Damages

From Max-EuP 2012

by Wolfgang Wurmnest

1. Object of the law of damages

In all European legal systems, damages are the most important remedy if an obligation is breached. Debtors breaching their contractual obligations as well as tortfeasors violating another person’s rights or interests must compensate their victims for the loss caused by their acts or omissions. The law of damages deals with the precise legal consequences in the case of liability. Thus it is concerned with the nature and extent of damages. The problems which the law of damages attempts to resolve are very complex. It has to be determined which types of loss are recoverable, in which form the compensation must be granted and how the amount of damages should be calculated. Additionally, there are problems of attribution (causation), eg the question whether advantages accruing to the injured party as a direct consequence of the event that caused the loss have to be taken into account when calculating the amount of damages.

Due to the variety of the issues involved, the continental legislatures in Europe have merely codified some very abstract general principles and have left their specification to the courts. The relevant provisions were placed in the sections on contract law and/or the law of delict of the respective civil codes. The depth of codification varies amongst the continental codifications.

Some codifications such as the Italian Codice civile (Arts 1223–1227; 2056–2059) or the French Code civil (Arts 1149–1151) contain only very rudimentary rules which mostly, but not exclusively, refer to contractual liability. In France, there are currently discussions on a partial reform of the Code civil which could lead to a more in-depth codification of the law of damages.

In contrast, the German Bürgerliches Gesetzbuch (BGB) dedicates an entire section in the general law of obligations to the law of damages (§§ 249–255 BGB). The principles codified therein are seen as general rules applying to all sorts of claims for damages arising under the BGB or under special legislation, eg the German Product Liability Act (Produkthaftungsgesetz). The BGB further contains additional rules for the compensation of bodily injuries and for damages arising from the deprivation or the damaging of an object (§§ 842–851 BGB) as the draftsmen of the code presumed that such damages can solely be caused by way of delict. As such damages can, however, also result from an infringement of a contractual obligation, these additional rules could have also been incorporated into the general law of obligations.

The law of damages in common law countries is primarily case law. This area of law is still influenced to some extent by the idea of causes of action which has been significant, in general, for English tort law (law of torts/delict, general and lex Aquilia) for a considerable time. Correspondingly, in the common law countries, the idea of forming a general law of damages is not as popular as in some continental legal systems.

2. Trends of European legal development

A ‘natural’ understanding of the notion of damages is of little help in determining which types of loss should be recoverable and what amount of damages should be granted. The answers to these questions are always the product of normative judgments, and the goals and scope of the law of damages have changed considerably over the course of time.

a) The fundamental principles of the modern law of damages were shaped by natural law jurisprudence under the influence of the restitution theory as developed by the late scholastic School of Salamanca (scholastic jurisprudence). The theory of restitution moved the principle of full compensation (also called the principle of complete reparation) and the prohibition of unjust enrichment to the centre of the law of damages and broke away from the attitude prevailing in Roman law that damages may also serve as a means to punish the wrongdoer for the injustice caused (Roman law, law of torts/ delict, general and lex Aquilia). This shift paved the way for today’s understanding of the law of damages. The basic principles laid down by natural law jurisprudence had to be adapted in the 20th century in order to adjust to the increased risks of liability in a society shaped by technical progress, media and mass transport. This development has led to a certain fragmentation of the law of damages as well as to a significant extension of the types of recoverable loss.

b) This fragmentation of the law of damages is for example demonstrated by the introduction of different liability caps in certain areas of liability law (such as liability for nuclear installations or for pharmaceutical products). Moreover, in other areas of law, especially in intellectual property law, special rules have been established in order to simplify the assessment of the pecuniary loss. Thus in the case of a violation of a patent, a label, a trademark or copyright law, the injured party can choose from three options. He can, first, demand the precise amount of his lost profits, which need to be quantified. Alternatively, he can ask for disgorgement of the profits which accrued to the wrongdoer as a result of the violation. Finally, he can claim a licence fee for the use of his right, which is often doubled or tripled for preventive reasons. These options have subsequently been harmonized on a European level by the Directive on the enforcement of intellectual property rights (Dir 2004/48) (intellectual property (enforcement)).

c) The significant extension of the types of recoverable loss was not only the consequence of a changed attitude towards the intrinsic value of particular rights but similarly a reaction to new risks of liability.

