June 28 2011
Recent developments point towards the greater acceptance of punitive damages in France. In recent months, punitive damages have received increased attention not only from the legislature, resulting in proposed revisions to the Civil Code, but also from the Court of Cassation, France's highest court.
On December 1 2010 the Court of Cassation rendered a decision on the enforcement of foreign decisions granting punitive damages. The decision will be of great interest to common law countries in which punitive damages can be awarded by the judge (ie, countries in which damages are awarded not only to compensate for harm, but also to punish the wrongdoer and to act as a deterrent to others). In contrast, these principles of deterrence and punishment are absent from French liability law, according to which damages must fully but solely repair the harm caused (the principle of full compensation).
The dispute in this case involved a US couple residing in the United States who had purchased for their personal use a yacht manufactured in France. In late December 1999 the yacht broke loose in La Rochelle during a storm and sustained serious structural damage. The manufacturer performed repairs before delivery, but did not mention the incident and the defects. He subsequently refused to participate in the proceedings initiated by the plaintiffs. In February 2003 the California Superior Court in Alameda County ordered the manufacturer to pay the plaintiffs $3.25 million, including:
The plaintiffs sought enforcement of the US judgment in France.
Under French law, the enforcement of a foreign decision is dependent on the French courts being satisfied that three enforcement conditions (set by case law) are met, including that enforcement of the judgment is not contrary to international public policy.
The debate focused on the punitive damages awarded by the US judgment and on whether this judgment could be enforced in France despite the French prohibition on punitive damages. The Court of Cassation held that, in principle, foreign judgments awarding punitive damages are not contrary to international public policy. However, the court added that an award of punitive damages would violate public policy in cases where the amount awarded was disproportionate with regard to the damage sustained and the debtor's breach of contractual obligations. This limit led the Court of Cassation to approve the appeal court's refusal to enforce because the US court's award of punitive damages was "manifestly disproportionate with regard to the harm sustained and the contractual breach".
The enforceability of foreign decisions awarding punitive damages could be considered as a first step towards the recognition of punitive damages in France. Most commentators support the introduction of punitive damages to French law, subject to the principle of proportionality. This suggestion certainly affected the Court of Cassation's reasoning. In effect, the punitive damages given by the California court were considered "disproportionate" to the damages granted to indemnify the harm suffered.
However, proportionality remains a general concept, which is difficult to implement and largely dependent on the court's discretion. The court's references to "the harm sustained and the contractual breach" were of little help at this stage, since few indications were given as how these criteria should be applied and articulated, and which ratio should be used to compare the damages awarded, the harm sustained and the seriousness of the contractual breach. In fact, the proportionality test, as laid down by the Court of Cassation, could partially conflict with the concept of punitive damages under US law.
The reference to the seriousness of the contractual breach fits the purpose of punitive damages, but differs from the US approach, where punitive damages are awarded under tort law if the defendant's conduct is sufficiently egregious. Punitive damages cannot usually be recovered in a contractual lawsuit, but many courts regard a party's bad-faith conduct in connection with a contract as being a tort in itself.
The reference to the harm sustained also raised questions in light of the fact that punitive damages do not purport to compensate the loss actually suffered. As a result, punitive damages are traditionally not limited to and by the extent of the harm sustained. Under US law, the sole limit on the size of punitive damages results from the due process clause of the 14th Amendment, which prohibits a "grossly excessive" award of punitive damages.(1) In this respect, in State Farm Mutual Automobile Ins Co v Campbell(2) the US Supreme Court ruled that punitive damages can amount to up to nine times an award of compensatory damages without violating the due process requirement but cannot exceed this limit (known as the 'two digits' test).
In contrast, the proposed revision to the French Civil Code limits the amount to up to twice the amount of compensatory damages. In the present case, the amount of punitive damages compared to the amount of compensatory damages ($1.46 million compared to $1.39 million) was already manifestly disproportionate in the French court's view. Therefore, the question to be determined is in what circumstances the amount awarded would be proportionate.
No definitive conclusions can be drawn before further decisions on the subject are issued, so for now and unless legislative reform occurs, US punitive damages remain a foreign and distant concept in France, as evidenced by the cautious approach of the Court of Cassation.
For further information on this topic please contact Rémi Passemard at SCP Bouckaert Ormen Passemard Sportes by phone (+33 1 70 37 39 00), fax (+ 33 1 70 37 39 01) or email (email@example.com).
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