Liberty Mercian Ltd v Cuddy Civil Engineering Ltd & Anor

Specific performance may be ordered where damages would not adequately protect the claimant, including where the defendant’s financial position makes satisfaction of a damages judgment questionable. An obligation to procure a performance bond or third-party warranty may therefore warrant specific performance, particularly where the instrument gives direct protection against an otherwise financially weak contracting party.

The court should not order performance of an obligation that is practically impossible. Where impossibility is raised but not established, the court may proceed in stages by requiring best endeavours to procure the relevant instruments and reviewing the position later. Lack of a direct contract with the third-party provider, limited supervision, and an asserted inability to fund the obligation do not necessarily defeat specific performance.

The claimant had previously obtained findings concerning a development contract between itself and Cuddy Civil Engineering Ltd (CCEL). The court held that the contract had been formed as a deed between those parties, that Cuddy Demolition and Dismantling Ltd (CDDL) was not the contractor, and that CCEL’s obligations to provide a performance bond and two third-party warranties survived termination.

This judgment concerned whether those obligations should be specifically enforced. CCEL argued that damages were adequate, that obtaining the instruments was impossible, that it lacked the necessary contractual routes or funds, and that enforcement would require excessive supervision. The court addressed the appropriate remedy and whether the alleged impossibility had been established.

1. Specific performance in principle. Damages were not an adequate remedy for failure to provide the performance bond. The bond was intended to protect against sums due from CCEL, which had no assets, and the prospects of satisfying a damages judgment were questionable. The same applied to the warranties, which would give Liberty Mercian and Waterman direct rights against a third party with apparent professional indemnity insurance cover. Damages payable to Liberty Mercian would also not adequately compensate for the loss of a warranty in favour of Waterman.
2. Unresolved termination and funding issues. The unresolved possibility that Liberty Mercian had repudiated the contract did not make damages adequate. CCEL could not rely on its alleged inability to fund the bond where the evidence indicated access to third-party funds and there had been no full disclosure of its funding arrangements. The relationship between CCEL and CDDL also supported an obligation by CDDL to perform CCEL’s contractual obligations.
3. Third-party procurement. CCEL could not rely on the absence of a direct contract with Quantum. CDDL’s subcontractual route could be used to enforce the obligation to procure the warranties. A single declined request to Quantum’s administrator, without further steps or the use of best endeavours, did not establish impossibility.
4. Scope and supervision. The absence of an expiry date in the draft bond required further consideration in light of what a willing bank or insurer would provide. Limited supervision concerning the identity of the provider and expiry date did not preclude specific performance. Continuing contractual obligations also remained after termination.
5. Staged order. The court would otherwise have granted specific performance, but CCEL had not yet had a proper opportunity to establish practical impossibility. On 19 November 2013 it therefore ordered CCEL to use its best endeavours to obtain the performance bond and warranties, with the issue to be reviewed at a further hearing.

This was a first-instance judgment. In the earlier judgment, [2013] EWHC 2688 (TCC), the court determined the formation and parties to the contract and found that the relevant obligations survived termination.