(i) The extension of liability as a result of a changed system of values predominantly affected the consequences of liability for the violation of strictly personal rights, such as the right to privacy (non-pecuniary loss), but it is not restricted to this area. The rights of the general public, primarily in the area of ecological damage, have also become a main issue for the law.

(ii) As an example of new liability risks flowing from technological progress, one may consider the modern reproductive medicine. The possibility of ‘medically controlled’ family planning has caused a legal and ethical debate about the question to what extent maintenance costs should be recoverable if an unwanted, but healthy child is born due to medical malpractice. There is no common European solution in sight. For example, in the case where a healthy child is born following a defective sterilization, under German law the additional burden on the parents resulting from the unwanted birth, especially maintenance expenditures for the child, have to be compensated (BGH 27 June 1995, NJW 1995, 2407). The recoverable damage is not the unwanted child itself, but the accompanying expense involved of raising it. In turn, the House of Lords (now Supreme Court for the United Kingdom) held that it is artificial to distinguish between the (pecuniary) costs and the (non-pecuniary) benefits of parenthood and could not see a convincing reason for imposing the costs on the National Health Service (Rees v Darlington Memorial Hospital NHS Trust [2003] 4 All ER 987 (HL)). Accordingly, under English law there is no compensation available for the costs of maintenance for an unwanted, but healthy, child.

3. Specific issues concerning the law of damages

a) Functions of the law of damages

(i) All European legal systems agree that the primary aim of damages is to compensate the injured person for the loss suffered to a full extent (restitutio in integrum). The principle of full compensation is also laid down in the sets of principles that aim to establish the core of a common European law of damages (Art 10:101 PETL, Art VI.-6:101(1) DCFR, Art 8:402(1) Acquis Principles). It is, however, subject to certain restraints. Many national laws provide for liability caps in certain areas of law or limit the recoverability of certain types of loss. Moreover, there is no consensus in Europe as to what form the compensation should take. The majority of European laws adopt the view that damages are primarily owed in money whereas some legal systems allow for other forms of compensation, in particular restitution in kind. The BGB even declares restitution in kind as the general rule (§ 249 BGB). The German approach was criticized as early as the drafting of the BGB and, from a comparative perspective, represents a special approach amongst the European legal systems. Consequently, neither PETL nor DCFR declare restitution in kind as the primary form of compensation. According to the PETL, damages are a money payment to compensate the victim, but restitution in kind can be claimed by the injured party as far as it is possible and not too burdensome on the other party (Art 10:101, 10:104 PETL). Additionally, the DCFR prescribes that reparation may be in money or otherwise, as is most appropriate, having regard to the kind and extent of damage suffered and all the other circumstances of the case (Art VI.-6:101(2) DCFR).

(ii) Apart from the compensation function, some legal systems, such as those of Austria, France or England, also attribute a preventive function to the law of damages, or welcome it at least in certain circumstances as is also the case in German law. The threat of damages is to force potential wrongdoers to behave more cautiously so that future damage is prevented. If the aim of prevention is recognized, a judge may award a higher amount of damages in certain situations than would be appropriate if the law of damages were limited to a purely compensatory function. The function of prevention sometimes turns into a penal function. The penal function is very influential within the common law legal systems as these systems allow for the imposition of exemplary or punitive damages if the wrongdoer has behaved in an especially objectionable way. However, also in certain legal systems on the Continent, where compensatory damages and punitive damages are often more clearly separated than in common law countries, courts are sometimes led by considerations going beyond the principle of compensation. This is, for example, the case concerning damages claims for intentional violations of the right to privacy or other personal rights by the media. When assessing damages, the German Federal Supreme Court (BGH 15 November 1994, BGHZ 128, 1) also takes into account the (estimated) profits of the tortfeasor so as to prevent the violation of the right, despite the compensation payment, making economic sense for the tortfeasor.

b) Types of damages

A recoverable loss presupposes a pecuniary or non-pecuniary detriment concerning a legally protected interest that is attributable to the wrongdoer. Compensation is only due if there was a violation of property in the widest sense, a violation of a person or of personal rights, or the impairment of a comparable interest. Pure economic loss can usually be claimed only if certain additional conditions are met in order ‘to keep the floodgates shut’.

