Specific Performance

From Max-EuP 2012

by Jens Kleinschmidt

1. Object and purpose

With the state having a monopoly on the use of force, a creditor may not take matters into his own hands in the case of non-performance and resort to self-help (but see set-off; right of retention). Rather, the state makes him turn to the courts for help and initiate judicial proceedings, possibly followed by execution measures that are, again, supervised by the state. However, it needs to be determined which consequences the law attaches to the non-performance (or defective performance) of an obligation. First, does substantive law provide for a right to claim performance in specie of what has been promised? Secondly, will a court order for specific performance actually be executed? Enforcement in specie can rest on the idea that the debtor has promised a particular performance and the best way to keep this promise is to do what has been promised. Moreover, it can be easier and more practicable to determine the promised performance than to assess damages in lieu of performance. For, after all, an alternative route for substantive law would be to refer the creditor to payment of a sum of money as damages, or for procedural law to refuse the enforcement of a decree of specific performance. This approach could be justified by taking account of the debtor’s rights that are affected by coerced performance. While the payment of money only concerns the debtor’s patrimonial interests and is relatively easy to enforce, being compelled to do something or to refrain from doing something in specie affects the debtor’s personal liberty. Furthermore, coerced performance in kind does not always seem expedient. First, execution may be cumbersome (eg in the case of recurring obligations). Secondly, a sum of money may be more useful for a creditor who is able to obtain a substitute performance on the market more quickly. Whether discharging a recalcitrant debtor with damages is also more efficient is widely assumed (theory of ‘efficient breach’), but has increasingly been called into question in recent times. In addition, to assume that the parties wanted such a ‘disjunctive’ obligation would run counter to their intentions.

2. Approaches in the national legal systems

As obligations for payment of money due can, in principle, be specifically enforced everywhere, they may be left out of consideration in the following observations. For all other ‘non-monetary’ obligations, however, the approaches differ. In fact, specific performance of non-monetary obligations is traditionally regarded as one of a number of characteristic points on which English law and continental legal systems hold opposing views. Yet, classical Roman law had developed an answer which is not in line with modern continental thinking: omnis condemnatio pecuniaria. Even if the Roman jurists, too, regarded fulfilment as the ultimate goal of an obligation, the debtor was only condemned to a sum of money in case of non-performance. While for obligations directed at the transfer of objects (obligationes dandi), performance in kind was already generally accepted in the Corpus Juris Civilis, for obligations to do something (obligationes faciendi), the question of specific performance remained highly controversial in the centuries to come. Canonists, for whom every breach of contract was a sin, advocated a sweeping extension of the principle of performance in kind. For many others, however, condemnation of a debtor to do something was an inappropriate intrusion upon the debtor’s liberty. This was expressed in the maxim nemo potest praecise cogi ad factum. Via Pothier, the idea found its way into Art 1142 of the French Code civil. Until today, this provision leads to some uncertainty in French law about the range of obligations enforceable in specie. In any event, it cuts off a corresponding right to performance in kind, for some obligations, already at the level of substantive law. The ultimate step was only taken by the German pandectists of the 19th century who generally regarded it as appropriate that creditors be entitled to performance in specie. The right to specific performance was to become the ‘backbone of the obligation’ (Ernst Rabel). The possible conflict with the debtor’s liberty, on the other hand, was relegated to the rules on execution.

The solution in English law, by contrast, is less straightforward: in principle, non-performance of an informal promise makes the debtor liable to pay damages. Only exceptionally, where damages seem inadequate, may a court order specific performance (or, in the case of obligations to refrain from doing something, an injunction). In particular, a money payment is inadequate where damages would be only nominal, where the amount of damages is difficult to quantify, or where a satisfactory substitute is difficult to obtain, as is the case with land and ‘specific or ascertained goods’ (s 52 Sale of Goods Act of 1979), but also for generic goods that are difficult to find on the market. Specific performance is described as a discretionary remedy, but a court will look to established principles derived from precedents in exercising its discretion. In particular, it will not order specific performance if this would unduly interfere with the debtor’s liberty (eg in contracts for personal services), or if it would require constant supervision by the court.

The design of specific performance as an exceptional remedy has historical roots. Originally, the regular remedy for breach of a promise was, not unlike the approach under Roman law, payment of damages in money because the pertinent action of assumpsit had a ‘delictual’ basis: it had developed out of trespass. Where, however, the Chancellor, trained in canon law and supplementing the common law with his jurisdiction based on equity, found money to be inadequate to satisfy the interests of the creditor, he could order specific performance of what had been promised. This relationship between the two remedies survived the ‘fusion’ of common law and equity. Today, one may add other reasons for the character of specific performance as an exceptional remedy: the fact that a creditor is usually confined to damages can be explained as a consequence of his duty to mitigate his loss that permeates all remedies in contract law and that may require him to effect a cover transaction wherever reasonable. Furthermore, in many cases a court order for specific performance can only be enforced by drastic, quasi-criminal sanctions because a disobedient debtor will be held to be in contempt of court. The possibly disproportionate character of these sanctions may also explain why the courts have favoured damages as a remedy.

