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Tuesday, May 24th 2022

The ACP Legal Association

  • OHADAC and ACP Legal

    The partisans of this project, called OHADAC (Organisation for the Harmonisation of Business Law in the Caribbean), decided to meet within the framework of the association ACP Legal, to help interested Caribbean States to implement the project.

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  • OHADAC in brief

    This brochure has been published by the ACP Legal Association.

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OHADAC PRINCIPLES ON INTERNATIONAL COMMERCIAL CONTRACTS

Article 7.2.1

Scope of the right to performance

1. The obligee is entitled to require specific performance independently of its content.

2. The right to specific performance may include the remedying or correction of a defective performance, the replacement and any other remedy to cure defective performance.

1. Specific performance of monetary obligations

Paragraph 1 of the article grants the obligee the right to specific performance of any kind of obligation. The recognition of this right is generally accepted in the Caribbean legal systems in relation to monetary obligations.

In the civil law or continental legal systems, based on the principle of pacta sunt servanda, the obligee can compel the obligor to comply with the obligation (Articles 1.546 Colombian Civil Code and 870 Commercial Code; Articles 692 Costa Rican Civil Code and 463 Commercial Code; Articles 305 Cuban Civil Code and 329 Commercial Code; Article 1.184 French and Dominican Civil Codes; Article 1.535 Guatemalan Civil Code; Article 974 Haitian Civil Code; Articles 1.386 Honduran Civil Code and 747 Commercial Code; Articles 1.949 Mexican Civil Code and 376 Commercial Code; Article 1.885 Nicaraguan Civil Code; Articles 1.009 Panamanian Civil Code and 759 Commercial Code; Articles 1.077 Puerto Rican Civil Code and 250 Commercial Code; Articles 1.167 Venezuelan Civil Code and 141 Commercial Code; which establish for reciprocal obligations the possibility to choose between termination or specific performance). This right faces few obstacles when it comes to the delivery of an unascertained thing such as money (Article 693 Costa Rican Civil Code; Article 3:296 Dutch and Suriname Civil Code; Article 1.847 Nicaraguan Civil Code; Article 981 Panamanian Civil Code; Article 1.049 Puerto Rican Civil Code). The means of obtaining the specific performance of the monetary obligation are regulated in procedural laws (e.g. Article 527 Colombian Code of Civil Procedure; Articles 420 et seqq. Mexican Code of Civil Procedure; Articles 1.038 et seqq. Panamanian Judicial Code; Article 527 Venezuelan Code of Civil Procedure).

In common law as well if the non-performed obligation not is a payment obligation an action for an agreed sum exists. However, these actions for claiming the payment of a sum of money do not fall systematically under the remedy of specific performance, or under the remedy of the payment of damages, since the amount obtained by the injured party is nothing other than the agreed sum, plus interest sometimes. The provisions based on English law regulate two types of actions: firstly, the action for claiming a sum of money resulting from a contract, for example the price of the goods in accordance with the laws on the sale of goods (section 49 Sale of Goods Act of England, of Bahamas, Antigua and Barbuda, Montserrat, and Trinidad and Tobago; section 50 Sale of Goods Act of Belize; and section 48 Sale of Goods Act of Jamaica). Secondly, the action for claiming a reasonable price for the goods sold, in accordance with the regulations governing the sale of goods, if the price was established in the contract (section 8 Sale of Goods Act of England; section 10 Sale of Goods Act of Bahamas, Antigua and Barbuda, Montserrat, Trinidad and Tobago and Belize; and section 9 Sale of Goods Act of Jamaica). It is established as a requirement in the first case that the right of ownership has passed to the buyer; however, if the price must be paid on a particular date, regardless of the delivery, and the buyer refuses to pay, the seller has an action for claiming the price, although the right of ownership has not passed to the buyer. The United States legislation on the sale of goods also regulates the action for price in Section 2-709 UCC.

The right to claim the payment of a monetary obligation is likewise regulated in the texts of the uniform law. Indeed, and for the contract for the sale of goods, Articles 62 CISG and 132 CESL grant the seller an action for claiming the payment of the price. And, in general, for sums of money, Articles 7.2.1 UP; 9:101 PECL and 3:301 DCFR recognise the obligee‘s right to receive performance. These two last-named provisions consider the possibility provided by common law rules on the sale of goods that the obligee can continue the performance and receive the payment of the price even though it has not delivered the goods. However, they establish two limits to this right, namely: that the obligee could have carried out a reasonable replacement transaction without significant effort or cost; or that the performance was not reasonable according to the circumstances.

