Court’s power to vacate an order for specific performance and substitute alternative relief

What is the extent to which a contract is under the “control of the court” after an order for specific performance is made in favour of a vendor of land, the purchaser fails to comply with that order and the vendor then seeks vacation of the order and leave of the court to obtain damages for breach of contract? 

This issue was considered by McGrath J Baeg v Wink Singh [2025] NSWSC 873. The twist in Baeg was that after the order for specific performance was made the purchaser failed to comply with the order and the vendor served a termination notice purporting to accept the purchaser’s repudiation. The vendor then applied to the court to vacate the order for specific performance and a declaration that by failing to comply with the order for specific performance the purchaser had repudiated the contract. The vendor also sought leave to accept the purchaser’s repudiation, terminate the contract, and an award of damages.

The purchaser opposed the application on the ground that having obtained an order for specific performance the vendor could not terminate the contract without the leave of the court and, by purporting to do so, had repudiated the contract which had been accepted by the purchaser with the consequence that the contract was at an end and the vendor was not entitled to damages.

McGrath J undertook a detailed examination about the nature of an order for specific performance and the consequences when the order is not complied with.

Once an order for specific performance has been made, the contractual rights and obligations of the parties are not superseded, but the future exercise of rights and performance of obligations fall under the control of the court (para [68]).

At [69] His Honour said:

Rights and obligations under the subject contract subsist and run parallel to the order and the order is not final until the order is discharged by performance or, in the case of a contract for the sale and purchase of land, the contractual rights merge upon completion

An order for specific performance is binding on the parties who will be in contempt if they do not comply with it [para 70]). Any relevant delay in compliance with an order for specific performance will be delay in performing the contract, which gives rise to contractual rights (para [70]).

As to the question of vacation of an order for specific performance, His Honour said:

[71]      The court may vacate an order for specific performance but whether it should do so will depend on the terms of the contract, not on the exercise of a discretion to refuse to give effect to an order that the court has already made:…

[72]      One circumstance in which it may be necessary for the court to reconsider an order for specific performance is where some act has occurred (or not occurred) which gives rise to new contractual rights, usually being a failure by one party to perform the contract, and the contractual right is a right to terminate the contract because of that failure:…

In Australia, once an order for specific performance has been made, a contractual right of termination can only be exercised with leave of the court or, more accurately, an order vacating the order for specific performance: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, by Mason CJ (with whom Deane, Dawson and Toohey JJ agreed) at 260.

The party in whose favour the order of specific performance is made retains its right to pursue other rights it may have had absent the order for specific performance, including the right to claim damages for breach of contract.

At [79] His Honour said summarized the accepted position in Australia:

(1) By electing to bring an action for specific performance of a contract, a party has not irrevocably abandoned their common law rights in respect of damages for breaches of that contract, both past and future.

(2) While those proceedings are maintained, or after an order for specific performance has been made, that contract can be terminated by one party by accepting the repudiation of the other but only with the court’s leave or vacation of the order of specific performance. It is the order of the court, or something by authority of the order, that operates to terminate the contract:….

But what was the effect of the vendor purporting to terminate the contract in the absence of the leave of the court or the vacation of the order for specific performance? Did that disentitle the vendor to damages?

In rejecting the purchaser’s contention that the vendor was disentitled to damages, His Honour said (at [103]):

The defendants’ argument, if successful, would make a mockery of this court’s supervisory jurisdiction and, in its essence, seeks to do the very thing the authorities weigh heavily against, which is to merge the rights and obligations arising under a contract with those arising pursuant to an order for specific performance:

His Honour held that while the vendor’s purported termination was invalid and of no legal effect, it was not an “unlawful termination” in the repudiatory sense (at [102]). The purported termination had no effect because at that time the contact was under the control of the court (paras [102] and [104]).

After considering the authorities concerning the court’s powers after making an order for specific performance, His Honour said (at [110]):

It is clear that this court may, upon application, vacate an unfulfilled order for specific performance, determine the subject contract and substitute alternative relief.

His Honour, having determined that the vendor should be granted leave to accept the purchaser’s repudiation of the contract, terminate the contract and recover damages, proceeded to assess the appropriate measure of those damages.