3. Convergence and remaining differences

Despite the different weight attached to specific performance, the practical results will often resemble each other. This is due to several factors: (i) In recent years, English law seems to have shifted from asking whether damages would be ‘inadequate’ to enquiring whether specific performance would be the ‘appropriate’ remedy, thereby treating specific performance with greater favour. Some authors even see a reversal of rule and exception on the horizon. This tendency is particularly apparent in the remedy of replacement of defective consumer goods in kind that, as a consequence of the transposition of the Consumer Sales Directive (sale of consumer goods; supplementary performance) into English law, is also available with regard to the sale of generic goods. (ii) Modern French law generally accepts that the wording of Art 1142 of the Code civil is too broad. Both case law and legal literature tend to regard performance in kind as the regular effect of an obligation. The Avant-projet de réforme du droit des obligations et de la prescription of September 2005 and all later reform drafts contain a rule that makes exécution en nature the general legal consequence of obligations to act or not to act, making payment of money the exception if specific performance fails. This tendency was fostered, at the level of execution, with the universal coercive technique of astreinte that had originally been developed by the French courts but has meanwhile found its way into the statute book and has also been imported by other legal systems. A court may add the order of an astreinte, ie a penalty payment, or fine, for non-compliance, to virtually all judgments requiring performance in natura. The amount of the astreinte does not depend on the damage the creditor may have suffered, but is fixed with regard to the recalcitrant debtor’s tenacity and his ability to perform. An astreinte puts indirect pressure to perform on the debtor as it is directed not against his person but only against his assets. It therefore constitutes a milder interference with the debtor’s liberty. Only in very few instances, such as performances of a highly personal (eg artistic) character, an astreinte is not available, and the creditor has to content himself with damages. It is to be noted that all astreinte payments go to the creditor and not to the state. Portuguese law, in its version of astreinte, provides for the payments to be shared equally between the creditor and the state. (iii) While the creditor’s right to performance in kind is a comprehensive principle on the level of substantive law in Germany, certain qualifications have to be made when it comes to the level of execution. Here, §§ 887 and 888 of the Code of Civil Procedure distinguish between acts which can be performed equally well by somebody else and are therefore capable of substitute performance (vertretbar) and those which can be performed only by the debtor himself (unvertretbar). To be sure, certain acts or omissions that are unvertretbar can be enforced indirectly by means of a penalty payment. But, for instance, the provision of services that are unvertretbar is completely exempt from execution in order to avoid a disproportionate interference with the debtor’s personal liberty. Acts that are vertretbar are not enforced by coercive measures against the debtor but by substitute performance to be organized by the creditor. The debtor bears the cost of this substitute performance and is thus effectively released from his obligation by paying a sum of money. Substitute performance is also known to other legal systems, among them French law, where it can be ordered instead of a judgment for performance in kind backed by the order of an astreinte. (iv) Lastly, the different approaches converge for very practical reasons: the creditor of a performance that is readily available on the market will hardly go through legal proceedings to obtain and enforce a court order for performance, but will instead liquidate any damages that may have arisen from a cover transaction.

However, these signs of convergence must not conceal the fact that important differences remain. On the continent, a creditor may, without more, sue for performance in kind. Under English law, by contrast, it is for the court to decide whether a creditor is in fact entitled to specific performance. Hence, the creditor runs the risk of being told by the court that he ought to have entered into a cover transaction. If conditions for a cover transaction have become less favourable, he has violated his duty to mitigate damages by insisting on specific performance and will not be awarded the full amount of damages. Finally, there is another (sometimes over-looked) conceptual difference between the continental and the English approach that also affects the enforcement of an obligation. It is the understanding on the Continent that a creditor of a contractual obligation has, at least in principle, the right to ask a court to order performance in kind simply by invoking a valid contract. If, on the other hand, specific performance is seen as a remedy for non-performance of a contractual obligation, as it is in England, then the creditor needs to show in addition that the debtor has failed to perform.

