Australia: Specific Performance or Rectification - equitable remedies for breach of contract

Last Updated: 26 November 2015
Article by Laurie James Am

Rectification and Specific Performance are what is called equitable remedies. The Supreme Court of Western Australia inherited the jurisdiction of the English common law Courts and also of the English Courts of Equity, combining both jurisdictions into a single Court. That jurisdictional approach is also applied by Arbitrators today.

Common law Courts worked on the basis of contracts as they are written and awarded damages for their breach. On the other hand, Courts of Equity were prepared to consider whether the contract as written reflected the true intentions of the parties. Also possible in equity, was getting a person to do something which that person was liable to do in favour of the other party, rather than simply seek to compensate the aggrieved party in damages.

The term "Rectification" refers to the equitable remedy of amending a contract so that it reflects the true intention of the parties at the time when the contract was entered into, in situations where as a result of a slip or error, the contract has been incorrectly filled out. It can also apply in the situation where one party has falsely induced the other to believe that the contract expresses their common intention, whereas in fact it does not.

Similarly, the term "Specific Performance" relates to a situation where under the terms of a contract, a party is obliged to perform certain actions in favour of the other, but neglects or refuses to do so. An order can be made directing the person to carry out the assigned task.

The Commercial Arbitration Act 2012 does not specifically refer to rectification, since, no doubt, it was assumed that arbitrators have power to award the same equitable remedies as the Courts. The Model Law similarly omits any reference to specific performance but, to avoid any doubt, s33A provides that, unless otherwise agreed by the parties, the arbitrator has power to make an award ordering specific performance of any contract if the Court would have power to award specific performance of that Contract.

The Courts would not order specific performance of a contract for personal service, so would not compel an employee to remain in his or her job. The Court did have other remedies in such a case, but that is outside the scope of this paper.

Principles of Specific Performance

As a general rule, the Courts will not order specific performance where a monetary sum by way of damages for non-performance are considered to be an adequate remedy. Similarly, they will not order specific performance in a case where some degree of discretion and supervision is required to see whether the performance is adequate.

In practice, remedies of specific performance which arbitrators are likely to be called upon to provide, would be likely to be confined to the carrying out of construction work or the delivery up of security documents, such as bank guarantees, after practical completion. These procedures are generally quite straight forward in an arbitration.

An arbitrator, in making an order for specific performance by the carrying out of incomplete or defective work, is really giving the contractor an opportunity to do this, as well as providing a benefit to the Principal, who does not need to go elsewhere to get the work done.

However, if the work is not completed or is delayed indefinitely, the arbitrator is not in a position to exert coercive force upon the respondent and will just have to substitute an order for damages, being the cost of carrying out the work.

By contrast, the Courts are not prepare to embark upon such an exercise. On one occasion, a claimant proprietor who obtained an arbitration award for rectification work registered it as a judgment and sought to enforce it against the respondent contractor. The contractor was only too willing to carry out the work, but could not get reasonable access. When the matter came on before a Judge, the Judge observed to the parties that the Court would not be prepared to make any coercive orders, since they would not be in a position to supervise the work or to certify that it had been completed. Nevertheless, as the contractor wanted to fix up the work rather than leave it outstanding, that did not in fact cause any difficulties and the work was subsequently completed.

By contrast, in a Supreme Court action where any order had been made for delivery up of the transfer signed by the defendant in respect of a block of land, and the defendant obstinately declined to sign and return, an application was made to the Judge for an order that the Master of the Court be permitted to sign the transfer, as contemplated by the Rules of Court and acceptable to the Titles Office.

However, the Judge looked sternly at the defendant, who was then present in Court, and warned him that if he did not sign and return the document, the Judge would have no hesitation in committing him to prison for contempt! This is not an option available to an arbitrator.

Arbitrators can always make final awards for payment of money if every attempt at getting the respondent to comply with interim specific performance awards fail. In general they are complied with. However, the writer can recall one occasion on which it took so long to work through so many different lists, constantly diminishing but never entirely disappearing, that ultimately the parties and the arbitrator gave up and the arbitrator made an award for a sum in lieu, assessed by the arbitrator, an architect.

Principles of Law in Relation to Rectification

Rectification is available in circumstances where the parties have used words which, when properly construed, do not express their intention: NSW Medical Defence Union v Transport Industries Insurance [1986] 6NSWLR 740. It must be shown by clear and convincing proof that when the Contract was executed, the parties had a common intention which was not expressed correctly in the document itself: Vantage Systems v. Priolo Corporation (2015) WASCA 21.

In construing the document, it is trite law that a subjective intention of the parties is not relevant. However, when considering rectification, evidence of a subjective common intention is fundamental: Ryledar v. Euphoric [2007] NSWCA 65. However, what is said in Ryledar is that where the words in the document convey an unambiguous legal effect, it is less likely that the parties had a common intention inconsistent with those words.

It is not a legal bar to rectification to show that the words used in the instrument are chosen, but the parties are mistaken as to the meaning or effect of those deliberately chosen words: Mander v Clements [2005] 30 WAR 46. However, if deliberately chosen words are used, rectification is only available if there is clear and convincing evidence that those words were chosen under the impression that they conveyed the meaning of the common intention.

There may also be an equitable estoppel precluding the party from denying a common intention, where that party has induced the other party to sign the document under a mistaken belief that the document represented what had been previously agreed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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