42 E N G L I S H L A W

the idea that the seller becomes a trustee for the buyer if the company refuses to register a transfer made on the stock exchange.77

2.4.4.2 Claimant must be ready and willing to perform

Specific performance will only be granted, a constructive trust will only arise for the benefit of the buyer and the buyer will only acquire equitable title upon conclusion of the sales contract, if she has already performed, or is ready and willing to perform.78 The principle formed the basis of the New South Wales Court of Appeal’s decision in Bonds & Securities (Trading) Pty Ltd v. Glomex Mines NL.79 The plaintiff sought a declaration that it was the equitable owner of certain shares as well as injunctive relief which would have had the effect of procuring its registration as legal owner. The remedy was not granted because the contract was not specifically enforceable. The purchase money had not been paid to the seller, but to the seller’s broker, who had no authority to receive payments on the seller’s behalf.

Specific performance may be granted in certain circumstances, even though the purchase price has not been paid and will not be paid in the near future. The purchase price in Langen & Wind Ltd v. Bell was dependent upon the average annual profit or loss over a period of the company whose shares were traded.80 The seller, Bell, was the director of the company and was required to transfer the shares to Langen & Wind upon termination of his employment. Bell terminated his employment on 30 September 1970 and was immediately required to execute a transfer in favour of Langen & Wind. He was informed that the price could not be paid until the accounts for the year, which ended on 30 June 1972, had been approved and audited. Bell refused to execute the transfers until payment was made. The court directed him to perform his obligation, but the order granted him an unpaid vendor’s lien to secure payment of the purchase price.

77Stevenson v. Wilson (1907) SC 445 (CS); Lyle & Scott Ltd v. Scott’s Trustees [1959] AC 763 HL (Sc); these two cases are, generally, considered to be good authority in England (Alcock in Gore-Browne on Companies 23.12; Robert Pennington, Company Law, 8th edn. (London: Butterworths, 2001) 441 fn. 1 reaches the same conclusion but rejects Stevenson v. Wilson on other grounds).

78Jones and Goodhart, Specific Performance 68. 79 [1971] 1 NSWLR 879.

80 [1972] Ch 685.

P A P E R T R A N S F E R S

43

2.4.4.3 Specific or ascertained assets

Specific performance will not be granted if the subject assets are not specific or ascertained.81 This is related to the larger principle that the subject matter of a trust must be certain, a principle which applies to express trusts as well as to constructive trusts. The argument supporting the rule is that in the interest of certainty it must be possible to establish which assets are subject to the trust. This rule makes it difficult to establish a proprietary right in assets that are mixed with rather than physically separated from the trustee’s own assets. It will therefore be analysed in more detail in the context of indirect holdings.82

2.4.4.4 Damages are an inadequate remedy

The next requirement for an order for specific performance reflects the historic origins of the remedy. Specific performance is an equitable remedy which was introduced because the common law had led to unjust results. The common law took, and still takes, the view that the award of monetary compensation can fully make good the loss suffered by breach of contract. This is true in most cases, but in certain circumstances the award of money does not entirely compensate the loss. In G. R. Northcote’s words: ‘for though one sovereign or one shilling is to all intents and purposes as good as any other sovereign or shilling, yet one landed estate, though of precisely the same market value as another, may be vastly different in every other circumstance that makes it an object of desire: so that it evidently follows that there would be a failure of justice, unless some other jurisdiction supplemented the Common Law, by compelling the defaulting party to do that which in conscience he is bound to do, namely, actually and specifically to perform his contract . . . The defeat of justice which arose from . . . the Common Law . . . was met and remedied in certain cases by the . . . Courts of Equity to compel specific performance.’83

Again, the argument is framed in a path-dependent way. The English courts do not reason that, if damages are an inadequate remedy, title to the securities passes to the buyer upon conclusion of the sales contract. The reasoning is more complicated than that: it involves the already

81 Jones and Goodhart, Specific Performance 32. 82 See subsection 7.3.

83Fry on Specific Performance, 6th edn. (London: Sweet & Maxwell/Ashford Press, 1985) 28–29.

44 E N G L I S H L A W

familiar detour through the law of trusts, first establishing that, if damages would be an inadequate remedy, an order for specific performance will be granted. That then means that a trust arises and therefore, the buyer acquires equitable title.

