Features of the Award for Performance in Kind

Markin Pavel Viktorovich Postgraduate Student, Department of Business and Corporate Law, Russian State University of Justice 117105, Russia, Moscow, Moscow, Novodanilovskaya Embankment str., 6k1, office 913 majanza17@gmail.com

Obligation is one of the key concepts of law and the main way of movement of goods for the economy. An obligation, in a broad sense, is a necessity in the performance of a certain duty, therefore, its very essence is subordinated to performance. In a narrower sense, the concept of obligation, as V.V. Kulakov points out, can be fixed both in law and in doctrine, but it always boils down to the fact that "an obligation is a legal relationship in which one person (creditor) has the right to demand from another person (debtor) the performance of any actions or abstaining from any actions"^[1] When considering the issue of fulfilling obligations, as a rule, they talk about a number of principles according to which it should be carried out. One of the main such principles is the principle of real fulfillment of obligations, the content of which is the need to fulfill the obligation in kind, namely, the debtor performing an action that constitutes the content of the obligation. At the same time, a typical situation is in which the debtor does not fulfill the obligation assumed, undermining the stability of civil turnover, and the creditor needs this obligation to be fulfilled. In this regard, the development of the possibility of compulsory performance of obligations, as well as its current state, is of great interest.

The term "performance in kind" was studied in the works of V.S. Tolstoy, who points out that the terms "real performance" and "performance in kind" are often used as synonyms. According to V.S. Tolstoy, execution in kind can be considered such actions of the debtor that provide the creditor with the use value provided for in the content of the obligation, while investigating this issue. ^[11]

Scientists have been and are still discussing the permissibility of coercion to fulfill obligations in kind. In pre-revolutionary literature, there is an opinion about the fundamental inadmissibility of requiring someone to do something against their will ^[5], but it has not found support in the minds of most researchers and is reflected in legal acts. And most often, the common denominator is the admissibility of an award for performance in kind in relation to obligations to transfer things.

V.I. Sinaisky pointed out that the Draft Civil Code allowed awarding obligations in kind both in relation to individually defined (Article 1658) and generic things (Article 1736).^[2]

The Civil Code of the RSFSR of 1922 pointed to the possibility of demanding an award in kind for obligations, the subject of which are individually defined things (Article 120)^[4]. The situation is similar with the Civil Code of 1964.

A.G. Karapetov, together with A.A. Gromov, indicate that before filing a claim for an award for execution in kind, the creditor must pass a "conscientiousness test" when choosing a method of protecting the right, which implies that there is no priority for execution in kind.^[3] Within the framework of this test, the authors consider it necessary to analyze the possibility of execution without the participation of the debtor, the degree of dissatisfaction of the creditor in the case of recovery of losses and penalties, the actual complexity of execution for the debtor, the possibility and complexity of providing administrative enforcement measures, and the fifth group of scientists identify any other circumstances that may matter.^[3]

The position regarding the possibility of forcing the debtor to fulfill the obligation in kind is also widespread in foreign legal systems. The French doctrine indicates that the creditor has the right, after official notification, to demand the performance of the obligation in kind, except in cases where such performance is impossible or if there is a clear disparity between its value for a bona fide debtor and its interest for the creditor. It is also noted that an indication of the possibility of a clear disparity between the cost of performance and its value for the creditor requires an analysis of the expediency of choosing this particular method of protecting rights against such alternatives as the possibility of replacing or destroying what was done in violation of the obligation not to do. ^[9]

If we look more globally, then in European law as a whole this issue can be considered on the analysis of the principles of European private law DCFR, since DCFR is not just a reproduction of a specific national legal system, but a tool that seeks to find acceptable solutions for all legal systems.^[14]

Under the DCFR, a creditor can generally avail itself of a remedy in an award for performance in kind, with some exceptions.^[14]

Thus, the drafters of the DCFR decided to provide for exceptions to the possibility of being awarded in kind and the remedy in question may be denied in the following cases:

1. Illegality or impossibility of execution. At the same time, temporary impossibility is not a ground for refusal of the claim^[8];

