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Todd Ptak
Senior Legal Counsel
Litigation & Regulatory Affairs
AIRBUS
France
 

Are US-style punitive damages creeping into other countries?

The divide between common law and civil law jurisdictions when it comes to awarding punitive damages (or costs) is well known; generally punitive damages may be awarded in the former but are prohibited in the latter. However, this does not mean that foreign companies, even in civil law countries, are immune from punitive damages/costs.

This topic deserves greater attention in light of recent developments, including a French appellate court holding for the first time that foreign judgments awarding punitive damages can be enforced in France.

In this edition of TalklawGlobal™ Todd Ptak, Senior Legal Counsel, Litigation & Regulatory Affairs for AIRBUS in Toulouse, France, chairs a panel on punitive damages for companies outside the US.


The experts joining him on this panel are (in alphabetical order by country): 


England & Wales: Ruth Cowley, Partner, Norton Rose 

France: Denis Chemla, Partner, Alexandre Fichaux, Associate, Allen & Overy

Germany: Christian Stempfle, Partner, Noerr

Italy: Stefano Cima, Partner, Eversheds Bianchini

Switzerland: Thomas Peter, Partner, Bratschi Wiederkehr & Buob


DISCLAIMER: Any opinions, statements or other information expressed in TalklawGlobal by the respective author(s) do not necessarily state or reflect those of TalklawMedia, the chairperson or his employer, the firm to which the author belongs or other panellists. The information submitted by the legal experts is for educational purposes only and does not create an attorney-client relationship between the reader, their firm, or any lawyer in their firm, and does not prevent any lawyer in any firm on this panel, from representing a party in any matter or manner (including taking a different position to that which he/she might have expressed or endorsed in TalklawGlobal) or serving as arbitrator, mediator, dispute board member or in any similar position based on the expression of his/her opinions on the various subjects published on TalklawGlobal. No information published on TalklawGlobal may be quoted or reproduced elsewhere without the prior written consent of the author and TalklawMedia.



Todd's questions for each jurisdiction are:

Question 1) What is the state of the law in your jurisdiction regarding a court's enforcement of a foreign decision granting punitive damages?

Question 2) Does the law in your jurisdiction allow coverage for decisions awarding punitive damages in an insurance policy providing worldwide liability coverage? 

Question 3) In what circumstances could a court in your jurisdiction make a punitive costs order against a successful claimant?

Question 4) A concept not entirely dissimilar to punitive damages exists where a company may be required to pay a fine of up to a certain percentage of its overall annual turnover as a result of violation or infringement of a statute (e.g., EC competition law where the percentage could be up to 10% of annual turnover of the preceding business year). In what circumstances does the law in your jurisdiction allow for fines against companies based on a given percentage of their annual turnover or a similar financial indicator?
 
 























Ruth Cowley
(biography)
Partner
Norton Rose
United Kingdom
Tel: +44 (0)20 74 44 33 96 
ruth.cowley@nortonrose.com

 
 



England & Wales:
Ruth Cowley, Partner, Norton Rose



Answer 1) Under English law the main aim of damages is to provide a remedy such that a party that suffered harm is compensated to negate, in so far as is possible, the impact of that harm.

In contrast, punitive damages are designed to punish and deter the wrongdoer, and as such fall outside of the general scope of damages in English law. They are only awarded in actions for certain public wrongs and in cases of slander, both of which have their foundations in tort law.

As a matter of public policy, the scope for awarding punitive damages under English law is a narrow one; a foreign judgment will not be enforced if the court considers that it is incompatible with this policy.

Punitive damages are excluded from claims for breach of contract under the domestic law. Foreign judgments and arbitration awards for breach of contract that incorporate a punitive element may only be enforceable where the sums awarded are not contrary to public policy; particularly where they do not “manifestly exceed” what an English court might order by way of compensation rather than punishment. 

By way of example, foreign awards of “multiple damages” under the US Sherman Act (anti-trust legislation) will not be accepted (in fact under UK statute, corporations and persons carrying on business in the UK that are subject to such foreign judgments may have a right of recovery of the multiplied elements of such awards in the UK), whereas a foreign decision with a comparatively modest punitive element for e.g. the behaviour of a party when defending a claim may be enforced by the court.























