When Civil Law Countries Recognize Punitive Damages

On 5 July 2017, the Italian Court of Cassation, as the French Court of Cassation in December 2010, affirmed that punitive damages are not contrary to international public order.

Punitive damages are defined as “the costs that are awarded to a person due to negligence that has caused personal injury or damage to personal property. It is more than the item is worth but considerably so. It is a payment by the person to the injured party as a punishment for reckless behaviour.” (Black’s Law Dictionary). Unlike compensatory damages, as known in France, punitive damages aim to punish fraudulent behavior, rather than to repair the damage suffered.

In France and Italy, civil liability law does not provide for the possibility of punitive damages. Nevertheless, both States now recognize, in the context of an exequatur procedure of a foreign decision that punitive damages are not contrary to international public order. Therefore, the existence of punitive damages as such is not an obstacle to exequatur.

The Italian Court of cassation meets the position of the French Court of Cassation

Before 2010, French case law maintained a traditional vision of liability. Thus, the Court of Cassation underlined that: “The peculiarity of civil liability is to restore as exactly as possible the equilibrium destroyed by the damage and to put the victim back into the situation where it would have been if the wrongful act had not occurred” (Cass. 2nd civ. 7 December 1978, 77-12.013; Cass. 2nd Civ, 9 July 1981, 80-12.142).

On 1 December 2010, the French Court of Cassation rendered a significant decision according to which punitive damages are not contrary to international public order (Cass. civ. 1, 1 December 2010 n. 09-13303, Case Fountaine Pajot). However, the Court of Cassation, considering that the amount of damages, amounting to 1.460.000 USD, was “manifestly disproportionate with regard to the injury suffered and the breach of the contractual obligations,” refused to grant the exequatur of the American decision. This decision has been widely commented by the doctrine:

This solution shows a shift in the evaluation by the High Court of our civil liability law functions” (free translation, Michel Attal, Le droit français est-il devenu favorable aux dommages et intérêts punitifs ? Droit et Patrimoine, Nº 205, 1st  July 2011);

The Court of Cassation makes a connection between French law which ignores punitive damages  and common law rights, especially that of the Unites States, which admit them” (Hélène Gaudemet-Tallon, De la conformité des dommages-intérêts punitifs à l’ordre public, Revue critique de droit international privé 2011 p. 93);

this recognition in principle of the conformity of punitive damages to international public policy is a proof of the relaxation of the French position long governed by the principle of equivalence between the compensation granted and the damage suffered” (Jennifer Juvénal, Dommages-intérêts punitifs : comment apprécier la conformité à l’ordre public international ? La Semaine Juridique Edition Générale n°6, 7 February 2011, 140).

Nearly seven years later, the Plenary Assembly (“Unite civili”) of the Italian Court of Cassation went further when it pronounced, on 5 July 2017, the exequatur of foreign decisions granting punitive damages to the victim (Cass. civ. 05/07/2017, n°16601), although Italian case law was strongly opposed until then.

Indeed, the Italian Court of Cassation had stated on 19 January 2007 that “in the legislation currently in force, the idea of punishment and sanction is unfamiliar with compensatory damages, as well as the behavior of the offender is indifferent. Civil liability has for main objective the restoration of the patrimony of the victim through the payment of a sum of money which tends to eliminate the damage’s consequences” (free translation) (Cass., civ. III, 19 January 2007, n. 1183).

On 16 May 2016, the First Chamber of the Italian Court of Cassation had begun the evolution of the case law, recognizing that damages could be punitive, and noting in particular that “the multifunctional nature of the civil liability regime within a framework of globalization of legal systems in the transnational sense, requires a circulation, and not a fragmentation, of norms through the different national legal systems” (free translation) (CORTE DI CASSAZIONE; sezione I civile; ordinanza 16 maggio 2016, n. 9978; Pres. Di Palma, Rel. Lamorgese, P.M. Ceroni (concl. diff.); Soc. A. (Avv. Tepedino, De Cristofaro, Fabris) c. N. Inc. (Avv. Petrucci, Gilioli, Trovato)).

On 5 July 2017, the Plenary Assembly of the Court of Cassation reiterated the arguments put forward by the decision of 16 May 2016 and adopted the same conclusion.

The case concerned three decisions rendered by the Florida State Judge who had held liable an Italian manufacturer of motorcycle helmets for the injury suffered by an American motorcyclist following a traffic accident, for a total amount of 1,500,000 USD.

