Contracts, specific performance and interlocutory injunctions

The Victorian Supreme Court has recently refused to grant an interlocutory injunction that would have the effect of requiring specific performance of a contract. In addition to giving persuasive reasons for doing so, the decision in Hera Project Pty Ltd v Bisognin & Anor[1] more broadly represents a useful illustration of the principles to be applied when considering an application for an injunction.

The facts

Hera Project Pty Ltd was purchaser, and the defendants the vendors, of an undivided parcel of land. There were terms of the contract that in order to complete the sale it was necessary for subdivision of the land to be registered, and that failure to do so by a particular date would give either party grounds to terminate the contact by written notice.

The parties disagreed about the effect of those terms. The dispute became a five day trial before Sloss J of the Court in March this year,[2] and orders giving effect to the Court’s reasons were made in late June. Her Honour’s orders provided, amongst other things, that:

  • the date upon which either party could terminate the contract for failure to register the subdivision was extended to 31 August; and
  • the vendors were to use their ‘best endeavours’ to cooperate with Hera Project to effect registration of the subdivision.

The vendors sought leave to appeal her Honour’s decision to the Court of Appeal. If successful on appeal they claimed they would seek to rescind the contract.

In the meantime, as the 31 August deadline for registration of the subdivision drew near and suspecting that the vendors might seek to terminate the contract, Hera Project applied for interim relief. Hera Project sought:

  • a prohibitory injunction preventing termination of the contract; and
  • a mandatory injunction requiring the vendors to take steps to execute the contract, that is, specific performance of the contract.

The matter was heard before Macaulay J on 30 August, and his Honour made an interim order restraining the vendors from terminating the contract along the lines of the prohibitory injunction sought. In mid-September, his Honour heard the parties on the substantive injunction application.

The Court’s reasoning

Macaulay J articulated the questions before the Court as being:

  • whether the order made 30 August for the prohibitory injunction should remain in place; and
  • whether the Court should grant a mandatory injunction which effectively required specific performance of the contract.

In approaching these questions, his Honour applied the principles relating to the granting of injunctions as set out cases including Australian Broadcasting Corporation v O’Neill[3] and Bradto Pty Ltd v State of Victoria,[4] namely:

  • whether there is a serious question to be tried;
  • whether the balance of convenience favours the grant of the injunction and, as part of that enquiry, whether damages would be an adequate remedy in lieu; and
  • whether an undertaking as to damages on the part of the party seeking injunctive relief would be adequate in all the circumstances, should the injunction be granted.

Should the prohibitory injunction remain?

In determining whether the prohibitory injunction ought remain in place, his Honour found there was a serious question to be tried. His Honour observed that not only was there ‘extensive evidence’ before the Court about the vendors’ failure to use their best endeavours to complete the contract,[5] but that Hera Project appeared to have a strong case on the issue. Given the interlocutory nature of things, however, the Court declined to make any determinative findings.

The vendors, while not resisting a continuance of the prohibitory injunction preventing termination of the contract, did seek an undertaking as to damages. On the question of the adequacy of Hera Project’s undertaking as to damages, while there was some doubt raised about the strength of the undertaking the Court considered that the issue ought be looked at in light of the broader question of where the balance of convenience lay. His Honour stated:

‘[T]he question of whether the undertaking as to damages is likely to be sufficient to enable the enjoined party to enforce an award of damages if such an award is later granted, is to be considered as part of the totality of factors when determining the balance of convenience. It is not a step that is considered separately from or before weighing that balance [and] it is not an inflexible requirement for the grant of an interlocutory injunction’.[6]

His Honour went on to order a continuation of the prohibitory injunction, noting that the vendors should not be allowed to terminate the contract while Hera Project had the benefit of Sloss J’s earlier judgment in the proceeding.

Should the Court order specific performance?

At the outset, his Honour considered the application for specific performance at an interlocutory stage to be ‘misconceived’, holding that:

‘That type of relief is generally only appropriate after the trial of the proceeding when a court can make findings of fact relevant for the determination of whether the relief should be granted’.[7]

For his Honour, such findings of fact would include whether the vendors had in reality failed to use their best endeavours to complete the contract, whether there would be hardship in having them do so, and whether Hera Project on its part had been ready, willing and able to complete the contract.

His Honour then turned to the principles governing the award of specific performance as a form of final relief at a trial of a proceeding, as set out in the New South Wales Supreme Court case of Boyarsky v Taylor.[8] In particular, his Honour was mindful of the balance to be struck in weighing the hardship to a party compelled to effect specific performance and the hardship to the party seeking that remedy. His Honour identified deficiencies in the vendors’ case for hardship — they had cited difficulties in obtaining finance in order to pay public authorities for the subdivision — but, in line with the criterion of a ‘serious question to be tried’, considered that it was not appropriate to make determinative findings at an interlocutory stage.

His Honour considered that the balance of convenience was the critical issue in the present application, ultimately holding that the balance went against ordering the mandatory injunction for specific performance. It appears that his Honour reached that view for the following reasons.

First, his Honour considered that if specific performance were ordered and the vendors later succeeded in their appeal against the orders of Sloss J — with the ultimate effect that the vendors could rescind the contract — the vendors would be without means to recover the land.

Secondly, ordering specific performance at an interlocutory stage would be tantamount to ‘finally determin[ing] the controversy ... without a trial’.[9]

Thirdly, any injustice to Hera Project in not securing specific performance would be less than that which might flow to the vendors were specific performance to be ordered. Although Hera Project had spent money in attempting to have the contract completed and there was some doubt about the feasibility of its plans to develop the land in the future, his Honour did not consider such points sufficiently compelling.

Finally, with the prohibitory injunction still in place preventing the vendors from terminating the contract, it would still be open to Hera Project to seek specific performance as a remedy at trial and also to sue for damages should the vendors be found to have breached the contract.

Conclusion

Beyond illustrating how the principles governing the granting of interlocutory injunctions can apply, the decision in Hera Project Pty Ltd v Bisognin & Anor serves as a useful reminder of the courts’ reluctance to order specific performance of a contract at such a juncture. The Court’s refusal to grant a mandatory injunction for the performance of a contract in this case can be appreciated in light of the broader dispute between the parties and the need to avoid irreparable prejudice to either party.


[1]: [2016] VSC 591.

[2]: Bisognin & Anor v Hera Project Pty Ltd [2016] VSC 75.

[3]: (2006) 227 CLR 57.

[4]: [2006] VSCA 89.

[5]: [2016] VSC 591 [21].

[6]: Ibid [39] (emphasis added).

[7]: Ibid [6].

[8]: [2008] NSWSC 1415.

[9]: [2016] VSC 591 [32].