Denis Chemla
(biography)
Partner
Allen & Overy
France
Tel: +33-1-40 06 55 38
denis.chemla@
allenovery.com



















Alexandre Fichaux
Associate
Allen & Overy
France
alexandre.fichaux@
allenovery.c
om

 

 

France:
Denis Chemla, Partner, Alexandre Fichaux, Associate, Allen & Overy



Answer 1) The enforcement of a foreign decision in France is governed by either EC Regulation 44/2001, international conventions or French civil procedural law, depending on the country where the decision was issued.  These provisions all set out different requirements for the enforcement of a foreign decision in France.  However, regardless of the applicable provision, there is a common requirement that the foreign decision not breach French international public policy, substantive or procedural, in order to be enforceable.

In principle, French law only entitles a claimant to compensation for a loss, i.e. any compensation should cover, but not exceed, the claimant's losses (French Supreme Court, 8 July 2004, nr. 02-14854).  However, that does not necessarily mean that a foreign judgment will contravene French international public policy, and therefore be refused enforcement, by awarding damages beyond simple compensatory damages.

The French Supreme Court addressed this issue for the first time in 2010 (French Supreme Court, 1 December 2010, nr 09-13.303).  In this case, the claimants, US nationals, had bought a defective boat from a French company.  The Superior Court of California awarded approximately USD 1.4 million for the restoration of the boat, USD 0.4 million for legal fees and USD 1.5 million in punitive damages.

The claimants applied for enforcement of the decision before French Courts.  The Court of Appeal of Poitiers (26 February 2009, nr. 07/02404) refused enforcement on the basis that an award of punitive damages contravened French international public policy.

On appeal, the French Supreme Court explained that a decision awarding punitive damages did not contravene French international public policy as long as the amount awarded was not disproportionate to the loss suffered and to the defendant's breaches of contract.  However, it held that, in the case at hand, the award of punitive damages was disproportionate and therefore refused the enforcement of the US decision.

This decision sets out a test to be applied by French courts in determining whether awards of punitive damages contravene French international public policy.  It will provide a point of reference for the lower courts.  However, this decision raises some concerns.  Assuming that defendants have no assets other than in France, the claimants will be precluded from being able to enforce the judgment on both compensatory or punitive damage.  Indeed, a court's refusal to enforce an award of punitive damages precludes enforcement of the whole judgment, including any award of compensatory damages.  Claimants will then be forced to initiate fresh proceedings against the seller before French courts in order to obtain compensation.

Could the French Courts have ruled otherwise?  According to French case law, the enforcing judge cannot modify the amount of damages awarded in a foreign decision (French Supreme Court, 11 June 2002, nr. 99-10044 and 19 September 2007, nr. 06-17096).  However, the Supreme Court could have declared enforceable the part of the decision that does not contravene French public policy, i.e. the part of the decision awarding compensatory damages.  By analogy, article 48 of EC Regulation 44/2001 specifically provides that this option is available to the judge
.

























Christian Stempfle
(biography)
Partner
Noerr
Germany
Tel: +49-89-28 62 81 05
christian.stempfle@noerr.com
 



Germany: 
Christian Stempfle, Partner, Noerr



Answer 1) In Germany, there is a well-known decision of the Federal Supreme Court (Bundesgerichtshof) in NJW 1992, 3096. As a result, the court denied the enforceability of a US court decision providing for punitive damages.

However, this leading case cannot be interpreted as a strict barrier against the enforceability of punitive damages:The judgment reads in a way that it very much depends on the reasoning behind the punitive damages award. If these reasons give a clear picture why, and in what amount, punitive damages have been awarded, then it is not excluded that a punitive damages award can be declared enforceable in Germany. This is particularly so if punitive damages are awarded for specific, immaterial damages like damages for pain and suffering, or economic loss.

Therefore, insofar as a final word to the enforceability of punitive damages has not yet been pronounced, reference has to made also to decisions of the Federal Supreme Court in the matter of Caroline of Monaco v Burda. In the said decision the Federal Supreme Court awarded several times damages to Princess Caroline of Monaco because of a breach of her personality rights in publications of Burda magazines.