In addition, the distinction between pecuniary and non-pecuniary damages (non-pecuniary loss) is very common in Europe, as the assessment in terms of money for these types of damages differs. Whereas the objective market price is the general yardstick to calculate the amount of pecuniary loss, judges can only estimate the amount due to compensate the injured person for non-pecuniary loss. The difficulty of assessing non-pecuniary damages was one of the reasons why certain legislatures considerably restricted the recoverability of these types of damages. However, as the distinction between pecuniary and non-pecuniary loss is less straightforward than historically thought, there are many categories of cases on the borderline between these two types of damages. For example, under German law the owner of a car damaged in an accident can claim (pecuniary) damages which are to compensate him for the fact that he did not have his vehicle at his disposal.

In relation to pecuniary loss, many continental legal systems (eg §§ 252 BGB, 287 ZPO (German Code of Civil Procedure); Arts 1223, 2056 Codice civile) distinguish between loss to the existing assets of the plaintiff (damnum emergens) and loss of future profits (lucrum cessans). This differentiation which already existed in Roman law is also relevant to the European law of damages (eg Art 9:501 PECL; Art 8:402(2) Acquis Principles; ECJ Joined Cases C-295/04 to C-298/04 – Manfredi v Lloyd Adriatico Assicurazioni [2006] ECR I-6619 para 95). Although, in principle, lost profits have to be compensated, their ascertainment and assessment is often afflicted with speculative elements. Accordingly, it makes sense to subject the compensation for such pecuniary loss to special conditions in order to ensure that the widening of liability does not get out of control.

4. Uniform law

a) International conventions in the field of damages are restricted to specific areas of law. A number of conventions lay down limitations of liability in the law of transport (air transportation (third party liability); maritime transport (contracts of carriage of goods); maritime transport (contracts of carriage of persons); carriage of goods by road). Moreover, the CISG (sale of goods, international (uniform law)) has provisions about damages for breach of international sales contracts. The European Convention on Human Rights (human rights and fundamental rights (ChFR and ECHR)) also contains special rules on damages which allow the ECtHR to afford just satisfaction to a successful applicant (Art 41 ECHR). Finally, special compensation systems were created for high risk industries to ensure that an injured person will receive at least a minimum amount of compensation. Thus, the International Convention on Civil Liability for Oil Pollution Damage of 1992 has established an international liability and compensation system which guarantees minimum compensation out of a fund in case of oil pollution damage resulting from oil-tanker accidents at sea. Similarly, the Paris Convention on Third Party Liability in the Field of Nuclear Energy creates an international liability regime for nuclear damage. This Convention, which has been revised several times and was supplemented by multiple protocols, provides that operators of nuclear installations must have and maintain insurance and obliges the contracting states to grant minimum compensation for especially severe cases of damage.

b) The law of the European Union does not define a fully developed set of rules for damages and has thus far rather rudimentarily touched upon the national laws of damages. The Product Liability Directive (Dir 85/347) regulates particular aspects concerning the extent of liability (product liability) but does not contain a precise definition for recoverable damages and also has no intention of fully harmonizing the national laws of damages. The regulation on air carrier liability in the event of accidents (Reg 889/2002 amending Reg 2027/97) and the Package Travel Directive (Dir 90/414) focus on certain types of damages. On a more general scale, the Directive on the enforcement of intellectual property rights (Dir 2004/48) sets particular minimum standards for the assessment of damages in case of intellectual property law infringements (intellectual property (enforcement)). In turn, the influence of the Environmental Liability Directive (Dir 2004/35) is less significant, as it intends to ensure the protection of the environment by solely administrative means (environmental liability). Moreover, there are EU rules to remedy discriminations (discrimination (contract law), discrimination (employment law)). The impact of EU law on the national law of damages is, however, steadily increasing. For example, the European Commission is considering proposing a Community instrument in order to improve the enforcement of EU competition rules by actions for damages (competition law (private enforcement)).

