In a comprehensive new ruling, the Delaware Chancery Court declined to enforce the ‘specific performance’ clause in a deal involving a special purpose acquisition company (SPAC). This decision draws many attentions, as it underscores the practical realities required for a court to enforce this particular clause in case of breaching agreements. It further highlights the significance of having “clean hands,” a legal requirement for parties who wish to avail of this exceptional remedy.
Before moving ahead, a brief introduction to specific performance as a remedy is necessary. Specific performance refers to a court-ordered compliance of the agreed terms. Unlike the standard legal remedy which awards damages for losses, specific performance necessitates the breaching party to fulfill its contractual obligation. Used cautiously due to its invasive nature, it puts considerable strain on the judiciary to ensure the breaching party’s compliance.
Coming back to the Delaware Chancery Court’s decision, the court held that it wouldn’t grant specific performance in a collapsed de-SPAC deal. The judgement states that as a equitable remedy, specific performance has inherent limitations, and the court must consider the practicality and feasibility of enforcing specific performance before they can grant it.
In essence, to be granted specific performance, the applicants must prove that they have “clean hands,” meaning that they have acted in good faith and complied with the agreement in every manner possible. They must also demonstrate that conventional damages are insufficient compensation and that the relief sought is definitive and practicable.
While it’s common for parties to include specific performance clauses in contracts, it’s important to note that all clauses are subject to scrutiny and interpretation, and discretion resides with the judiciary.
For deeper context and reading, consider exploring the full report from Allen & Overy LLP on this case, available here.