Facts
MCI Worldcom is, of course, the well known US based company with
a global cable telephone network. It is a substantial
company, with a large presence in the UK and it provides
telecommunications services, mostly to corporate customers.
It is one of the telecommunications companies commonly known as a
“carrier”.
Spectrum, on the other hand, is a small company, of the sort
known as a “reseller”. Such an enterprise buys on a wholesale
basis from a carrier the right to use the carrier’s network for the
sending of telephone calls, this being called “air-time”.
Obviously, the reseller sells this air-time on to the public at a
profit. Spectrum did this by the sale of pre-paid phone cards
which were put on sale by a network of distributors.
MCI Worldcom owns a vast global network of switches, connected
by fibre optic cables. At each location of a switch, there
will be switches of any relevant resellers. A customer of a
reseller will access the reseller’s switch when they make a phone
call, and be routed by the carrier’s switch. On making such
access to the reseller’s switch, the customer dials a PIN, and the
number of the person to whom they are making the telephone
call. The telephone call is then routed to the carrier’s
switch, and thence to the destination of the call. This basic
outline of the facts was crucial to the extremely complicated (and
disputed) technical evidence in the case, some of which was
discussed in the judgment.
Spectrum launched its phone cards in November 1998, and in June
1999 bought two switches from another reseller for its own
use. Spectrum was keen to negotiate a contract with MCI
Worldcom, and did so in July 1999. There were a number
of provisions that were relevant to the dispute .
The first task was to reconfigure one of Spectrum’s switches for
use, this switch being rather more modern than the other one.
MCI Worldcom undertook the work, but technical problems arose,
leading to the raising of documents known as “trouble
tickets” by MCI Worldcom. These documents were
important in the evidence and basically consisted of a description
of the steps taken by an engineer to deal with a problem, together
with the times of the steps taken.
The major problems were dealt with by 28 July 1999, with test
calls being made and the circuits being then handed over to
Spectrum. Spectrum then began to distribute its phone cards,
which were set to route calls through the switch just handed
over. In fact, Spectrum withdrew from distribution those
cards programmed for the other switch. Calls started to be
made on the new switch almost immediately.
Almost simultaneously with the handover, MCI Worldcom raised a
number of invoices for a substantial sum on Spectrum. It
appears that there had been some sort of clerical or administrative
error, as these sums should have been invoiced to another reseller
– the one, in fact, that had sold the switches to Spectrum.
Spectrum wrote twice to point out the error, but MCI Worldcom did
not answer. It ended with Spectrum’s customers finding it
impossible to make phone calls on Spectrum’s cards as from 5 August
1999. Spectrum complained by phone that same day and a letter
went from its solicitors as well.
The lines remained down, and MCI Worldcom did not respond to the
letter from Spectrum’s solicitors. Spectrum therefore applied
for and was granted on 10 August 1999 an interim injunction
requiring MCI Worldcom to restore service. The following day,
11 August 1999, Spectrum commenced proceedings for breach of
contract and also for specific performance of the agreement.
Little was forthcoming from MCI Worldcom, but on 13 August 1999,
service was restored, albeit with some problems. Without
“trouble tickets”, it was not possible to say what was being done
on the technical side. Indeed, Spectrum was for a few days
uncooperative with MCI Worldcom. However, by 17 August 1999,
substantial service was restored. A further hearing took
place in October, and the trial took place on 17 and 18 November
1999.
MCI Worldcom denied being in breach of contract by the
withdrawal of service, but said it was due to technical problems in
Spectrum’s switch. This gave rise to a consideration in the
judgment of the total evidence led by each party, including the
evidence of one independent expert for each party.
Judgment
MCI Worldcom did not lead any evidence from persons actually
involved with the work on the switch. The independent experts
differed in their opinions as to the cause of the
disconnection. The upshot of this was that there was no
certain way of saying where the fault lay.
The learned judge looked at all the evidence and concluded that
there were minor faults with Spectrum’s equipment, but the major
problems lay on MCI Worldcom’s side. The learned judge went
on to hold that MCI Worldcom was in breach of clause 6.1 of the
agreement as it had failed to use all reasonable endeavours to
correct the fault as reported on 5 August 1999. If it had,
the fault would have been corrected by the end of the same day i.e.
within a period of some 12 hours. MCI Worldcom was thus
liable for the lack of service between 5 and 13 August 1999.
There was no liability for the period during which Spectrum did not
cooperate (between 14 and 17 August 1999).
The learned judge went on to look at the interesting question of
whether a contract such as this could be specifically
enforced. MCI Worldcom took the view that such an award was
wrong in principle and that damages were an entirely adequate
remedy, even if damages were payable because MCI Worldcom decided
to act deliberately in breach of contract. Spectrum, on the
other hand, claimed that damages would not, in effect, be an
adequate remedy, as any failure to perform by MCI Worldcom might
well mean the end of its business.