2. Doing the work would be unnecessarily burdensome or expensive;

3. The personal nature of the performance;

In modern domestic law, according to paragraph 8 of Article 12 of the Civil Code of the Russian Federation, the protection of civil rights can be carried out, among other ways, by awarding duties in kind. A similar rule is enshrined in Article 308.3 of the Civil Code of the Russian Federation, which states that in case of default by the debtor of the obligation, the creditor has the right to demand by court the performance of the obligation in kind, unless otherwise provided by the Civil Code of the Russian Federation, other laws or contract, or does not follow from the substance of the obligation. For the law of obligations, this wording means the existence of a general rule according to which the creditor can demand in court the performance of obligations from the debtor.

Special rules, in particular on purchase and sale, specify the specifics of the presentation of such a claim, depending on the subject of the obligation.

If the seller refuses to transfer the sold goods, clause 1 of Article 463 of the Civil Code of the Russian Federation indicates the buyer's right to refuse to perform the contract.

When the seller refuses to transfer an individually-defined thing, paragraph 2 of Article 463 of the Civil Code of the Russian Federation refers to Article 398 of the Civil Code of the Russian Federation, which indicates the consequences of non-fulfillment of the obligation to transfer an individually-defined thing. According to the specified norm, the creditor, in the obligation to transfer an individually defined thing, has the right to demand the withdrawal of such a thing from the debtor. The exception is the fact of the transfer of a thing to third parties.

And if there are no questions about the permissibility of being forced to transfer a thing in court as a consequence of non-fulfillment of an obligation to transfer an individually defined thing, then there are two opposite approaches in judicial practice regarding the transfer of things defined by generic characteristics.

According to the first approach, the courts award for execution in kind, for example, the obligation to supply things defined by generic characteristics. So, by the decision of the Arbitration Court of the Far Eastern District of 12/16/2020 N F03-5334/2020 in case N A51-25199/2019, the decision of the Arbitration Court of Primorsky Krai on awarding the delivery contract in kind and the obligation to deliver waste paper was upheld.

The main argument in favor of the admissibility of this approach is a reference to the Resolution of the Plenum of the Supreme Court of the Russian Federation dated 03/24/2016 No. 7, which in paragraph 23 clarifies: "the absence of the debtor of the number of things defined by generic characteristics, which he is contractually obliged to provide to the creditor, does not in itself exempt him from fulfilling the obligation in kind, if it it is possible by purchasing the necessary quantity of goods from third parties (paragraphs 1, 2 of Article 396, paragraph 2 of Article 455 of the Civil Code of the Russian Federation)", i.e. it speaks of the fundamental possibility of awarding in kind the obligation to transfer things defined by generic characteristics. So, this follows from the general dispositivity of civil legislation, since the law does not prohibit the requirement to fulfill the obligation to transfer things defined by generic characteristics.

However, courts often point to the impossibility of claiming things defined by generic characteristics with the same wording: "For goods defined by generic characteristics (paragraph 1 [of Article 463]), it is impossible to compel the seller to perform in kind, and the buyer can only refuse to perform the contract and claim damages."

The earliest judicial act in which this wording is used is the Resolution of the FAS of the North Caucasus District of 18.01.2007 N F08-7079/2006 in the case N A63-4083/2005-C3.

From 2007 to 2013, in the file of arbitration cases, it turns out to find only 10 judicial acts with the specified wording. In 2013, the Supreme Arbitration Court of the Russian Federation in the definition of 09.01.2013 N YOU-17637/12 in the case N A38-4031/2011 used this wording, after which the courts began to use this wording more often and in the period from 2013-2022. in the file of arbitration cases, you can find 161 judicial acts in which the court refers to the impossibility of claiming a thing defined by generic signs. Courts of general jurisdiction have also started using this wording since 2014.

