Deliberate breach of contract in comparative perspective
PhD student: Dr M. van Kogelenberg
Promotor: Prof S.D. Lindenbergh
Duration: 1/9/2006 - 31/8/2011
PhD defence: Rotterdam, 30/11/2012
Debtors of contractual obligations to give or to do (hereafter: the debtor) contemplate and effectuate breaching the contract sometimes deliberately. The most common reason to do so is seemingly to achieve financial advantages or to avoid suffer financial disadvantages. The creditor of the contractual obligation to give or to do (hereafter: the creditor) is of course legally protected against the negative consequences of breach of contract. The way of protection differs among legal systems, especially between common law and civil law jurisdictions. Whereas civil law legal systems generally seem to pay more attention to keeping the contract alive by awarding in general the creditor actual performance of the contract as of right -, common law legal systems seems to attribute more value to a (perfect) financial compensation for the creditor in the case of breach by awarding him damages as of right. This theoretical difference triggers the following assumption: Under common law jurisdictions the debtor cannot be easily forced to comply with contractual duties; therefore, the legal possibility to commit deliberate breach seems to be larger than under civil law jurisdictions. The first part of this research aims in a limited way which will be explained below to test this assumption. The theoretical analysis on the phenomenon of deliberate breach and legal consequences possibly can yield some interesting results, because in the mind of a continental lawyer or a legal academic, breaching a (written) contractual obligation is a huge step beyond the principle of pacta servanda sunt. However, under common law, enforcement of the contract includes payment of (expectation) damages, this is not limited to the remedy of specific performance. By examining and comparing the available remedies in a common law jurisdiction (UK) and a civil law jurisdictions (The Netherlands) and by paying attention to their background as long as it is relevant for the deliberate breach decision, the interaction as well as the tension between the sanctity of the contract and the eventual economic and social desirability of deliberate breach are central to this part of the research. Consequently, The two research questions which both represent another side of the same medal are formulated as follows: 1. Which legal possibilities do common law in particular English law and civil law in particular Dutch law offer the creditor, who is confronted with deliberate breach, to vindicate his right to performance? 2. Does common law in particular English law allow (deliberate) breach of contract de iure and de facto more easily than civil law in particular Dutch law? However, the actual decision to commit deliberate breach does not only if at all depend on the difference in legal systems. On the contrary, many considerations of economic and social nature can underlie this decision making process, e.g. the type of contract, the kind of relationship between the contracting partners, reputation issues, the financial interest of the contract at stake etc. In the first part of the research project, the legal conditions for the decision to commit deliberate breach are examined. However, this perspective is too limited to establish under which circumstances a party indeed commits deliberate breach. Apart from this static and moralistic view, the case law which can be found and studied provides a distorted picture of reality. In the first place, in the cases which come before court, breach has already occurred. The decision of the debtor has already been made. Furthermore, the decision of the creditor how to react on the breach is also clear: independent of the remedy he has chosen to pursue, it is inevitably clear that he opted for the formal, legal route. That in itself already tells a lot about the type of cases and relationships that are subject to research. From sociological research could be derived however, that in several commercial branches, litigation is not a favorable option for contracting parties, even if the debtor commits breach. Parties not seldom prefer to settle their disputes outside the courtroom, so the legal analysis can only be done on the tip of the iceberg as far as the cases where deliberate breach takes place are concerned, and it is furthermore a very specific tip. To get a better grasp of what parties in a specific branch of contract care about as they are contemplating committing breach, the second part of this research consists of a modest empirical effort (by interviews eventually complemented with a survey) executed in a comparable branch of industry in England and the Netherlands to identify as many circumstances as possible, by which the decision to commit breach and how to react on the deliberate breach, will be mentioned and explained. After this comparative and interdisciplinary exercise, it should be possible to present - on a very modest level - some results about the influence of legal systems on deliberate breach of contract, at least in a specific branch of industry. The reason why the results may be interesting is that parties operating under a common law system may perceive the contractual partnership in a different way than parties operating under a civil law system. However, it could also be that despite the theoretical differences in legal systems, the influence of the law and legal thinking is so marginal that it does not really matter for the decision to commit deliberate breach under which legal system parties operate. For academics this might be interesting to an even larger extent, because this comparative and interdisciplinary research emphasizes the difficulty to satisfactorily construe a converging private law in Europe. However, this research project has value for society as well, because this research project creates more understanding about the way parties deal with the decision to commit breach or not and to react on a deliberate breach of contract in a more general way. In summary , the research questions which are central in the second part are as follows: 3. Under which circumstances are contractual debtors operating under English or Dutch law contemplating committing deliberate breach in a specific sector of trade and industry and what is the role of the applicable default rules in this decision making process? 4. Does the difference in legal approach between common law and civil law regarding the issue of enforced performance in a contractual setting lead to different attitudes and reactions towards deliberate breach in a specific sector of trade and industry? Finally, the results of the first and second part must be combined and evaluated. The different dimensions of this project could be considered as a novelty in itself, whereas the concrete results shall not be fit for generalizations, which is a common denominator of any empirical research. The reasons for modesty in the conclusions will be explained in a more detailed way further on. However, the connected research question already reflects the careful approach to any strong conclusion: 5. Which results and recommendations follow from the comparative, legal research next to or combined with the empirical research?