1. A claim for the agreed sum on (i) the claimant’s full performance or (ii) the occurrence of some other event not amounting to breach is a claim in debt. (i) is a claim for specific performance of the contract. A claim in debt is advantageous because the claimant need not prove causation of loss, it is not subject to the rules on mitigation and remoteness, the clause is not subject to the penalty rule, summary judgment is available and the claimant can also sue for loss flowing from the defendant’s failure to pay on time.
2. In contrast, specific performance for non-monetary performance is an equitable remedy and only awarded at the discretion of the court. A number of factors tell against the appropriateness of the remedy, in particular: (i) the adequacy of damages, (ii) ‘lack of clean hands’ or delay on the part of the claimant, (iii) the nature of the contract being one for personal services or to carry on an activity, (iv) impossibility or undue hardship to the contract-breaker, (v) want of mutuality, (vi) uncertainty over the performance required, (vii) the need for constant supervision, and (viii) the wastefulness of performance.
3. Injunctions to prevent a threatened breach (prohibitory injunctions) and to undo breach of a negative undertaking (mandatory injunctions) are also discretionary remedies. Mandatory injunctions are not generally awarded and are subject to a ‘balance of convenience’ test, while prohibitory injunctions are granted as a matter of course (and more widely than specific performance), but will be denied if they would amount to indirect specific performance which would not have been ordered directly.
4. Courts also have the discretion to award damages in lieu of specific performance or an injunction.
5. The parties cannot oust the court’s discretion by agreeing the remedy of specific performance. However, stipulations for an injunction may be persuasive.
6. The parties may oust the court’s jurisdiction to award damages by stipulating the sum payable on breach. Agreed damages clauses are enforceable if they are not penal and amount to liquidated damages even if the stipulated amount is more or less than the claimant’s actual loss. Following Cavendish v Makdessi, agreed damages clauses may be enforceable even if they do not represent a genuine pre-estimate of loss and are aimed at deterring breach of contract, provided that the claimant can show a legitimate interest in deterring the breach and the clause is not extravagant or unconscionable in proportion to that interest.
7. The penalty rule only applies to stipulated payments on breach and so can be evaded by functionally similar terms drafted as sums payable on events other than breach.
8. Pre-payments can be retained by the innocent party (ie the contract-breaker forfeits) if they are reasonable deposits (ie paid as security for performance). Sums must be returned if they are part-payments of the contract price, subject to the contract-breaker’s liability to pay damages; they need not be returned if they are payment for services already provided.
9. Courts may relieve from forfeiture of instalment payments for property where the buyer is ready and willing to complete, by giving extra time to pay. Relief is also available where the buyer is not ready and willing to complete if forfeiture would be unconscionable.
10. Consumers may be protected under the Consumer Rights Act 2015 from terms requiring them to pay ‘disproportionately high sums’ on breach.