Monday, April 14, 2008

SPECIFIC PERFORMANCE-[CONTRACT LAW]

SPECIFIC PERFORMANCE

The legal relationship between Ali dan Baba arise by Sale and Purchase Agreement [thereafter known as SPA] entered both parties for a piece of land in Nilai measuring 500 acres. The contract between them named Ali as a land owner and Baba as a purchaser of that land. As a result both Ali and Baba entered into legally binding SPA on February 2006 and upon signing and execution of SPA document the 10% as earnest deposit paid to Ali by Baba.

However, Ali on March 2006 terminates the SPA on the ground of delay in Baba’s loan application approval. But, this is unfair to Baba because he is relying on the validity of SPA for the terms of three [3] months before it can be revoked by either party or Ali. Ali was so greedy and influence with the high offer by Enstek Development Corporation and failure of Ali to revoke the Agreement just within one [1] month by not wait till the expiry of the term 3 months stipulated under SPA for the approval of the loan application is a fatal to the contract of sales and purchase of land.

And so, Baba is on a better position to enforce his contractual rights provided under equitable remedies which is specific performance. What is specific performance? Specific performance is an order requiring a party to a contract to perform or complete the performance of his or her obligations under the contract. The effect of the order is therefore to put the parties into the position they would have been in had the contract been performed, and it is the equitable equivalent of damages in respect of the claimant's expectation loss. If the party refuses to obey the court's order then the court could proceed against him for contempt of court. The provision for the grant of a decree for specific performance of contracts are found under Section 11 till Section 29 of the Specific Relief Act 1950 [Act 137]

The remedy of specific performance is discretionary power of the court, but the circumstances in which it will or will not be grant­ed are to a considerable extent certain. Rather than attempting to define when specific performance will be granted, the courts have defined the bars to the granting of an order, and tend to approach the exercise of discretion negatively: if there is nothing against the making of an order, it will be made.
There are numerous most impor­tant possible bars, which the court will consider before granting an order of specific performance.

There are three main principles which will derive to the conclusion of a judge in granting an order of specific performance only in the circumstances that:-
  1. Damages would not be an adequate remedy
  2. The court could not effectively enforce its order because constant supervision by the court would be necessary
  3. It must be a Contract for non-personal work and services

(1)DAMAGES WOULD NOT BE AN ADEQUATE REMEDY

The first and principal hurdle for a claimant to overcome is to show that damages would not be an adequate remedy. In most cases, damages are adequate and so specific perform­ance will not be ordered. In order to show that they are not adequate, the claimant will usually have to demonstrate either the uniqueness of the thing contracted for, and/or the financial ineffectiveness of damages.

In example, if A refused to transport B's cargo to Colombo. B may well apply to the court for a decree of specific performance ordering A to carry out the contract.

However, specific performance will not be granted where the damages will provide an adequate remedy. In the above case, the court may not allow B's application for specific performance because B could send the cargo to Colombo on another ship and could claim damages for any extra expenses incurred or loss of profits suffered as a result of A's breach of contract.

Thus an appropriate case for the grant of specific performance is a contract concerning land or goods of particular rarity. In a decided case of Zaibun Sa bte Syed Ahmad v Loh Koon Moy & Anor [1982] 2 MLJ 92 A contracts to sell to B certain pieces of land adjacent to some land on which B was carrying out mining operations. Later A refused to sell and B sued for specific performance. The Privy Council held that the land in question was of particular importance for use in association with B's tin mining operations and compensation by way of money, i.e. `damages' to B, would not afford adequate relief. The court granted B's claim for specific performance. So relying on the same principle Baba has a better title to claim for specific performance because In contracts for the sale of property such as land the adequacy of damages may well depend on the uniqueness of the thing which the claimant contracted to buy. It may be unique either because there is no other thing in existence like it, or because, however ordinary the thing is, the claimant if awarded damages would be unable to obtain another thing like it from anywhere else.

(2)THE COURT COULD NOT EFFECTIVELY ENFORCE ITS ORDER BECAUSE CONSTANT SUPERVISION BY THE COURT WOULD BE NECESSARY

The general principle is that, the court could not effectively enforce its order because constant supervision by the court would be necessary. In the case of Lee Sau Kong v Leow Cheng Chiang [1961] MLJ 17 A agreed to purchase from B all the scrap iron lying within a certain concession in Terengganu. Later B alleged that A had removed from the concession machinery and metal other than scrap. This dispute was amicably settled and A gave B a cheque for RM4,000.00 The cheque bounced and B terminated the contract by refusing to allow A to remove scrap iron from the concession. A sued B for specific performance.

It was held that B had no justification to terminate the contract. B should have taken other action in order to recover on the bounced cheque. Therefore B was in breach of contract. However the court refused to order specific performance because of the prevailing state of confusion as to the subject matter of the contract. Any order for specific performance would involve a degree of watching and supervision by the court which would be altogether impracticable. Arguably, the difficulty of supervision is no longer a bar to specific performance, but rather a factor going to the court's discretion. It may be that the need for supervision, even constant supervision, will not prevent specific per­formance being granted where it is important to protect the claimant's interest and where it is clear from the contract and/or order what the defendant is required to do such as in the case between Ali and Baba whereby supervision of court is necessary to ensure that Ali as parties to the contract perform his contractual rights as he agreed through SPA.

(3)IT MUST BE A CONTRACT FOR NON-PERSONAL WORK AND SERVICES

It is well established that the court will not order specific performance of a contract involving personal services, or service contracts which are personal in nature. In an English case, Lumley v Wagner [1852] 1 De GM & G 604;42 ER 687 A, a famous opera singer contracted to sing for B at a theatre for three months and promised that she will not sing elsewhere during that time without B's written permission. A later agreed, for a larger sum of money, to sing for C at the Covent Gardens and abandoned her agreement with B. B thereupon sued for specific performance of the contract.

The court held that it will not enforce a positive covenant of personal service and therefore would not order A to sing at B's theatre. However the court granted an injunction restraining A from singing for C in breach of contract. However, in the case involving Ali and Baba where the contract requires the performance of services which are not personal in nature, there is no bar, even if the services are to be performed by a particular individual so Baba is liable to obtain the order of specific performance against Ali to withdraw the termination of SPA otherwise carry on the contract as stipulated by terms and condition of the agreed agreement.

Beside that, in common law there are others additional circumstances whereby Specific performance will be refused by the court:-

  1. Where it would cause severe hardship to the defen­dant;
  2. Where the court cannot grant specific performance of the contract as a whole;
  3. Specific performance will not be granted where it would be in vain to do so;
  4. Contract too vague and it is so impossible for the order to state exactly what the defendant is required to do; and
  5. The claimant who willing to claim must come with clean hands.

As a conclusion, Baba should apply for the order of specific performance and the court might grant the order by taking into considerations of the following above matters. Because Ali only can lawfully terminate the agreement during the expiry of three (3) months as stipulated under SPA.

No comments: