A court will not make an order if compliance is impossible. There may be circumstances where severe hardship will influence a court in granting an equitable remedy.

In Aranbel Limited – v – Darcy and Others [2010] IEHC 272, purchasers had agreed to buy apartments “off the plans”. They admitted that they were obliged to complete but said that an order of specific performance should not be granted because they could not comply with any such order.

The purchasers had entered into the contracts at a time when most assumed that there would be no difficulty in either completing the purchase or selling on to another person at an increased price when the apartments were built. However since the height of the market in 2006 property values have fallen by as much as 50%. Therefore the usual remedy of the vendor forfeiting the deposit (often 10%) and selling to another person is no longer feasible and many disappointed vendors are now seeking specific performance through the courts.

In reviewing the relevant principles, Judge Clarke was careful to emphasise that he was considering a defence of impossibility rather than impracticability. He compared the purchaser’s argument of impossibility through impecuniosity with a vendor’s argument of impossibility through inability to show title. He noted that in a previous case (Mount Kennett Investment Limited v O’Mara [200] IEHC 420) the court had ordered specific performance against a vendor with a defective title because the vendor could fix the problem through buying out another party’s interest.

Having analysed the financial information available with regard to the liabilities of each of the defendants, the Judge refused to grant an order of specific performance and instead stated that damages should be assessed.

If an extended period of time was required to enable other assets to be sold then Judge Clarke would have granted such an order. However the financial circumstances of the defendants were such that even if they sold their current properties they could not raise sufficient additional finance through bank borrowings to complete the purchase. Judge Clarke noted that if there was a possibility of completion and circumstances transpired which made completion impossible, then a court would cancel a specific performance order as long as the impossibility did not arise as a result of a breach by the defendant.

While Judge Clarke was able to deal with the case on the basis of the impossibility defence, he made some useful comments regarding how a court would approach a hardship argument (where completion was possible but unduly onerous). He said that many cases might involve an order directing the sale of the family home or family business. He acknowledged that this would give rise to hardship but noted that the alternative of a damages award could result in a judgement mortgage and an enforced sale of the relevant assets in any event.

He suggested that what the defendant had been doing since the completion date would influence the court’s approach to a hardship defence. He speculated that if the defendant had reduced his assets with the result that it was now more difficult to comply with a specific performance order, the court is probably more likely to make such an order as distinct from a situation where the defendant was doing his best to comply with his contractual obligations.

Judge Clarke’s decision and comments are very useful given that there has been a dramatic decline in property values in Ireland and many borrowers find themselves in difficult circumstances. Failure to comply with an order for specific performance could result in the errant party being imprisoned for contempt. Showing awareness of the practical implications of court decisions and current financial difficulties can only enhance respect for court orders.