Hence, the proposed rule is in accordance with all the systems present in the OHADAC zone in relation to monetary obligations. This provision applies to all of the monetary obligations, whatever the currency in which the payment has to be made, and includes the obligations to pay damages if they concern the payment of a sum, which is the normal case. The procedural channels for the claim will be those set out by the national laws.

Despite the general manner in which the provision has been expressed, the right is not unlimited, but its exercise must be adequate for meeting a criterion of reasonableness. Subsequently, and in accordance with the PECL and DCFR, if the goods have not been delivered or the services have not yet been provided, these principles will advise the realisation of a reasonable replacement transaction, in accordance with the rules on mitigation of the damage (Article 7.4.3 OHADAC Principles).

2. Specific performance of non-monetary obligations

As a consequence of the binding and obligatory nature of the contract (Article 1.2 OHADAC Principles), the obligee should be able to claim the specific performance not only of the monetary obligations, but also of the non-monetary ones. However, this effect of the enforceability of the contract is not common to all the systems present in the Caribbean zone, since, while specific performance as a remedy for the non-performance of any kind of obligations is admitted without any problems in the civil law or continental legal systems, it is an exceptional remedy in common law.

Indeed, in the civil law or continental legal systems, the claim for performance has traditionally been considered the key remedy, as a consequence of the principle of pacta sunt servanda, and it is generally recognised in all of the codes for the obligations to deliver, and for affirmative and negative covenants. Hence, in the laws of the civil law tradition, provisions are contained which entitle the obligee to request the court to compel the obligor to carry out the delivery (obligations to deliver an ascertained thing); or the obligation is performed at the obligor's expense (obligations to deliver an unascertained thing and affirmative covenant); or that the harm done is undone also at the expense of the non-performing obligor (affirmative and negative covenant): Articles 1.546, 1.610, 1.612 Colombian Civil Code and 870 Commercial Code; Articles 692, 693, 694, 695, 696 Costa Rican Civil Code and 463 Commercial Code; Articles 233, 289, 290 and 291 Cuban Civil Code; Articles 1.184, 1.143 and 1.144 French and Dominican Civil Codes; Articles 1.535, 1.323, 1.324 and 1.327 Guatemalan Civil Code; Articles 974, 933 and 934 Haitian Civil Code; Articles 1.386, 1.357, 1.359 Honduran Civil Code and 747 Commercial Code; Articles 949, 2.027, 2.028, 2.064 Mexican Civil Code and 376 Commercial Code; Articles 1.885, 1.847, 1.849, 1.850, 1.853, 1.856, 1.858 Nicaraguan Civil Code; Articles 1.009, 981, 983, 984 Panamanian Civil Code and 759, 774 Commercial Code; Articles 1.077, 1.049, 1.051, 1.052 Puerto Rican Civil Code and 250 Commercial Code; Articles 997-998 Saint Lucian Civil Code; Articles 1.167, 1.266, 1.268 Civil Code and 141 Venezuelan Commercial Codes. The specific performance of non-monetary obligations is regulated in the same vein in the Dutch and Suriname Civil Code (Articles 3:296 and 3:299).

On the contrary, in Anglo-American law, the normal remedies for non-performance are the claim for an agreed sum, if the non-performance is of a monetary obligation, and the claim for damages in the other cases. The specific performance is an exceptional remedy that can to be granted on a discretionary basis by the courts in some cases. If the claim for performance is based on an obligation to deliver or an affirmative covenant, the remedy is called order or decree of specific performance; and if it is based on a negative covenant (not to do something), one is then in the presence of an injunction. However, the terminology is variable, since sometimes injunction is used for the specific performance of affirmative covenants.

The exceptional nature of the remedy [Co-operative Insurance Society Ltd v Argyll Stores Ltd (1997), UKLH 17; sections 345, 357-369 Restatement (Second) of Contracts] determines that it is only granted if the damages are inadequate to repair the non-performance [Beswick v Beswick (1968), AC 58], either due to the impossibility or extreme difficulty of the calculation of the damage, or because the service that has not been performed is unique and irreplaceable (e.g. a particular real estate property or movable property which is not easy to find in the market or which has an emotional value for the acquirer). This is also the basis of the prospect of specific performance in the laws governing the sale of goods in England and in the Caribbean territories under its influence (Article 52 Sale of Goods Act of England, of Montserrat, Antigua and Barbuda, Bahamas, and Trinidad and Tobago; Article 53 Sale of Goods Act of Belize; and Article 51 Sale of Goods Act of Jamaica).