The Court of appeal of Venice granted the exequatur of these decisions, which was challenged by the manufacturer before the Court of Cassation. The Italian High court upheld the appeal decision stating that today the notion of international public order is no longer limited to the domestic values but has to take into account the perception of fundamental rights of other legal systems. In its decision, the Italian Court of Cassation indicates the necessary conditions for such a decision to obtain the exequatur in Italy:

  • The foreign decision has to respect the principle of legality: the foreign jurisdiction “must have ruled according to an appropriate legal bases while respecting the principles of typicality and predictability” (free translation). The principle of typicality means that the cases for which punitive damages may be granted are established by the law, whereas the principle of predictability means that the penalty and the quantitative limits are predictable;
  • Like the conditions given by the French High jurisdiction, the Italian Court of Cassation states that the decision which exequatur is sought must comply with the principle of proportionality between (i) compensatory damages and punitive damages and (ii) between punitive damages and the wrongful sanctioned misconduct.
A gradual opening-up towards the acceptance of punitive damages:

The decision of the Italian Court of Cassation thus fits into the general evolution of the system of civil liability as perceived in France.

To justify its decision, the Italian Court of Cassation referred to a series of national legal provisions which already recognize the punitive nature of damages: for instance, article 46 of Decree No. 1939 of 29 June 1127 and article 66 of Decree No. 929 of 21 June 1942 abolished by Decree No. 30 of 10 February 2005 regarding patent and trademark; Article 140, §7 of Decree No. 206 of 6 September 2005 on consumer law; Article 614 bis of the Italian Code of Civil Procedure, introduced by Article 49 of Law No. 69 of 18 June 2009, which provides the possibility for the judge to fix an amount to be paid in the event of further violation or delay in execution of a judgment; Articles 388 and 650 of the Italian Penal Code, etc.

In France, several mechanisms can also be compared with punitive damages. The doctrine cites as an example Article L. 615-7 of the French Code of Intellectual Property which provides that: “To fix damages, the Court shall separately take into consideration: 1. The negative economic consequences of counterfeiting, including the shortfall and loss suffered by the injured party; 2. the moral damage caused to the latter; 3. And the profits made by the infringer, including the savings of intellectual, material and promotional investments that this one has withdrawn from the counterfeit” (Attal, Michel (2011) Le droit français est-il devenu favorable aux dommages et intérêts punitifs ? Droit & patrimoine (205). p. 42-50).

Other authors also claim that the penalty clause provided for in article 1231-5 of the French Civil Code also expresses a punitive aspect of civil liability (La Semaine Juridique Entreprise et Affaires n° 46, 17 Novembre 2016, 1598, Réforme de la responsabilité civile : influence des principes issus de la Common Law, Etude Étude rédigée par Laura Ferry, lawyer, Reedsmith).

Although, if the preliminary draft Catala legislation expressly provided the consecration of punitive damages through its article 1371 (“The author of an obviously willful misconduct, and in particular of a lucrative misconduct, can be condemned, besides the compensatory damages, to punitive damages to which the judge has the power to benefit the public Treasury in part. The judge’s decision to grant such damages must be specially motivated and their amount distinguished from that of the other damages granted to the victim. Punitive damages are not insurable“), it has not been maintained in the preliminary draft of the reform of the civil liability, which provides for a mechanism of civil fine. Thus, Article 1266-1 paragraph 1 of the draft provides that: “In extra-contractual matters, when the perpetrator of the damage has deliberately committed a fault in order to obtain a gain or an economy, the judge may condemn it, at the request of the victim or the public prosecutor and an especially motivated decision to pay a civil fine.

Although the civil fine can be considered as a true sanction, scholars underline that the civil fine is intended to be used to finance a compensation fund “in relation to the nature of the damage suffered,” or failing that, to the Public Treasury: “This is not true damages since these sums are not intended to be paid to the plaintiff and to repair any damage” (La Semaine Juridique Entreprise et Affaires n° 46, 17 November 2016, 1598, Réforme de la responsabilité civile : influence des principes issus de la Common Law, Etude Étude rédigée par Laura Ferry, lawyer, Reedsmith).

In the light of these provisions, it is not surprising that the French and Italian Courts of Cassation no longer categorically refuse the exequatur of a foreign decision granting punitive damages. However, it must be remembered that both the French and the Italian Courts continue to exercise proportionality control over the damages granted to ensure that they are not excessive. This control is in line with the position of the European Union, which, for example, provided in Regulation 864/2007 of 11 July 2007 on the law applicable to non-contractual obligations (“Rome II”) that the application of a law designated by that regulation which would lead to the granting of “excessive” damages and interests may be considered contrary to the public policy of the forum, “taking into account the circumstances of the case and the legal order of the Member State of the seized jurisdiction”.

Even if civil law judges retain some control over punitive damages, they clearly demonstrate a desire to harmonize decisions in the context of international relations.

Caroline Duclercq & Talel Aronowicz

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