Legal Remedies Provided in the Estonian Draft Law of Obligations Act for Breach of Contractual Obligations
| Author | Irene Kull |
| Position | Lecturer of Civil Law |
| Pages | 147-159 |
Page 147
Under § 13 of the Constitution of the Republic of Estonia, everyone has the right to the protection of the state and of the law. Under § 19 everyone has the right to free self-realisation. Everyone shall honour and consider the rights and freedoms of others, and shall observe the law, in exercising his or her rights and freedoms and in fulfilling his or her duties. Section 31 of the Constitution vests everyone with the right to engage in enterprise. The provision of the appropriate legal environment by the state is an important condition for conducting business. Nonconformity of the applicable civil law in its law of obligations part to the interests of free enterprise has become evident. The drafting of the new Law of Obligations Act was based on the approach that law of obligations and, in particular, contract law are fields the unification of which is requisite in the development of an actually functioning single European market. In the situation of today's competition economy, competition has also appeared between national legislations1.In choosing the law applicable to a contract, preference is inevitably given to a legislation that is efficient, comprehensible and provides adequate negative mandatory capacity, etc. The grounds for applying remedies (grounds of civil liability), the remedy categories, procedure and legal consequences of their use and the negative mandatory capacity are the questions of interest to any contracting party who must make the choice of national law applicable to the contractual relationship in the event of dispute. The drafters of the new Estonian Law of Obligations Act have sought to find such solutions and methods of regulation that would be as competitive as possible in comparison with the civil law of other European countries2.
Parties conclude contracts with a view to certain objectives that they wish to attain: the income that they hope to receive or the prevention of certain consequences or conduct. At the initial stage of a contractual relationship, both parties are, presumptively, interested in performing the assumed duties. As in other European countries, the pacta sunt servanda principle is also the cornerstone of Estonian contract law. Although contracts can be prepared with high thoroughness and expertise, the performance of a contract may still fail owing to the fault of the party in breach, the aggrieved party or a third party or to circumstances independent of the contracting parties. It is also said that a contract is exactly as good as the parties thereto. In order to ensure legal certainty and actually implement the freedom of enterprise guaranteed under the Constitution, the remedies available for breach and the procedure of their use must be as simple as possible and undistinguishing between persons breaching contractual obligations.
Protection must be afforded to any right, and anyone vested with the right is entitled to protection by means of remedies provided in the law. The right to claim judicial protection of violated rights is a part of personal rightsPage 148under civil law. The scope and extent of protection of rights depend on many circumstances relating to the nature of the protected rights and the circumstances of violation. Such circumstances include, in particular, the field of the violated right. Hence, for example, remedies provided for violation of real rights are inapplicable if relationship under law of obligations is determined as existent between the parties. In addition, the application of remedies may be limited by or related to proper performance by the creditor. The extent of a party's liability may also depend on that party's status or the counterparty's need for protection. For example, the extent of liability may vary according to whether the contract has been concluded within the bounds of professional or economic activity or not. In the latter event, for example, the liability for breach may be more stringent, remedy categories may be different from those allowed to other subjects and the properness of performance is often regulated by laws or other legislation.
The protection of parties' rights in the event of breach of contractual obligation means, first of all, the opportunity to use remedies provided in the law or stipulated in the contract. The doctrine of civil law has been entrusted with the task to work out the criteria for optimum and equitable protection of the aggrieved party's rights in the event of breach. This enables to ensure the stability and legal certainty of contractual relationships and the rationality of commerce.
The application of remedies may be aimed at removing or anticipating a breach, removal of harmful consequences, restoration of the former situation or compensation for damage caused by the breach. Some of the remedies are universal and available for any breach. Others are provided only for violations of certain categories of civil- law rights. While some remedies are applied only by the courts, certain others can be applied upon the expression of will by one party. The latter category of remedies serve their protective function extrajudicially.
In Estonian law, judicial intervention is usually needed to apply remedies. In certain civil-law relationships, the application of remedies should remain in the competence of the court because one of the parties to the relationship is apparently in a weaker position and, therefore, needs more protection and public control over the dynamics of the contractual relationship. At the same time, a situation in which but very few remedies are available for extrajudicial use is out of accordance with modern requirements and needs. The fundamental principle of legal regulation in the new Law of Obligations Act is to ensure opportunities for extra- judicial application of remedies. Use of remedies by the court is allowed where this is justified by the need to protect the weaker party. Hence, for example, in a residential lease the lessor may generally not use remedies extrajudicially.
In drafting the Principles of European Contract Law (PECL), the question of how to regulate nonperformance and its legal consequences was among the most difficult problems in the situation in which large differences exist between the member states as regards the treatment of breaches, the system of remedies and the procedure of their application. The choice of a system for regulating breaches and remedies was one of the most problematic areas also in the preparation of the new Estonian Law of Obligations Act. In Estonia, like the PECL, the question was decided in favour of the common concept of breach. The decision was induced in particular by the need to harmonise Estonian national contract law with European contract law. In addition, it was certainly influenced by foreign experts' recommendations and law amendment proposals in the model countries (Germany and Switzerland).
In the PECL, nonperformance denotes any nonperformance, delayed performance, defective performance (including the absence of rights in the thing transferred) as well as the breach of collateral duties such as those concerning invoicing or confidentiality3. Performance by a contracting party is regarded as proper if that party performs its duties in accordance with the express and implied terms of the contract. Thus, under the PECL, any failure to meet contractual obligations or any nonperformance is deemed a breach. Although German law has, to a very large extent, served as a drafting model for a number of Estonian Acts, the choice of regulation for breach of obligations was made in favour of the harmonised law, supported by the fact that unlike German law4, Estonian law applies the common conception of breach. Under § 222(1) of the Civil Code, which dates back to 1965, breach is any nonperformance or improper performance of duties5.Hence the adoption of the new Law of Obligations Act will not bring about substantial changes regarding the conception of breach. According to the draft Law of Obligations Act6, breach means any nonperformance or improper performance, including any delay in the performance, of a duty arising out of an obligation. A breach of obligation may be excusable or inexcusable7.
Remedies are applied on the basis of the breaching party's liability for failure to perform or nonperformance. In Estonian civil-law theory, the elements of liability are damage, wrongful act by the party in breach, the causal relationship between the damage and the wrongful act, and culpability (fault) of the party in breach. This conception, largely built upon the Soviet civil-law theory, has become obsolete in many aspects and no longer meets the actualPage 149needs of the legal practice8. In the aspect of wrongful act, the presently applicable conception does not substantially diverge from those known in the civil-law theories of developed countries. However, the difference presented by the element of culpability as a basis of liability is much more considerable. In so far as legal regulation in the Estonian draft Law of Obligations Act is also founded on the categorisation of breaches as excusable or inexcusable, the question of culpability is interesting from the very aspect whether the absence of culpability will release the party in breach from liability and whether culpability is of any importance at all in the application of liability.
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