However, in the United States, the courts have extended the remedy of specific performance to cases of sale of unascertained goods whose delivery is urgent for the buyer, or which are impossible or very difficult to substantiate under the circumstances of the case. This tendency has been confirmed legislatively in Section 2-716 UCC and although this current is not clearly appreciated in English law it has sometimes justified some terminations [Sky Petroleum Ltd v Petroleum Ltd (1974), 1 WLR 576].

On the other hand, given that it is an exceptional remedy, the courts will calibrate the provenance of the remedy, taking into account, for example, the balance between the harm that the specific performance inflicts on the obligor and the benefit obtained by the obligee, the obligee's own conduct or the contractual balance. In addition, the remedy is not available in employment contracts and contracts for personal services [Lumley v Wagner (1852), EWHC (Ch.) J96; Duff v Russell (1891), 14 NY Supp. 134]; or in the continuous contracts or contracts for continuous performance (construction contracts and contracts for other provisions of services) either, due to the difficulty of supervision of the performance on the part of the courts (difficulty of supervision); finally it is excluded if, due to the nature of the contract, the parties may not reciprocally claim specific performance.

This uneven panorama presented by the national legislations obliges us to be cautious when regulating specific performance for the non-monetary obligations in the OHADAC Principles, since the differences between the civil law or continental and Anglo-American legal systems of the Caribbean zone are not only theoretical, and the clash between principles that are fundamental in the different States must be avoided. Therefore, it has been decided to follow the example of the texts of the uniform law (Articles 46 CISG; Article 7.2.3 UP; Article 9:102 PECL; Article III-3:302 DCFR; Article 110 CESL), conceding the claim for performance in the same manner as the civil law or continental legal systems (Article 7.2.1), but regulating exceptions that tie in with the model of common law (Article 7.2.2).

This is intended to recognise the advantages of the remedy of the right to receive performance, which provides a response to the binding force of the contract and is the most adequate remedy for the full satisfaction of the obligee's right. But it is also accepted that this right to compel the obligor to render its performance must be aware of limits.

On the other hand, just like what occurred in the previous article, it will be the national legislations that will mark out the procedural channels for achieving the specific performance.

3. Scope of the right to specific performance

Paragraph 2 of the proposed provision concerns the case where the performance is not in accordance with the agreed programme of services (defective performance or partial performance). For these cases, the claim for performance involves the right to the rectification of the defects of the performance, whether through the correction or reparation of the performance, or through the replacement of the defective goods by another one in conformity.

In the Caribbean legal systems of the civil law tradition the reparation or replacement of the defective performance are not regulated, apart from the claims involving buildings in contracts for the sale of goods, which deal with the traditional topic, i.e. which permit the buyer to choose between discount of the price or termination (and not through the rectification of the defect). These cases are only regulated for consumer contracts (e.g. Article 80 Venezuelan Law for the Defence of the Persons for Access to Goods and Services; Articles 11, 13 and 29 Decree 3466 of 1982, for Colombia).

Likewise, in French and English law, the transposition of Directive 1999/44 provide consumers with the right to have non-conforming goods repaired or substituted (Articles L 211-1 a L 211-18 Code of Consummation; and Part V of Sale of Goods Act 1979), but no general regulation of the claim exists for commercial contracts. In Anglo-American law, the ordinary remedy for a defective performance is damages. The obligor can avoid the liability for damage by rectifying the defect, but it cannot be compelled to do this by the obligee.

Indeed, the reparation of the non-conforming performance is regulated in Dutch law, both generally (Article 7:21 Dutch and Suriname Civil Code), as well as in consumer contracts (Article 7:22 Dutch and Suriname Civil Code). And it is also detailed in the texts of the uniform law. Hence, Article 46.2º CISG permits the buyer to request substitution if the lack of conformity constitutes a fundamental non-performance; in other cases, it will carry out the reparation in accordance with paragraph 3 of the same article. The CESL provides for the right in general in Article 110.2º CESL, regulating this for consumer contracts in Article 111 CESL. And, finally, the remedy is also regulated in Articles 7.2.3 UP, 9:102 PECL and III-3:302 DCFR.

The right to reparation or substitution of the non-conforming performance in the OHADAC Principles is subject to the same limits as the general claim for performance, and which are enumerated in the following article.

Commentary

Article 7.2.2

Specific performance of non-monetary obligations

The right to specific performance of non-monetary obligations is excepted:

  1. where performance is impossible in fact or in law; or
  2. where performance is of an exclusively personal character of the obligor; or
  3. where performance or their ways of execution demand unreasonable efforts or expenses; or
  4. where obligee, in the light of circumstances, may be satisfied in a more reasonable way; or
  5. the obligee does not require performance within a reasonable time from it has known or should have known of the non-performance.

