Unless you’ve been living under a rock, you’ve probably heard that Twitter is suing Elon Musk.
Putting to one side the sheer entertainment value that litigation like this will likely bring us all, it’s probably helpful to understand what Twitter is actually suing for and whether something like that might happen to you in Australia.
The key words here are “specific performance” – that’s what Twitter is suing musk for.
So what is specific performance, and when might it come up in Australia?
This is a topic entire textbooks have been written on (like this one here), so we’re going to keep it pretty high level, just providing the essential information you might need as a business owner.
What is Specific Performance?
There are many different types of orders you can ask a Court for.
The most common (at least in business disputes) is where one party asks for an order that the other pay them money (damages or debt claims).
Sometimes you might ask the Court to declare that a particular interpretation of a Contract is correct (a declaration).
Other times you might ask the Court to restrain someone from doing something (an injunction).
Specific performance is where you ask a Court to force someone to complete a particular agreement in a particular way.
So, for example, let’s say you got into a contract to buy some land, and the seller tried to pull out without a lawful excuse. You might consider whether you could ask the Court for “specific performance” – forcing them to go through with the sale by attending completion and signing the necessary transfers.
What do you Need to Prove?
In Australia, specific performance orders aren’t available just by choice – you have to meet certain criteria to be able to ask the Court for that kind of order.
Specifically (yep – that was a joke) you will almost always need to show these things:
A Binding Contract
You can’t compel someone to fulfil their obligations under a contract if that contract doesn’t exist.
It’s not always 100% clear whether a binding contract is in place. While a formal document signed by both parties is generally fine, not all contracts are signed, and many aren’t even in writing at all.
So the starting point to even contemplate seeking specific performance is that you must demonstrate the existence of a binding contract.
Actual or Anticipated Breach
The Court won’t start making orders just because you have a nebulous concern that the other party might not turn up on settlement day.
There either needs to be:
- an actual breach – they have already failed to perform the obligation in question; or
- an anticipatory breach – they have clearly indicated that they do not intend to perform the obligation in question.
So, to take our Elon Musk example, his lawyers sent a letter to Twitter saying in no uncertain terms that he had no intention of completing the purchase. While there will be an argument about whether that was a breach or not, from Twitter’s perspective, it clearly is.
That Damages are Insufficient
This requirement is where many specific performance claims fall apart – because it’s quite difficult to meet.
More often than not, getting a pile of money is sufficient to compensate you for any loss you might suffer as a result of a breach.
This is why “damages” or “debt” claims are the most common in commercial litigation – it’s the simplest remedy and it’s easy to measure.
So – if I ordered 100 cubic metres of concrete from you and you failed to turn up, I could probably just go and get it from someone else. That might cost me more money, and you might have to pay the difference if I sued you, but I wouldn’t likely convince the Court to force you to turn up with the concrete.
So when are damages insufficient? The most common argument is that the transaction has some unique quality or element that cannot be replicated, and cannot be compensated.
Take a piece of land as an example – each block of land is different from all others. They have different views, aspects, sizes, frontages and characteristics. While there are similarities, no single piece of land is exactly the same as another.
Land is, therefore, sometimes considered unique enough to mean that damages would not compensate you for a failed purchase. Rather, you should get the land.
Another example might be artwork or fine arts – each is unique and money will never properly give you compensation for not owning the relevant thing.
The Obligations are Clear
Finally, it needs to be obvious what the other party is supposed to do.
If it isn’t, then it makes it quite hard for the Court to give an order for compliance, after all.
So even if you get over the “we have a contract” hurdle we mentioned earlier, if your contract isn’t in writing and there is doubt about its terms, you might struggle to come up with a clear articulation of precisely what the other party should be made to do.
Of course there are many other general considerations the Court takes into account. These, however, are the main points.
Could it Happen to you in Normal Day-to-Day Business?
Truthfully, specific performance orders aren’t that common.
However, they do happen.
If you are dealing with land, unique items, or things that cannot be easily replicated then it’s worth being aware of these principles in case a transaction goes awry.
If you are dealing with things that are fairly readily replaceable, then opportunities for specific performance might not need to be at the top of your concerns.
A Final Warning
It’s common to “pull the trigger” immediately when another party breaches a contract, and simply terminate.
If there is any chance you might prefer to seek a specific performance order, then terminating is a bad plan.
After all – how can you compel a party to comply with a contract after it’s been terminated? Answer: you can’t.
At the very least, get solid legal advice about your options before terminating a contract – which is generally a good idea anyway.
Will Twitter or Musk Win?
Not being American lawyers, we’re not even going to try and guess. But it’s going to be an interesting case to watch unfold!