25 January 2016
Juli Lau, associate in the procurement team, explores a recent case which saw an unprecedented order for specific performance being granted prior to the relevant obligation arising and breach of contract occurring, and will be of interest to contractual parties who face programme delays which indicate that an obligation can no longer be fulfilled.
Airport Industrial GP Ltd, the claimant, and the first defendant, Heathrow Airport Ltd, contend that the second defendant, AP16 Ltd, is obliged to create a car park on the relevant site at Heathrow and then make that car park available free of charge to Airport Industrial GP Ltd. AP16 Ltd, however, argued that any such obligation had not yet arisen.
The site had been granted by lease from Heathrow Airport Ltd to AP16 Ltd in 2005, in which AP16 Ltd covenanted with Heathrow Airport Ltd to comply with certain obligations relating to the site. There had been a number of leases and agreements concerning the site between various parties, going back to 1990, which the judge looked at in considerable detail. He concluded that the relevant clauses gave rise to a contractual obligation by AP16 Ltd to provide 280 car park spaces free of charge to Airport Industrial GP Ltd and its tenants, at the site, no later than on 22 October 2016.
The Privy Council case of Hasham v Zenab  AC 316 established that a claim for specific performance could be brought before the relevant date for performance arose, but Morgan J considered that he could go further (on the basis of an indication from the Privy Council in Hasham that this was possible), to grant an order, prior to the relevant date, that AP16 Ltd’s contractual obligation should be specifically performed and carried into effect. Further, he considered himself able to give directions as to the steps that AP16 Ltd need to take before 22 October 2016, in order to bring about the performance of its obligation on or soon after that date.
AP16 Ltd's contractual obligation is expressed as an obligation to produce a certain result rather than to carry out building works. Nevertheless, Morgan J found it helpful to refer to the principles arising from Rainbow Estates Ltd v Tokenhold Ltd  Ch 64, in which the court had to consider a claim for specific performance where the obligation was to carry out specified works:
Heathrow Airport Ltd does not have a right under the lease to enter the site to carry out building works; Heathrow Airport Ltd does not have a right to forfeit the lease by reason of AP16 Ltd's failure to provide the car park spaces. AP16 Ltd did not contend in proceedings that damages would be an adequate remedy for Heathrow Airport Ltd in respect of AP16 Ltd's anticipated breach of the lease.
Accordingly, Morgan J decided that there should be an order for specific performance in favour of Heathrow Airport Ltd against AP16 Ltd, and that AP16 Ltd's performance of its obligation should be under the supervision of the court.
At the same time, the judge held that AP16 Ltd ought to be granted its request for a two-year period of delay in providing the car park. During this time it would attempt to develop the site so that it could make a profit from it, through building a multi-storey car park in excess of the required 280 spaces.
Morgan J said that he would have ordered that the 280 spaces be provided and not given AP16 Ltd the chance to consider a profitable solution, had this been necessary to protect Heathrow Airport Ltd and the claimants from serious harm to their legitimate interests. However, he decided that during the two-year delay from October 2016, damages would be an adequate remedy for Heathrow Airport Ltd and the claimants, and that it would be disproportionate to punish AP16 Ltd for its failure to provide the car park by taking from it any prospect of it being able to make some profitable use of its land.
Going even further into the potential practical implications, Morgan J said that it was highly likely that ordering AP16 Ltd to construct only the 280 spaces, and providing them free of charge, would render it insolvent, and that the likely outcome of liquidation would be that Heathrow Airport Ltd would repossess the site; Heathrow Airport Ltd would likely then build a larger carpark scheme along the lines now being proposed by AP16 Ltd, rather than simply building 280 spaces for free use by the claimants. This seemed to have been a further factor in his decision to grant the two-year period to AP16 Ltd.
The judge did, however, state that the court's order should seek to specify milestones to be achieved, and that if a milestone is missed then AP16 Ltd will be obliged to abandon its plans and proceed to solely build the 280-space surface carpark.
This was an unprecedented grant of an order for specific performance prior to the obligation arising and breach of contract occurring, and will be of interest to employers (and contractors ought to be warned) where programme delays indicate that an obligation can no longer be fulfilled by a specified date. Parties may not go as far as obtaining an order for specific performance, but the case does indicate a strengthening of the beneficiary’s bargaining position earlier in the potential dispute.
This case also acts as a reminder that a specific performance order to achieve a result may necessitate court supervision of the final product. The court may even be willing to give such directions as to ensure that all steps are being taken in the run-up to the relevant completion date.
The decision to grant the two-year delay shows that the court is prepared to give significant consideration to the likely commercial implications not just in interpreting the contractual terms, as has often been seen in recent cases, but in deciding the extent of the remedy to be given, even where the claimant had successfully established a breach of contract by the defendant.
This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.
© Copyright 2019 Sharpe Pritchard