The proposed article articulates the limits to the claim of specific performance of non-monetary obligations, in accordance with the legal systems present in the OHADAC zone and the rules of the uniform law.

The first of these limits concerns the physical or legal impossibility of non-performance, which is an exception to the specific performance generally admitted in all the OHADAC systems. The physical impossibility will occur through the loss or destruction of goods and the legal impossibility that will be able to be derived from the prohibition of the non-performance through a legal norm, an administrative decision, etc. In these cases, the avenues of the remedy of termination and damages remain available to the aggrieved contracting party. If the impossibility is only temporary, does not constitute a real limit for the exercise of the remedy of specific performance, unless the execution of the performance on a particular date is fundamental for the satisfaction of the interest of the obligee.

Example 1: on the date of 15 February, A, manufacturer of pesticides and fungicides for agricultural use of the country X, agrees with the agricultural entrepreneur B, of the country Y, on the delivery of 1000 units of its product on the date of 1 April. At the time of the performance, A does not carry out the delivery, due to a lack of sufficient stock to cover the order at that time. On the date of 7 April, B claims specific performance, but on 5 April a regulatory norm has been published through which the authorities of the country X prohibited the sale and export of products that contain a particular component which is used for the manufacture of the pesticides. Specific performance is legally impossible: B will proceed to terminate the contract and/or claim damages.

In the uniform law this limit of the impossibility is provided in Articles 7.2.2 (a) UP; 9:102 (2) (a) PECL; III.-3:302 (3) (a) DCFR; 110.3º (a) CESL.

The second of the limits is also commonplace in all the legal systems of the OHADAC territory: the cases in which the performance consists of granting the obligor personal rights.

This limit is expressly alluded to in Articles 1.612.1º Colombian Civil Code; 790 Costa Rican Civil Code; 290 and 293 Cuban Civil Code; 1.324 and 1.328 Guatemalan Civil Code; 1.359.1º Honduran Civil Code; 2.027.1º a contrario and 2.064 Mexican Civil Code; 1.850 Nicaraguan Civil Code; and for the English law: Article 16 Trade Union and Labour Relations Act 1974; Articles 69-71 Employment Protection (Consolidation) Act 1978. In the texts referred to the exception is considered in Articles 7.2.2 (d) UP; 9:102 (2) (c) PECL and III.3:302 (3) (c) DCFR.

In these cases, compelling the obligor to perform would involve a breach of its liberty. However, the procedural laws of some legal systems have opted to regulate indirect measures for encouraging the obligor to perform: they are the fines or astreintes of French and Dutch law, and which are also regulated to a limited extent in Article 7.2.4 UP.

In these Principles preference has been given to the regulation of these cases as a limit to the remedy of specific performance, foregoing the pecuniary sanctions for compelling the execution, in order to avoid a clash with the systems of common law.

The greatest difficulty in this exception consists in defining what should be understood by an exclusively personal performance by the obligor. A too broad interpretation would involve excluding the majority of the obligations involving the performance (construction of properties, fiscal or legal consultancy services, IT services...) from the remedy of specific performance. And this is because it is evident that if the obligee has chosen to hire one professional instead of another this is because it has confidence in their professional aptitudes. However, it is clear that on numerous occasions the obligor's qualities are not indispensable, so that the other person, with analogous qualities and experience, can render the performance at the expense of the obligor.

The granting of a legal document is not considered to be an exclusively personal performance either, since, provided that the transaction that is documented is determined in all of its fundamental elements, the obligor's declaration of intent will be able to be substituted by the judge or arbitrator, unless this is incompatible with the nature of the legal transaction (Article 3:300 Dutch and Suriname Civil Code).

Concerning personal negative covenants, it is possible to impose on the obligor its inactivity through an award or judgment, whose infringement will give rise to compensation for damages.

Example 2: A textile company of country X, and B, a fashion designer of country Y, have included in the contract for the performance a non-competition clause, whose validity period is 2 years from when the legal relationship between both of them ends. 5 months after having ended that relationship, B hires C, a company dedicated to the same sector as A, to provide its services and this requests the court to observe the clause during the agreed period in the contract. If B does not observe the judgment it will be liable for damages.

Other times, however, the specific performance of the personal negative covenant may not be made.

Example 3: Based on the same facts as example 1, if a confidentiality clause is agreed in the contract, and B breaches professional secrecy, the only remedy available for A is damages.

In reality, the scope of application of the exception is comprised of the cases in which the obligor's personality is unique and irreplaceable (irreplaceable artist or professional), so that the realisation of the performance cannot be delegated; or if the performance involves a confidential and personal relationship between the contracting parties.