It seems that the meaning of this approach of not recognizing the possibility to compel the transfer of things defined by generic characteristics is that, according to paragraph 2 of Article 396 of the Civil Code of the Russian Federation, the payment of a penalty and compensation for losses for non-performance release the debtor from fulfilling the obligation in kind, unless otherwise provided by law or contract. Ie, it turns out that in the case of by transferring a thing under a contract of sale of a thing possessing generic characteristics, a special provision on exemption from obligations cancels the effect of the general rule. However, it says that the fact of compensation for losses and payment of a penalty release from the performance of the obligation, i.e. release from the obligation occurs after compensation for losses and payment of a penalty. In this regard, the question arises: can the specified norm on exemption from the performance of an obligation be interpreted as "if the obligation to transfer a thing is not fulfilled, then the creditor cannot demand anything other than compensation for losses and payment of a penalty"? And, accordingly, can this rule be applied permanently, and not at the choice of the creditor, ignoring his interests?

If the answer to these questions is positive, then further the admissibility of claiming an individually defined thing is explained by the "next level" of even more special norms contained in paragraph 2 of Article 463 of the Civil Code of the Russian Federation, Article 398 of the Civil Code of the Russian Federation, defining the procedure for performing duties in kind within the framework of the transfer of individually defined things. In the case of a negative answer, it turns out that the courts either mistakenly interpret special rules defining the specifics of claiming one of the types of things (individually defined) as rules excluding the effect of the general rule in relation to all things in general, or the courts ignore the dispositivity of civil legislation, and instead of being guided by the principles of "everything is allowed that not prohibited" (or not directly regulated) are guided by the principle "only what is directly provided for by law is possible".

It seems that the answer to the above questions cannot be positive, since it turns out that such a free interpretation ignores the causal relationship between the compensation of losses and the payment of a penalty as a cause and the release from the performance of the obligation as a consequence. Also, in this case, the interest of the debtor is placed above the interests of the creditor, the correctness of which is also questionable.

At the same time, it is worth noting that the commitment inherent in Romano-Germanic law to the principle of real performance of obligations is no longer exclusive, and continental law is increasingly mixed with the Anglo-Saxon approach, which recognizes, as a general rule, the possibility of collecting damages and penalties, but not enforcement in kind, moving away from real performance in favor of losses and penalties. With the recognition and development of human rights and freedoms, the scope of application of methods of protection of rights related to coercion gradually narrowed. Thus, A.G. Karapetov writes that over the past hundred years in both legal systems, identical disputes are resolved by courts most often uniformly, which is facilitated by the development of positive law: "as a comparative analysis of the development of the regime of this claim [a claim for coercion to perform duties in kind] within the EU countries shows, these differences are actually significantly erased. Especially significant is the inclusion in the German civil code of par.275 in 2002 [(1) The debtor is released from the performance of the obligation if it became impossible due to a circumstance that occurred after the occurrence of the obligation and for which he is not responsible. (2) The impossibility that occurred after the occurrence of the obligation is equated with the subsequent inability of the debtor to perform], as well as the wording of the relevant rules on the admissibility of such a claim in PICC (Principles of International Commercial Contracts/ Principles of International Commercial Contracts, PECL (Principles of European Contract Law/Principles of European Contract Law) and DCFR (Draft Common Frame of Reference/Model Rules of European Private Law)".^[3]

 In the Civil Code, the departure from the principle of real execution is evidenced by the presence of the norm contained in paragraph 2 of Article 396 of the Civil Code of the Russian Federation on the release of the debtor from fulfilling the obligation in kind by payment of a penalty and compensation for losses for non-fulfillment.

Perhaps, in particular, following this trend of departure from the principle of real execution can justify such an approach in relation to things defined by generic characteristics. And not to say that this is bad, because in the modern world it is much easier to find an analogue (goods, services) and recover losses from the debtor than to force him to perform in kind.