4. Specific performance and its limits: the European and international model rules

As a general rule, Principles of European Contract Law (PECL), UNIDROIT Principles of International Commercial Contracts (PICC) and the Draft Common Frame of Reference (DCFR) provide for specific performance of monetary obligations, though—in contrast to many national legal systems—only to a limited degree if the counter-performance has not yet been effected. Performance in kind is also the starting point chosen for non-monetary obligations (Art 9:102 PECL, Art III.-3:302 DCFR, Art 7.2.2 UNIDROIT PICC). The model rules regard this claim for specific performance as a remedy and therefore as a sanction for the non-performance (or defective performance) of an obligation. This remedy is situated on the same level as other remedies (in particular, damages), provided their specific prerequisites are met (non-performance). A claim for specific performance is excluded from the contract if the debtor’s non-performance is excused by a relevant impediment.

In light of the different approaches in the national legal systems, the limits to a right to specific performance are of particular interest. While the DCFR differs in one important respect, PECL and UNIDROIT PICC contain the same five reasons to deny specific performance, though using different language. A party is not precluded from invoking any other remedy if it cannot obtain specific performance. (i) First, specific performance is not available if performance in kind would be unlawful or impossible. It does not matter whether performance is impossible for everyone or only for this particular debtor. (ii) Second, specific performance cannot be obtained where performance in kind would cause the debtor unreasonable effort or expense. What exactly is to be regarded as unreasonable is a matter to be decided by the courts. It is difficult to give more precise guidelines as the interests of the parties are valued differently in the different national legal systems. (iii) Third, specific performance is excluded where the performance consists in the provision of services, or work of a personal character, or depends upon a personal relationship (the wording of the DCFR is somewhat narrower so that it can be reconciled with the DCFR provisions on service contracts). This exception takes up the reservations against a disproportionate interference with the debtor’s personal liberty familiar both to common law and civilian systems. At least in the PECL and the UNIDROIT PICC, it is also founded on doubts as to the quality of enforced performance and on difficulties for the court to supervise the proper execution of its order. Consequently, the exception only covers performances that may not be delegated, in other words: performances that are unvertretbar. If performance can be rendered by someone other than the debtor personally, any interference with his personal liberty can be avoided by means of substitute performance. (iv) The fourth and possibly most important exception is that PECL and UNIDROIT PICC refuse specific performance where the creditor may reasonably obtain performance from another source. This far-reaching exception concerns not only the delivery of generic goods but also the performance of other acts that can be performed equally well by someone else. Performance in kind is therefore excluded in most practically important cases. This exclusion is meant to take account of the common law reluctance towards granting specific performance where a cover transaction is possible and reasonable. However, the exception also purports to be acceptable to civil law jurisdictions for it is said merely to mirror the economic reality. A comparable rule has evolved in the Scots mixed legal system. At the outset, the creditor decides whether he thinks that performance can reasonably be obtained from another source. If he chooses to insist on performance in kind, it is for the debtor to prove the existence of a reasonable alternative source. However, a creditor will only learn from the court whether he had in fact been entitled to specific performance. In practice, therefore, similar to the common law, the creditor is deprived of his freedom to opt for specific performance. This rule can be seen to conflict with the general availability of replacement in kind as a remedy under the Consumer Sales Directive. For this reason, Art III.-3:302 DCFR (to which Art IV.-4:201(a) refers in the sales context) contains the first three exceptions, but not this last one. Instead, the creditor is only indirectly prevented from requesting specific performance despite the availability of a reasonable cover transaction ‘without significant effort or expense’: if the creditor unreasonably insists on specific performance, a claim for damages will be reduced to the extent to which the creditor’s behaviour has increased the damage (cf the identical rule in Art 8:202 of the Acquis Principles). Moreover, the Comments to the DCFR indicate that the possibility of a cover transaction may be a relevant factor in deciding whether performance in kind would be unreasonably burdensome or expensive. (v) A fifth exception makes the creditor lose his right to claim specific performance if he fails to seek it within a reasonable time after he has, or should have, become aware of the non-performance. The creditor is thus deprived of any possibility to speculate unfairly at the debtor’s expense. (vi) Finally, it may be added that specific performance is excluded if the creditor has exercised a remedy that is inconsistent with performance of the obligation in kind, particularly if he has chosen to terminate the contract. However, the mere existence of a right of termination of a contract, or even the expiry of an additional period for performance fixed by the creditor (Nachfrist), does not prevent the creditor from requesting specific performance (Art III.-3:103(3) DCFR).