The reason for the damages award were, however, not found in any specific loss suffered by Caroline of Monaco, but it has been made clear that these damages were awarded in particular to make clear to the press that a violation of personality rights has to be avoided, and provided thereby for a penal element in the award which is not far away from the reasoning of punitive damages in the US.
























Stefano Cima
(biography)
Partner
Eversheds Bianchini
Italy
Tel: +39-02-89 28 71 
stefanocima@eversheds.it
 




Italy:
Stefano Cima, Partner, Eversheds Bianchini



Answer 1) Punitive damages are almost unheard of in the Italian legal system (as in many other Civil Law jurisdictions).  The Italian Supreme Court of Cassation has ruled that they are contrary to our principles of law.

The Supreme Court, in its judgment No. 1183 of January 19, 2007, expressly stated that “punitive damages” are contrary to Italian Public Order.  The Court rejected the request of enforcement of a US decision issued by the District Court of Jefferson County (Alabama) which granted punitive damages against an Italian company.  Under the Italian system, the idea of punishment and sanction of the behaviour of the injuring party is irrelevant for the purpose of establishing damages. There must be a correlation between the actual amount of the damage and the reimbursement of damages (compensatory damages).

When looking at the amount assessed as reimbursement of damages and the real amount of the damage, the Italian Courts may deny the enforcement of a foreign decision (irrespective of how the damages are classified by the foreign courts).  It is not necessary therefore that the foreign judge qualifies the damages in question as “punitive” or “exemplary”: The Italian Court can simply deem that the amount assessed is excessive vis-à-vis the damage caused.

There are, however, certain specific provisions of law, though rare, which appear to imply some form of punitive purpose. For example, Section 96 (paragraph 3) of the Italian Code of Civil Procedure (as recently amended by Statute Law No. 69/2009) provides that when the judge orders the losing party to reimburse the legal costs to the winning party, he may order the losing party to pay to the winning party an amount of money calculated on an equitable basis. Such amount is not linked to actual damages incurred by the winning party and appears as






























Thomas Peter
(biography)
Partner
Bratschi Wiederkehr & Buob
Switzerland
Tel: +41-58 258 10 00 
thomas.peter@bratschi-law.ch
 




Switzerland:
Thomas Peter, Partner, Bratschi Wiederkehr & Buob
  


Answer 1) Recognition and enforcement of foreign judgments in Switzerland are regulated in Articles 32 et seq. of the Lugano Convention 2007 (if the judgment was rendered in a member state), or Articles 25 et seq. of the Swiss Federal Act on International Private Law (if the judgment was rendered in a non-member state). Under both legal regimes, recognition of a foreign judgment may be refused, inter alia, if it is contrary to Swiss public policy.

Whether or not punitive damages are to be regarded as a violation of Swiss public policy cannot be assessed on a general level. Rather, all circumstances of a specific case would have to be taken into account. Unfortunately, there is currently only little and partly conflicting case law on this matter. It is therefore hardly possible to define and exhaustively list clear criteria that are applied by Swiss courts when making their respective assessments.

As a general rule, it may be said that enforceability mainly depends on the purpose of the punitive damages granted in a specific judgment.

On the one hand, if, and at least to the extent that the amount awarded is of purely punitive nature, punitive damages constitute a violation of Swiss public policy. Furthermore, enforcement of a judgment may also be refused if the amount granted would clearly exceed the claimant's losses suffered, since this would be considered as a breach of the rule against unjustified enrichment. Accordingly, punitive damages granted by a court mainly with the intent to "send a message" to the defendant would most likely be considered to be inconsistent with Swiss public policy.

On the other hand, the rule against unjustified enrichment is not an absolute one. There are several situations for which Swiss substantive law itself provides for "light versions" of punitive damages. For example, under the Swiss Code of Obligations ("CO"), a Swiss employer may have to make penalty payments to former employees in case of unfair dismissal. Similarly, Swiss law provides for the account of profits in cases of breach of personality rights or copyrights. Moreover, the CO explicitly allows the agreement on penalty payments in