This position is held in English law. Thus, analyzing the approach to this issue in the common law system, Jan Smits refers to the famous book "Common Law" (published in 1881 by the American lawyer Oliver Wendell Holmes) and gives the following quote: "The only universal consequence of a legally binding promise is that the law forces the promised person to compensate for losses if the promised event does not occur. In each case, he leaves him free (...) to break his contract if he so wishes." ^[10]Jan Smits notes that this quote most clearly shows that in common law, a contract is considered not as a moral, but as an economic instrument. Thus, if we assume that the contract is concluded for the purpose of making a profit, then getting the monetary value is just as good (and perhaps even better) as getting the execution in natura.^[10]

The use of coercion to fulfill an obligation in kind as an exceptional way of protecting a right in English law is associated with the fact that it creates a burden on the mechanism of law and violates the personal freedom of the debtor.^[15]

At the same time, it is logical that the assessment of losses associated with non-fulfillment of obligations to transfer unique things is difficult and therefore, with respect to such obligations, it is difficult to pay a penalty and compensation for losses.

Analyzing the approach to this issue in German law, Hussein Aksoy points out that in cases where the subject of execution for the creditor has not only economic, but also moral value (especially when the moral value is higher than the economic one), it must be taken into account when calculating the creditor's interest in execution. ^[13]

The community of scientists has also long drawn attention to the greater commitment of the practice to the recovery of damages and penalties, rather than the award for execution in kind. So, for example, S.Y. Fillipova "It seems that modern domestic civil law does not give grounds for highlighting this principle [of real performance], it retains effect only in the form of some kind of exception to the general rule on compensation for damages in case of non-performance of obligations"^[12]

            In addition to the subject of the obligation, the possibility of performance, both objective and subjective, the courts concluded that the essence of the obligation is of great importance to determine whether it is permissible to compel the transfer of things.

So, in the case A40-220175/2017, the Joint-Stock Company appealed to the Ministry of Defense of the Russian Federation to the arbitration Court with a requirement to compel the transfer of goods. The courts of the first, appellate and cassation instances concluded that the requirements should be satisfied.

The Supreme Court, although it pointed out the fundamental possibility of forcing the transfer of things defined by generic characteristics, nevertheless drew attention to the fact that the things that should be transferred were formed as a result of the activities of military units in the rocket and space industry, and therefore it is necessary to consider this issue through the prism of public interest in ensuring defense capability and the security of the country.

At the same time, the court actually concludes that the conclusion of the contract is not always aimed at its execution: "the fact of the conclusion of the contract means only entering into a contractual relationship, but does not prejudge the question of the admissibility of coercion to the actual execution of this contract in kind."

            Thus, in Russian judicial practice, there is a dual approach to considering whether the fulfillment of an obligation, in particular the transfer of things, is a priority. And this could well fit into the framework of a certain transitional stage of the widespread rejection of the principle of real fulfillment of obligations. However, the indication of the Plenum of the Supreme Court on the admissibility of the recovery of ancestral things says that the Supreme Court believes that it is too early to abandon this principle.

            It seems that the issue of duality of practice may also have roots in the fact that the courts, when considering claims for the transfer of things defined by generic characteristics, conduct some kind of analysis of the enforceability of the decision, and the rationality of enforcement of the debtor, similar to the "test of good faith" described above. But due to the lack of direct and clear criteria and norms, according to which courts should consider claims for award for execution in kind, which is most likely a qualified omission of the legislator, since actual relations often deviate from the templates provided by law, and it is easy to give adequate explanations of how courts should act in each probable case it is impossible, the courts conduct an analysis and in cases when they come to the conclusion that it is irrational to compel the debtor to perform in kind, starting from the opposite (about the inadmissibility of refusing to claim only an individually defined thing) justify their decisions.

            Thus, there is no uniformity in judicial practice on the issue of enforcement in kind. Domestic law must go its own way to develop an optimal solution. It is quite logical, within the framework of globalization and unification of goods, works and services, it looks like a gradual departure from the principle of real execution. But at the same time, in any case, the principal possibility of awarding performance in kind should still remain, since there will always be such a unique obligation, the performance of which cannot be replaced or compensated. In this case, it is possible to limit the creditor's right to perform the obligation by third parties with subsequent compensation for losses, and leave the award for execution in kind for cases when it will be impossible or impractical to protect the right in other ways.