Example 4: A, of country X, commissions the famous painter B, of country Y, to paint a mural in the boardroom of the company. Before the non-performance by B, A will not be able to make use of the remedy of specific performance, since it cannot oblige B to make the painting (this would infringe his personal liberty, as well as impact on the quality of the work); and another artist cannot substitute it in the performance either.

Example 5: A, B and C have undertaken to found a professional company. However, A decides at the last minute not to form part of the company and does not attend the signing of the deed of incorporation. The other partners cannot compel A to perform, since this would involve imposing on him the maintenance of personal relationships against his will. The remedy available before the non-performance by A will be damages.

The following two limits to the exercise of the remedy of specific performance are based on the unreasonableness of the claim. Sometimes, the performance is not impossible nor the obligor‘s personal obligation, but it is not reasonable to require it through implying an excessive effort or expense for the obligor, in relation to the advantages that the aggrieved party obtains from this through the non-performance; or through the injured party being able to obtain a sufficiently satisfactory replacement transaction easily. In the end, given that specific performance can sometimes imply a far too blunt measure; its origin, in accordance with the parameter of reasonableness, must be considered in any case.

The exceptions indicated tie in with the regulation of specific performance in the common law systems and, although they are not expressly provided in the OHADAC systems of the French or Spanish tradition, it is not absolutely alien to these either, since it can easily be deduced from the principle of good faith and the prohibition of the abuse of rights. It is indeed included in the Draft Project of Reform of the French Law of Obligations of 2013 (Article 129) and in the texts of the uniform law [Article 46.3 CISG; Article 7.2.2 (b) and (c) UP; Article 9:102 (2) (b) and (d) PECL; Article III-3:302 (3) b) DCFR; Article 110.3º (b) CESL].

The limit contained in letter c) is expressed in terms of “excessive effort or expense”, in order to prevent this from being identified with exclusively economic hardship. The provision covers the cases in which the cost is disproportionate, as well as those cases in which the performance implies some exorbitant disadvantages for the obligor in relation to the benefit that the performance brings to the obligee.

Example 6: In a construction contract for the construction of a pool of specific dimensions in the contract, the construction company did not perform, by delivering a pool that differed by 10 cm from the agreed dimension. Requesting specific performance by the owner, the claim will not be successful, since the high economic cost and the effort of rectification of the defect of capacity is disproportionate with the benefit that the injured party will obtain through the non-performance.

Example 7: A rents to B a property for its utilisation as a testing field for “four by four” motor vehicles, establishing in the contract a clause through which, upon termination of the contract, the land must to be returned perfectly smoothed. B does not observe this clause, and A demands specific performance which, however, is not estimated. The substantiation of the rejection of the claim is based on the property having been rented on a continuous basis to a leisure activities company, for the construction of quad routes, which facilitates the irregularity of the land. Although the cost of the observance of the contractual clause is not very high, this does not bring any benefit for A. The exercise of the claim is not reasonable.

The existence of a reasonable replacement transaction [letter d)] is also important at the time of assessing the provenance of the claim of specific performance. For the assessment of the “reasonableness” not only the nature of the goods and the purpose of the contract have to be taken into account, but also the circumstances in which the non-performance and the effort involved for the injured party by resorting to a substitute provider.

Finally, letter e) of the proposed provision imposes an indirect limit on the claim of specific performance based on its prompt exercise. Thus, the injured party loses the right to receive performance, if it does not claim this within a reasonable period from when it knew or ought to have known of the performance.

The rule is derived from English law and is also included in Articles 46.2º and 3º CISG; 7.2.2 and) UP; 9:102 (3) PECL and III-3:302 (4) DCFR. This rule is analogous to that provided in Article 7.3.3 (3) of these Principles for the exercise of the right to terminate and, like that, aims to protect the obligor from the disadvantages that may be derived from an untimely exercise of the right of performance, and prevent the possible abuses and speculations by unprincipled obligees, to the detriment of the market. It is a question of preventing the non-conforming party from having to have the performance prepared (making available the goods or not hiring its services with another person), until when the obligee deems it convenient to request it.

What constitutes a reasonable period will depend on each contract and on the nature of the goods, as well as on the circumstances of the non-performance. The period will run from the time when the injured party knew or ought to have known of the non-performance, if this is fundamental. And in the case of non-fundamental non-performance, the reasonable period begins from the end of the additional period granted for the performance, in accordance with Article 7.1.6 of the OHADAC Principles.

The loss of the right through untimely exercise must not be confused with the prescription of the action, which also limits the exercise of the right in accordance with the provisions of Chapter 9 of these Principles.

Commentary

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OHADAC principles on international commercial contracts.pdf