Are the courts too soft on contract breakers?

A critical look at the “take your money and move on” approach

Two parties enter into a binding contract. One party fails to perform its obligation, thereby breaching the contract. The court orders compensation and they’re both expected to move on. As obvious as it may seem, sometimes a monetary sum fails to satisfy the actual expectation — that of the actual performance from the other end.

Yet the underlying theoretical approach that underpins English contract law has long been marked by the prioritisation of commercial efficiency, freedom of contract and practicality rather than policing justice to strictly uphold expectations. The fact that English courts are lukewarm about ordering the breaching party to perform their end of the bargain is the biggest reflection of this. The remedy of specific performance is simply unpopular.

The typical criticism was not unanticipated — the legal framework spoils contract-breakers with a sort of preferential treatment by allowing them to get away with breach via the payment of a sum as opposed to actual performance.

But does it really? The law does not aggressively intend to encourage contract-breaking; it rather seeks to prioritise alternative ideals that it considers more crucial than compulsion in this particular area of law. It does not prioritise the remedy of compensation with the direct intention of undermining the sanctity of performance or encouraging capricious behaviour. These might be ‘side-effects’ which still do prompt importance, but are perhaps less important than other objectives (in the eyes of the English court at least).

This approach is certainly not shared by other countries such as France, where there seems to be a moral connotation attached to the habit of promise-breaking. As for such arguments based on the ethical justifications behind promise-keeping and the requirement of punishment/deterrence, does the act of promise-breaking automatically render you the typical ‘man of bad faith’? It might just mean that your actions were dictated by what made the most commercial sense. Is there a difference between a deliberate breach of contract and a non-deliberate one? English law does not seem to think so.

This is not to say that courts never order specific performance. They can and they do when they consider it ‘just’ (whatever that really means) and of course subject to several conditions.

Most of the time, damages are adequate because there is most likely going to be a suitable substitute in the market. Moreover, judges are disinclined to compel performance because involuntary servitude (at least in cases of contracts for personal services) risks causing friction between parties. As Lord Hoffman put it in Co-operative v Argyll, specific performance “yokes parties together in a continuing hostile relationship”. Finally, sometimes an order of specific performance requires the court to constantly supervise that performance, and courts would much rather input their resources and time elsewhere. Such factors have certainty played a role in making damages a much more attractive remedy.

Courts want to circumvent economic waste. Why keep two parties in a contract that is clearly unwanted by one side? Whether this philosophy is right or wrong is a question for another day but the point is that the law is profoundly impacted by the economic philosophy of free enterprise which stresses that prevention of breach can actually be disadvantageous.

The law views cost-efficiency, commercial flexibility and practicality as critical for contracts. Over time, this has of course become conceptualised as a perceived empathy for contract-breakers and blatant neglect to the value of promise-keeping. This is further aggravated by the unavailability of punitive damages, which seek to impose liability beyond compensation in English contract law. Penalty clauses are also unwelcome (although there are trends that this might be changing with the Supreme Court’s landmark Cavendish v Makdessi ruling).

By nature, the English system redresses breach rather than prevents it — the latter is not what the law of remedies is necessarily meant to prioritise when it comes to commercial contracts. Courts seem to think that the duty of policing and ensuring good faith can find solace in other areas of law, and this belief might not be a totally unreasonable one. Thus, one of the substantial aims that underpins the remedial system can be simplified by the following phrase: take your money and move on (hopefully to something better).

Dalia Damanhouri is a recent London School of Economics LLM graduate.