Moreover, the liability of EU Member States for the infringement of EU law (ECJ Joined Cases C-6/90 and C-9/90 – Francovich v Italian Republic [1991] ECR I-5357; ECJ Joined Cases C-46/93 and 48/93 – Brasserie du Pêcheur and Factortame [1996] ECR I-1029) also modestly affects the national law of damages. The European right to damages for breach of EU law by an EU Member State does not deal with the extent of damages. Therefore, a judge has to apply domestic rules to solve this issue, provided that such rules ‘are not less favourable than those governing similar domestic actions’ (principle of equivalence) and that they ‘do not render the exercise of rights’ conferred by Union law ‘practically impossible or excessively difficult’ (principle of effectiveness). Similarly, these principles apply to the enforcement of other rights granted by EU law to individuals (ECJ Case C-453/99 Courage and Crehan [2001] ECR I-6297 para 29), eg in the context of private enforcement of the EU competition rules (Art 101 TFEU/81 EC; Art 102 TFEU/82 EC). On the whole, the ECJ has thus far accepted the different structures of the national laws of damages and has only intervened in exceptional cases.

Against this background, the outlines of a European law of damages are slowly starting to develop. Thus, the ECJ held that it follows from the principle of effectiveness that ‘injured persons must be able to seek compensation not only for direct loss (damnum emergens) but also for loss of profit (lucrum cessans) plus interest’ as a form of minimum compensation (ECJ Joined Cases C-295/04 to C-298/04 – Manfredi v Lloyd Adriatico Assicurazioni [2006] ECR I-6619 para 95). Non-pecuniary loss is also in principle recoverable under EU law (ECJ Case C-168/00 Leitner v TUI [2002] ECR I-2631 para 23). Further, it is settled case law that EU law does ‘not prevent national courts from taking steps to ensure that the protection of the rights’ guaranteed by EU law ‘does not entail the unjust enrichment of those who enjoy them’ (ECJ Case C-453/99 Courage and Crehan [2001] ECR I-6297 para 30; ECJ Joined Cases C-295/04 to C-298/04 – Manfredi v Lloyd Adriatico Assicurazioni [2006] ECR I-6619 para 94). Refinements of these principles may to a certain extent be inferred from the non-contractual liability of the European Union (Art 340(2) TFEU/288(2) EC) and the rules on the liability of Member States for breaches of EU law.

c) Academic projects seeking to develop a common European private law have also increasingly dealt with questions concerning the law of liability and the law of damages in recent years. Partly on the basis of a series of comparative and historical treatises, partly with reference to EU law, various European principles have been formulated. Thus, the European Group on Tort Law has formulated Principles of European Tort Law. The Study Group on a European Civil Code recently presented a set of principles (the so-called Principles of European Law (PEL)). These principles comprise not only rules on delictual liability (fault-based liability and strict liability), but also principles for damages arising from a breach of contract. The latter are to a large extent based on the Principles of European Contract Law (PECL). Finally, the European Research Group on Existing EC Private Law (Acquis Group) has derived principles for a uniform European contract law from the acquis communautaire (Acquis Principles). However, these rules must necessarily remain incomplete as the acquis communautaire so far does not have a fully developed contract law, and not even fully developed rules on damages. In 2009, the Study Group and the Acquis Group published the Draft Common Frame of Reference (DCFR). The elaboration of these sets of principles is a first step on the still very long road to a uniform law of damages. Additional work will further have to develop these proposals in order to lay the basis for a coherent common European law of damages.

Literature

Christian von Bar, The Common European Law of Torts, vol II (2000) 4 ff; Ulrich Magnus (ed), Unification of Tort Law: Damages (2000); Wolfgang Wurmnest, Grundzüge eines europäischen Haftungsrechts (2003) 193 ff; Helmut Koziol, ‘Die “Principles of European Tort Law” der “European Group on Tort Law”’ (2004) 12 ZEuP 234; Martin Schmidt-Kessel, Reform des Schadensersatzrechts: Europäische Vorgaben und Vorbilder (2006) 107 ff; Cees van Dam, European Tort Law (2006) 301 ff; Nils Jansen, ‘§§ 249–253, 255. Schadensrecht’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol II/1 (2007); Helmut Koziol and Reiner Schulze (eds), Tort Law of the European Community (2008); Horst Eidenmüller, Florian Faust, Hans Christoph Grigoleit, Nils Jansen, Gerhard Wagner and Reinhard Zimmermann, ‘The Common Frame of Reference for European Private Law: Policy Choices and Codification Problems’ (2008) 28 Oxford J Legal Stud 659; Gerhard Wagner, ‘The Law of Torts in the DCFR’ in Gerhard Wagner (ed), The Common Frame of Reference: A View from Law and Economics (2009) 225.

Retrieved from Damages – Max-EuP 2012 on 06 December 2022.

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