The basic rule, then, is that specific performance will be granted where common law damages would inadequately compensate the plaintiff.84 One test of whether damages are inadequate is to ask if specific performance will do more perfect and complete justice than an award of damages.85 Another way of formulating a test was suggested by Evans Marshall & Co. Ltd v. Bertola SA: ‘The standard question . . ., ‘‘Are damages an adequate remedy?’’, might perhaps, in the light of the authority in recent years, be rewritten: ‘‘Is it just, in all circumstances, that a plaintiff should be confined to his remedy in damages?’’ . . . ’86

Specific performance is granted when property is sold that is unique or has a special value. Land is always thought to have this quality.87 Land is unique in that one plot of land does not resemble another, even though they may have the same market value. A pecuniary remedy is thought to be inadequate protection of the buyer’s rights, for she might not be able to purchase a satisfactory substitute. Conversely, the court will not order specific performance when the buyer can obtain a satisfactory equivalent to what she contracted for from some other source.88 Whether the subject of a contract is unique depends on the terms of the contract; it depends on whether the parties contracted for a specific item, or for an item with particular specifications. If the contract is for a copy of a certain textbook, any textbook of that kind will satisfy the buyer and the contract will not be enforceable by specific performance; if the contract is for the copy of a textbook that used to belong to the author, an order for specific performance is more likely to be granted. The rule of thumb is that an order for specific performance is more likely the more rare the property is, and the more difficult it is to acquire a substitute on the market.

There are securities which are unique and for which a satisfactory substitute cannot be bought on the market, and there are securities for which a substitute is readily available. There is typically no market for shares in private companies, which is why a contract for the sale

84Co-operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd [1998] AC 1 per Lord Hoffmann at 11.

85Guenter Treitel, The Law of Contract, 11th edn. (London: Sweet & Maxwell, 2003) 1025–1026.

86[1973] 1 WLR 349 at 379 (CA). 87 Jones and Goodhart, Specific Performance 128–132.

88Treitel, The Law of Contract 1020.

P A P E R T R A N S F E R S

45

of shares in a private company is, ordinarily, enforceable by specific performance.89

For securities in public companies, a distinction lies according to whether they are readily available in the market. Shares in public companies are, ordinarily, available when they are listed on a stock exchange.90 For this reason, it is generally true that a contract for the sale of listed shares is not enforceable by an order for specific performance.91 In the seminal case Cud v. Rutter, shares in the South Sea Company were sold at a fixed price to be delivered three weeks after the contract had been entered into.92 When that time came, the seller did not deliver the shares but offered to pay the difference between the purchase price and the value of the shares, which had risen in value in the meantime. The buyer sued for an order of specific performance which he was denied because the buyer could readily buy the quantity of shares he sought on the stock exchange; damages were considered to be an adequate remedy. Parker LC held that: ‘a court of equity ought not to execute any of these contracts, but leave them to law, where the party is to recover damages, and with the money may if he pleases buy the quantity of stock agreed to be transferred to him; for there can be no difference between one man’s stock and another’s . . .’93

Similarly, in Re Schwabacher, the buyer of shares in the New Vaal Company sued for an order of specific performance.94 The order was refused by Parker J, who said that:95 ‘although I have no doubt that it is within the power of a court of equity to decree specific performance of a contract for the sale and purchase of shares, yet when shares are dealt in largely on the market, and anyone can go and buy them as appears to be the fact in this case – there is no reason why they should not be in the same position as Government Stock is in the case of a contract for the sale and purchase of such stock.’

Exceptions to this rule exist because there may be circumstances in which listed shares cannot be obtained in the market. If the owner of

89Jobson v. Johnson [1989] 1 WLR 1026; Grant v. Cigman [1996] 2 BCLC 24; Wood Preservations Ltd v. Prior [1969] 1 WLR 1077 (CA); Sahota v. Bains [2006] EWHC 131 (Ch).

90Oakley, Constructive Trusts 277–278.

91Michaels v. Harley House [2000] Ch 104 at 113 per Robert Walker, LJ; Robert Pennington, Company Law, 8th edn. (London: Butterworths, 2001) 443; see also A. Neef, ‘Recent Trends in the Specific Enforcement of Contracts to Sell Securities’, (1953) 51

MichLR 408.

92(1719) 1 PWms 570, 24 ER 521. 93 (1719) 1 PWms 570 at 571, 24 ER 521 at 522.

94 (1908) 98 LT 127. 95 (1908) 98 LT 127 at 128.

