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The Specifics of Performance

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The Specifics of Performance THE SPECIFICS OF PERFORMANCE: EMPIRICAL STUDY OF SPECIFIC PERFORMANCE LITIGATION IN ISRAEL A THESIS SUBMITTED TO THE STANFORD PROGRAM IN INTERNATIONAL LEGAL STUDIES AT THE STANFORD LAW SCHOOL, STANFORD UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF THE SCIENCE OF LAW BY: YONATAN ARBEL April 30, 2009 The Specifics of Performance: Empirical Study of Specific Performance Litigation in Israel Yonatan Arbel ABSTRACT This thesis empirically explores Specific Performance litigation in Israel. The question tackled here is the impact of the default rule of Specific Performance has on contract litigation, both from the perspective of the courts and of the litigating parties. This study reveals that despite the generosity of Israeli courts with Specific Performance awards, these remedies are not commonly sought and are frequently of little use for the plaintiff. When plaintiffs do make use of Specific Performance, they do so for many reasons, only some of which are predicted by the research literature. The resulting picture is that whether or not Specific Performance is favored, the rates of Specific Performance litigation are likely to be low. Therefore, it is highly unlikely that a rule that favors Specific Performance would have significant bearing on the efficiency of the system as a whole. Parties employ self-selection and do not sue for Specific Performance despite its general availability. As a result, even if Specific Performance has detrimental effects on efficiency – a highly disputed contention – rates are likely to be low. Based on the indeterminate state of the literature on the one hand, and the limited scope of Specific Performance litigation in practice on the other hand, my normative recommendation is to forego the discourse on the prominence of remedies and to exchange it with a system that does not show a-priori preference for any one of the remedies. My suggestion is more likely to fit squarely with (some) moral intuitions, and is more likely to advance efficiency in contract litigation. ii PREFACE AND ACKNOWLEDGMENT I would like to thank my supervisor, Professor Amalia Kessler for her dedication, attentive supervision, and inspiring and motivating comments. I would also like to thank Professor Carol Shabrami for working closely with me on earlier drafts of this thesis, providing with the best editorial advice I could ask for. In writing this thesis I drew considerable amount of inspiration and ideas from talks with Professors Barbara Fried, Lawrence Friedman, Richard Craswell and Professor Mitch Polinsky, to all I owe a debt of gratitude. I would also like to thank for the time my readers and editors took to read and comment earlier versions. Specifically, I would like to thank Tami Kricheli-Katz, Radek Goral, Michael Sulmeyer, Keisha Stanford, Daltot Yoavim, Itamar Morad, Nadiv Mordechai, Ayelet Sela, and Madhev Mohan. I would also like to thank Ohad Che Manor for his help with the statistical aspects of this paper, and of course to my beloved Tal Lieber. Unfortunately, all responsibility for mistakes rests solely with me. II Table of Contents 1. Introduction ................................................................................................................................................... 1 1.1 Research Questions .......................................................................................................................................... 4 1.2 Methodological Approach ................................................................................................................................ 5 1.3 Structure of Argument ...................................................................................................................................... 5 2. Chapter 2 – The Legal Framework ................................................................................................................... 8 2.1 Introduction ...................................................................................................................................................... 8 2.2 Overview of Israeli Law .................................................................................................................................... 9 2.2.1 Scope of Specific performance ............................................................................................................. 10 2.2.2 The Prominence of Specific performance ............................................................................................. 11 2.2.3 Exceptions to the Right for Specific performance ................................................................................ 13 2.2.4 Cy-pres and Adjustment of Performance ............................................................................................. 14 2.2.5 Enforcing Specific performance ............................................................................................................ 15 2.3 Overview of American Law ............................................................................................................................. 17 2.4 Conclusion ...................................................................................................................................................... 20 3. Literature Review ......................................................................................................................................... 22 3.1 Introduction .................................................................................................................................................... 22 3.2 Economic Analysis .......................................................................................................................................... 24 3.2.1 Under- and Over-Compensation of Remedies ...................................................................................... 25 3.2.2 Subjective vs. Objective Value .............................................................................................................. 29 3.2.3 The Paradigm of Property and Liability Rules ....................................................................................... 31 3.2.4 Efficient Reliance .................................................................................................................................. 33 3.2.5 Effective Alternative Hunting ................................................................................................................ 34 3.2.6 Efficient Breach ..................................................................................................................................... 36 3.2.7 Social Norms and Reputation ............................................................................................................... 38 3.2.8 Access to Cover Contracts .................................................................................................................... 40 3.2.9 Produce and Convey – To Do or To Give .............................................................................................. 41 3.2.10 Risk Aversion .................................................................................................................................... 42 3.3 Deontological Arguments ............................................................................................................................... 43 3.3.1 Contract as a Promise ........................................................................................................................... 43 3.3.2 Enhancement of Autonomy .................................................................................................................. 44 3.3.1 Commercial and Non-Commercial Settings .......................................................................................... 44 3.3.2 Irrelevancy of the Philosophy-of-Promising Arguments ....................................................................... 45 3.3.3 Distributive Justice ................................................................................................................................ 45 4. Chapter 4 - Content Analysis – Findings ....................................................................................................... 47 4.1 Introduction and Methodology ...................................................................................................................... 47 4.2 Rates of Specific performance ........................................................................................................................ 49 4.3 Bargaining Units ............................................................................................................................................. 52 4.4 Positive Performance, Negative Performance and Payment of Money ......................................................... 55 4.5 Contract to Produce Vs. Contract to Convey .................................................................................................. 58 4.6 Identity of Parties ........................................................................................................................................... 61 5. Chapter 5 – Interviews Analysis .................................................................................................................... 64 5.1 Introduction and Methodology .....................................................................................................................
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