Jackson J reviewed the recent decision of the House of Lords in
Co-operative Insurance Limited v Argyll Stores (Holdings)
Limited [1998] AC 1. In that case, the House of Lords
refused to order specific performance of a covenant to keep open a
particular supermarket. The learned judge concluded that he
had a discretion whether or not to order specific performance,
based on the history of the remedy, and its origin in the Court of
Chancery. He observed that the contract had some 7½ months to
run and asked what would happen if MCI Worldcom met further
technical difficulties, or sought to terminate for non-payment:
such matters would likely have to be determined in the context of
contempt proceedings.
In the result, the learned judge made an order for specific
performance only for a period of 3 weeks as being the best justice,
taking all factors into account.
Commentary
Apart from the complicated facts, and what must have been
exceptionally complex expert evidence, the case is of interest for
a rare illustration of when it may be possible to apply for and
obtain an equitable order that a party proceed with a
contract. Such cases are rare in English Law. In
A-G v Colchester Corporation [1955] 2 QB 207, 217 Lord
Goddard CJ said
“No authority has been quoted to show
that an injunction will be granted enjoining a person to carry on a
business, nor can I think that one ever would be, certainly where
the business is a losing concern.”
Sweeping words indeed, but expressing the common law’s distaste
for such orders, and its strong preference for financial remedies
(chiefly damages). Note that the civil law systems of the
continent do not necessarily share this order of priorities, and
that courts there are by no means so keen to see a contract
unperformed. Article 1184 of the French Civil Code provides
that a victim of breach of contract can either obtain specific
performance where possible or requesting termination with an award
of damages. Similar provisions exist in German Law. The
US Uniform Commercial Code provides also for specific performance
where commercial needs make it equitable to do so.
The traditional formulation of this rule has always been to ask
first if damages were an adequate remedy. In a commercial
context, the answer to this question is nearly always a resounding
yes: if goods are not delivered, then the remedy is to go to the
market and buy other such goods. The only context where such
would not be the case would be in the case of something unique, and
the classic example of this has always been contracts for the
purchase of land or an interest in land.
Accordingly, the cases on specific performance in commercial (or
at least non-land) contexts were somewhat rare, and tended to be
given, if at all, in highly exceptional cases. Such
exceptions included Behnke v Bede (sale of item made to
specific order) and Sky Petroleum v VIP Petroleum
(alternative sources for petrol well nigh impossible in a situation
of international petrol shortage).
The decision of the Court of Appeal in Co-operative
Insurance Limited v Argyll Stores (Holdings) Limited seemed to
mark a new departure for English Law. This was a decision of
a majority (Millett LJ dissenting) and the dissenting judgment is
of great interest in re-stating the position as traditionally
understood by the common law.
The House of Lords, quoted by Jackson J in this decision,
restored the trial judge’s order in Co-operative Insurance
Limited v Argyll Stores (Holdings) Limited. Lord Hoffman
gave the leading judgment and considered the reasons why a court
should not give specific performance in the ordinary course.
Difficulty of supervision has been the reason usually given, but he
dismissed this as a primary reason. The real reason was to be
found in the means used to enforce such orders – commitment for
contempt. It would be invidious if a business had to be run
under the constant threat that contempt proceedings might be
commenced. Similarly, the prospect that repeated applications
might be made also made running a business in these circumstance
very difficult.
Lord Hoffman distinguished orders to carry on some continuing
activity, such as a business, from an order to achieve some
particular result (which may require some activity to
achieve). A relevant factor in making any such order in the
latter case is that the scope of the obligation should be capable
of very precise statement. The argument of the majority in
the Court of Appeal tried to put this another way, by saying that
if an obligation was capable of sufficiently precise statement,
then specific performance was a possible remedy. This the
House of Lords rejected.
Nor was it, according to Lord Hoffman, decisive that Argyll had
acted deliberately in breach of contract. The real question,
as ever, was to look at the compensation that the victim of a
breach could look to and not to impose some order on the defendant
that was oppressive and out of proportion to the damages that might
be recoverable.
The judgment of Jackson J is something of a halfway house. It
was possible that, if MCI Worldcom simply “pulled the plug”
thereafter, Spectrum might go under. The result was an order
lasting for a further 3 weeks, presumably so that Spectrum could
make alternative arrangements, if it thought fit to do so.
As the learned judge said, it all came down to a question of
discretion. Within the confines of the general position as
stated in Co-operative Insurance Limited v Argyll Stores
(Holdings) Limited, the fact remains that judges have some
leeway and orders for specific performance cannot in any case be
ruled out even if the order made is for some limited period or with
a particular purpose in mind.