The rules outlined above only concern the level of substantive law. Procedural law, and execution in particular, is still a matter for the national legal systems and therefore necessarily left out of consideration by the model rules. This may have several important consequences: (i) If a court orders a debtor to deliver generic goods in specie (eg because scarcity of the goods would render a cover transaction unreasonable), in Germany the judgment will be enforced by the enforcement officer (Gerichtsvollzieher) taking the goods away from the debtor. If he does not find the goods (as is most likely if they are scarce), the creditor has to be content with damages. In England, by contrast, the recalcitrant debtor is in contempt of court and thus compelled to go to the market and try to acquire the goods for the creditor if he wants to avoid the drastic sanctions for contempt. (ii) The mere existence of a court order of specific performance can positively affect the debtor’s willingness to perform. A system that excludes specific performance at the level of substantive law rather than at the level of execution proceedings (eg by refusing enforcement or relegating the creditor to substitute performance) may not benefit from this potential. (iii) Finally, differences between the various means of enforcing a judgment remain unresolved. In particular, this concerns the question whether penalty payments are available as a means of enforcement and, if so, who will receive these payments. In order to address it, the UNIDROIT PICC (unlike PECL and DCFR) encroach upon the law of execution. According to Art 7.2.4, which is obviously modelled on the French astreinte, a court that orders a party to perform may direct that this party pay a penalty if it does not comply with the order. This penalty payment goes to the creditor unless this would contravene mandatory provisions of the lex fori.

5. Uniform law

To date, EU private law regulates specific performance only in a fragmented way, and only concerning particular situations. The consumer’s primary right to the repair or replacement of defective goods in a sale of consumer goods has already been mentioned. Traces of a remedy of specific performance can also be found in Arts 4(6) and (7) of the Package Travel Directive (Dir 90/314) and in the various regulations on passengers’ rights (Art 8 Reg 261/2004 for air transport, Art 16 Reg 1371/2007 for rail transport, Art 18 Reg 1177/2010 for waterway transport, Art 19 Reg 181/2011 for bus and coach transport). Generally speaking, these instruments grant the traveller a right that the journey does in fact take place. Sometimes, the limits of specific performance (impossibility, unreasonable effort or expense) have also been regulated.

The CISG (sale of goods, international (uniform law)) generally provides for a remedy of performance in specie for both the seller and the buyer. Thus, it has decided to take the continental approach as its starting point. However, from the very beginning of the negotiations on the CISG, the different approaches were regarded as unbridgeable. As a compromise, Art 28 CISG therefore contains a conflicts rule according to which a national court ‘is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by [the CISG]’. A similar safety valve for common law courts can be found in Art 12(1)(c) of the Rome I Regulation (Reg 593/2008): generally, the choice between specific performance and damages is a matter for the lex causae—but only ‘within the limits of the powers conferred on the court by its procedural law’.

A foreign judgment ordering specific performance will be enforced in another Member State under the Brussels I Regulation (Reg 44/ 2001) with the means available in the respective Member State where enforcement is sought. This rule applies regardless of whether a court in the enforcement state would have ordered specific performance under similar circumstances. In addition, the creditor may choose to request the court in the Member State of origin to order a penalty payment (where such payment is available) and enforce this order in other Member States like a money judgment under the conditions provided by Art 49 Brussels I Regulation (the details of this mechanism are highly controversial; see also Art 67 of the Brussels I reform proposal, COM(2010) 748 final). The Joint ALI/UNIDROIT Working Group on Principles and Rules of Transnational Civil Procedure suggests a uniform provision on monetary penalties for non-compliance with a judgment in Rule 35.2.

Literature

Guenter H Treitel, Remedies for Breach of Contract (1988) 43 ff; Oliver Remien, Rechtsverwirklichung durch Zwangsgeld: Vergleich—Vereinheitlichung—Kollisionsrecht (1992); Reinhard Zimmermann, The Law of Obligations (1996) 770 ff; Marcel Fontaine and Geneviève Viney (eds), Les sanctions de l’inexécution des obligations contractuelles (2001); Yves-Marie Laithier, Étude comparative des sanctions de l’inexécution du contrat (2004); Nili Cohen and Ewan McKendrick (eds), Comparative Remedies for Breach of Contract (2005); Tilman Repgen, ‘§§ 362–371. Erfüllung’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol II/2 (2007); Hannes Unberath, Die Vertragsverletzung (2007); Jan M Smits, Daniel Haas and Geerte Hesen (eds), Specific Performance in Contract Law. National and other Perspectives (2008); Axel Flessner, ‘Der Geld-Erfüllungsanspruch im europäischen Vertragsrecht auf den Stufen zum Gemeinsamen Referenzrahmen’ in Festschrift Eugen Bucher (2009) 145; Marc-Philippe Weller, Die Vertragstreue: Vertragsbindung—Naturalerfüllungsgrundsatz—Leistungstreue (2009).

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