforcement of the contract and their likely deprivation if not enforced;

3.

In the case of a loan agreement, that damages are inadequate;

4.

Agreements for enforcement of partnerships. See Renowden v Henry [1951] VLR 13; and

5.

Agreements for the grant of a licence which are special in nature and difficult to replace, for example, a taxi cab licence.

The question will arise as to when the inadequacy of damages is to be determined. At one stage this used to be the date of the contract and in other cases it has been held to be the institution of proceedings. The more recent tendency in the equity courts has been to treat it at the time of the making of the order and taking account of all relevant facts, which have emerged up to that time. Clauses pre-assessing damages are not usually construed as denying the possibility of specific performance. Clauses providing for

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specific performance, on the other hand, do not necessarily guarantee the availability of the remedy because it, like all other remedies in equity are discretionary. The availability of a specific performance order does not depend upon breach or even, strictly speaking, upon the occurrence of an anticipatory breach. It is enough if the other party makes a mere threat of refusal of performance of some material obligation under the contract. The threat need not relate to a refusal of performance of the whole of the contractual obligations. The entitlement to specific performance may arise even where there is a condition precedent which has not been fulfilled by the proposed plaintiff. There must be in general a probability or likelihood of refusal which is something more than either speculative or theoretical. The issue will be determined in large part by considerations of justice and injustice as warranting or not warranting this form of remedy. There are a number of particular defences which can arise in relation to specific performance and these are generally categorised as conclusive or discretionary, although some writers have indicated that the conclusive categories are also really discretionary in nature. The conclusive defences are as follows: Firstly there will be the usual contractual grounds for vitiating, avoiding or rendering contracts unenforceable. Some of these will have been encountered already in the course on Contracts. They include public policy, non est factum, various forms of mistake, illegality, impossibility, frustration and so on. If there is no contract or no enforceable contract then of course that can be pleaded as a defence to an action of forced specific performance. Secondly, lack of mutuality in relation to the contract. Specific performance must operate without hardship or injustice to either or both of the parties. For example, where the plaintiffs own obligations could not be specifically enforced for a variety of reasons, an order may be refused. The same may be said of the existence of circumstances which render enforcement against one of the parties (and hence a lack of mutuality) unjust or unreasonable. Usually the circumstances here are judged, once again, at the time of the making of the order.

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Thirdly, lack of supervision of the order. This is an extremely complex issue. However, in basic terms, the court should be able to say, on subsequent proceedings, whether the order for specific performance has been properly carried out by the party against whom it is made. Finally, it will a conclusive defence where the performance would be futile or impossible. The main discretionary defences are usually associated with particular equitable defences which will be examined later on.

These defences usually invoke special

doctrines such as failure to do equity, the clean hands doctrine or particular defences such as laches or acquiescence. Some of the areas of discretionary defence which are worthy of mention are as follows: Firstly, where the making of the order would compel and breach of trust by one of the parties. Secondly, where relationships with third parties would be deleteriously affected, for example under a prior or subsequent contract. The issue here is really judged in terms of fairness or hardship but there is a reluctance on the part of the equity courts to interfere with the rights of third parties. Thirdly, where there has been a mistake or error by one party to the contract even if the mistake is not such as to totally vitiate the legal effect of the contract, eg by making it void or even giving rise to recession. In these cases, specific performance may be denied. See Tamplin v James (1880) 15 Ch.D. 215. Similar issues arise in relation to misrepresentation or issues of a similar nature. Finally, the plaintiff will be denied a remedy unless he or she is able as a matter of fact to allege and prove that he or she is ready and willing to perform their part of the contract. A plaintiff who lacks the ability and/or the intention to perform his or her obligations under the contract may, but not always, be denied the remedy of specific performance.