46 E N G L I S H L A W

more than 50 per cent of the shares in a company agrees to sell her shareholding, the amount sold cannot be bought in the market and an order for specific performance will be granted.

An order for specific performance will also be given when shares in a public company are sold which are limited in number and which are not always to be had in the market. Duncuft v. Albrecht involved the sale of shares in the London and South-Western Railway Company.96 Shadwell VC held that: ‘it has been long since decided that you cannot have a bill for specific performance of an agreement to transfer a certain quantity of stock. But, in my opinion, there is not any sort of analogy between a quantity of 3 per cents or any other stock of that description . . . and a certain number of railway shares of a particular description; which railway shares are limited in number, and which, as has been observed, are not always to be had in the market.’97

Specific performance of a contract for the sale of listed shares will also be granted where the shares are unique or otherwise unobtainable by virtue of the distribution of the shareholdings. The House of Lords enforced a contract for the sale of 12 per cent of the shares in a company by an order for specific performance in Harvela Investments Ltd v. Royal Trust Company of Canada.98 There were in that case two families holding 43 per cent and 40 per cent of the shares, respectively, and a third shareholder holding 12 per cent. The third shareholder offered his shares for sale. Both families bid for the 12 per cent shareholding, in order to acquire control over the company. The case concerned a company whose shares were not listed, but the analysis would apply equally if the company had been listed. The reason for this is that the structure of the shareholding was such that the shares sold were not available elsewhere in the market and it was clear that the bidders wanted these particular shares to acquire control. An order for specific performance would have been granted even if the contract had been for listed shares.

Another situation justifying an order for specific performance of shares in public companies occurs when the contract concerns the particular shares held by the seller. For this to be true, the parties must have agreed that only the shares held by the seller, and not other shares of that kind, will satisfy the buyer. This possibility was first suggested by Shadwell VC in Duncuft v. Albrecht in his reference to

96(1841) 12 Sim 189, 59 ER 1104; see also ANZ Executors and Trustees Ltd v. Humes Ltd [1990] VR 615.

97(1841) 12 Sim 189 at 199, 59 ER 1104 at 1107–1108. 98 [1986] AC 207.

P A P E R T R A N S F E R S

47

‘a certain number of railway shares of a particular description’.99 The suggestion was taken up by Greene MR in Re a Debtor.100 He held that a contract for the sale of listed shares was enforceable by an order for specific performance because it was, ‘a contract for the sale and purchase of specific shares. It refers to ‘‘your preference shares’’, and that makes it not a contract to buy shares which the vendor is to buy on the market before that date of completion, but a contract for the sale and

purchase of specific shares which at the date belonged to the vendor and which are still held by him.’101

Greene MR continued: ‘certainly in the case of a contract for the sale and purchase of specific shares . . . the Court of Equity has always exercised jurisdiction to order specific performance and moreover, the property in equity in the shares passes to the purchaser.’102

Irrespective of whether shares in private, public, or listed companies are sold, specific performance is also granted when the shares sold have not been fully paid.103 In these cases, the company has a claim against the registered shareholder who is liable to pay the amount outstanding on the shares. If the buyer does not apply to have her name registered, the company will approach the seller when calls are made. The seller, in order to avoid liability, then sues for an order of specific performance instructing the buyer to apply for registration of her name.

In summary, the rule that an order for specific performance will be granted only if damages are an inadequate remedy helps to show the path-determined roots of English property law. The common law awards only damages. In circumstances in which this is considered to lead to unconscionable results, equity steps in to allow the buyer to claim delivery of the items purchased. Equity gives an order for specific performance in favour of the buyer. But equity’s intervention does not stop here: whenever a contract is enforceable by an order for specific performance, a constructive trust arises. The seller is considered to hold the securities concerned as a trustee for the benefit of the buyer who, therefore, acquires equitable title to the securities.

The requirement for damages to be an inadequate remedy, however, significantly limits in scope the first heading under which equitable

99 (1841) 12 Sim 199, 59 ER 1107–1108. 100 [1943] 1 All ER 553 (CA). 101 [1943] 1 All ER 553 (CA) at 554. 102 [1943] 1 All ER 553 (CA) at 555.

103Paine v. Hutchinson (1868) LR 3 Ch App 388; Cruse v. Paine (1868) LR 6 Eq 641; Coles v.

Bristowe (1868) LR 6 Eq 149; London, Hamburgh, and Continental Exchange Bank, Ward and Henry’s Case (1867) 2 Ch App 431 at 438 per Crains LJ.