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INJUNCTIONS It has already been noted, and in fact emphasised, that the strength and vitality of equity derived largely from its ability to frame a remedy to match the particular wrong that has been committed and in this respect, could be contrasted with the common law. An injunction is an order of an equitable nature restraining the person to whom it is directed from performing a specified act or requiring him or her to perform a specified act. The unlawful interference with the plaintiff’s legal or equitable rights represents the proper occasion for equitable intervention in the form of an injunction. As the consequences of granting an injunction may be far reaching, an injunction will not lightly be granted. It is therefore a general rule that an injunction will not be awarded where there is an adequate remedy at law. However, no strict rules govern the award of injunctions because this would be inconsistent with the nature of equitable relief. Kirby P. stated in Silktone Pty Ltd v Devical Capital Pty Ltd (1990) 21 NSWLR 317 at 323-4 “The injunction, final or interlocutory, is a remedy of great utility. The circumstances in which it may be sought are so infinitely varied that it is undesirable to bind up the grant of the remedy in rules devised to meet the perceived needs of justice in a particular case. On the contrary, it is desirable to keep the remedy flexible so that it may by fashioned and adapted, as the needs of particular cases require. The rules guiding judges to their decisions upon applications for the remedy should be kept as simple and clear as possible”. Because of the seriousness of the grant of an injunction and the gravity of consequences of its breach, it is the necessary requisite of every injunction and every mandatory order that it should be quite certain and definite in its terms and it must or ought to be quite clear what the person against whom the injunction or order is made is required to do or refrain from doing. Epitoma Pty Ltd v Australasian Meat Employees Union (1984) 3 FCR 55. It also must be capable of supervision by a court. Although injunctions may be classified by the type of order sought (mandatory or prohibitory), or the stage of proceedings at which they are sought (interim or interlocutory or final), the principal distinction is between the equitable and legal injunction; the order to prevent breaches of a purely equitable obligation in the one hand (the exclusive jurisdiction) and to prevent breaches of a legal obligation or in aid of the

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protection of legal rights (the auxiliary jurisdiction). Although in the aftermath of Judicature Act type provisions (S25(8) Judicature Act, S66 Supreme Court Act 1970 injunctions are placed on a statutory basis, the matters going to an (NSW)) exercise of discretion to grant injunction still depend on the preexisting law and practice, which retained relevant distinctions. The exclusive jurisdiction. Injunctions are frequently granted in an award of equitable relief to a plaintiff who is primarily suing for some other equitable remedy. Thus, as incidental to a vendor-plaintiff’s right to set aside for undue influence a conveyance of land to the defendant, an injunction will be granted forbidding the defendant purchaser from selling, mortgaging, leasing, alienating or otherwise dealing with the land except in accordance with the direction of the plaintiff. Injunctions in the exclusive jurisdiction are also frequently granted when the plaintiff does not seek any other equitable relief. Thus, a plaintiff cestui que trust can obtain an injunction restraining a defendant trustee from committing a threatened or apprehended breach of trust. Historical examples to note in passing are an injunction to prevent the improper marriage of a ward of court, and to restrain an unworthy executor from dealing with estate assets: Bowen v Phillips [1897] 1 Ch 174. Indeed, it may be said that whenever a plaintiff can show that some equitable right is vested in him which the defendant has threatened to infringe or which the defendant has already infringed and is either continuing or about to infringe repeatedly, the plaintiff may (in the usual case and subject to the qualification stated by Kirby P relating to flexibility) obtain an injunction as of right. His right to the injunction can only be defeated if the defendant can make out one of the traditional equitable defences of laches, acquiescence want of clean hands. It is not necessary in this jurisdiction to establish that it is a proprietary right that is sought to be protected, or to consider whether an award of damages would or would not be a sufficient remedy if an injunction were refused. Problems can arise as to whether the subject right should properly be classified as legal or equitable. It has been suggested, for example, that the right to work is a novel equity: Nagle v Fielden [1966] 2 QB 633 per Lord Denning MR. The High Court certainly approached the case of Buckley v Tutty (1971) 125 CLR 353 on

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that basis. In discussing the remedy to be granted after the Rugby League transfer rules were held invalid, the High Court (Barwick CJ, McTiernan, Windeyer, Owen and Gibbs JJ) considered the situation in the case where, on the facts, it was unclear whether the player Tutty was contractually bound to the League. It was held that, on the basis that the plaintiff had a right to work, and that the League and the Balmain club would seek to enforce the transfer rules against him and other players, there was a real dispute between the parties, and that the plaintiff had a sufficient interest to protect to obtain a declaration and an injunction even though the contractual position was unclear. A similar analysis was undertaken in respect of confidential information by the Court of Appeal (Eng) in Norwich Pharmacal Co v Commissioners of Customs and Excise [1974] AC 133 at 146 where an equitable duty on the part of a bailee not to permit release of goods infringing an intellectual property right was held to exist; and (as it was not contractual or tortious, and the bailee had committed no wrong) the remedies for breach of such an equitable duty were equitable and could be restrained by injunction. (see RP Meagher, WMC Gummow & JRF Lehane, Equity Doctrines and Remedies (3rd ed, 1992) [2103] for discussion of this issue). As noted, the classification of such novel rights as equitable enables their apprehended or actual breach to be remedied by injunction, without the need to show a proprietary right or that damages would be inadequate as a remedy. Auxiliary jurisdiction: (a)

General Rules. What has to be proved is (1) infringement of a legal right of an established kind which (2) is proprietar...