Punitive Damages in Civil Law: are they really doing their job?
The US judiciary grants multimillion dollar awards on punitive damages. This remedy was enacted in Argentina and China a decade ago in the hope of protecting consumers as done in the US. But, does the remedy really work as intended?
The judicial system in the United States is famous for making the headlines all around the world. This recently happened again with the case between Dewayne Johson, a Californian groundskeeper, and the biochemical colossus Monsanto. In this case, a jury trial in a landmark decision granted Mr Johson an award for damages of USD 287 million dollars: more exactly, thirty-seven million for compensatory damages and two hundred and fifty million for punitive damages. To the layperson, this may seem to be another crazy and even ludicrous result from a jury trial; but from a legal perspective, especially for lawyers from civil law countries, as are the writers of this entry (China and Colombia), it certainly enlarges an ongoing debate.
Once thought of as a remedy from the common law system of the XVIII century, only truly present in the US legal systems nowadays, punitive damages have started to appear in civil law countries too. China and Argentina are two good examples (whilst not the only ones) of countries which have recently enacted legislation that expressly provides for this type of remedy.
Based on the same rationales of creating (1) a “deterrence” for individuals and groups to withhold in the future from acts that are considered “socially unacceptable” and (2) as a “civil sanction” for the commission of said acts, as a common thread both systems have enacted legislation in the realm of consumer protection; though China has also enlarged such provisions also to food safety law and trademark law.
The idea behind this, and certainly inspired by the US system, is to restrain businesses from taking advantage of consumers as the weaker party; by imposing punitive damages, courts punish businesses for offloading the externalities of their activities on consumers and for wilfully gambling with consumers’ inertia. Once again, when going into the Monsanto case, or even several other landmark cases such as the Fiat Pinto case, the importance of such a legal tool certainly plays a big part in the importance of litigation as a means of private social control.
In this spirit, Argentina in its 2008 long track of development, enacted this remedy as “daños punitivos” (a literal translation of punitive damages) in the Consumer Protection Statute, in a quest to undo this “perverse equation”. Interestingly, Chinese legislation for punitive damages in food safety law was enacted only one year later. Its main purpose aimed to punish business operators who produced or sold food which violated the food safety standards because of its seriously illegal nature.
In both cases, the elements of deterrence and retribution are key common factors which drove the legislature to enact them. However, their scope and conditions differ substantially. Also, when going into the details of each system, it is very unlikely that they are or may be used to achieve the same results as the US system does.
On the one hand, Argentina has left a very wide interpretation gap which the judiciary and doctrine have been trying to fill by using comparative law. This has generally led to a variety of responses from the federal courts, which creates a high degree of legal uncertainty and inconsistency in the system. Additionally, only victims who fall under the specific definition of consumer will be able to claim this civil remedy. Once the legal relationship has been established, the judge will have to make a detailed analysis in order to determine if the defendant´s conduct was reckless, intentional, executed with malice or with gross negligence. In addition to this fault-based liability, the actions of the defendant have to comprise gross neglect for the consumer’s well-being. All this implies a high degree of proof and the need for the litigant to claim damages in a civil lawsuit, as the judge cannot grant them ex officio. Finally, punitive damages are capped to a maximum amount of five million Argentinian pesos (approximately USD 180,000).
On the other hand, Chinese law, compared to US law, has a very restricted amount of punitive damages that can be awarded. For example, the amount of punitive damages cannot be more than three times the damage or ten times the value paid for the merchandise. However, this limitation seems to be corrected by means of administrative fines. The retribution from administrative penalties is always stricter than punitive damages. For example, in the Wuxi case, the expiry date of products was marked incorrectly. The administrative fine that the business administration gave the producer was for 1.76 million yuan (approximately USD 260,000), while a consumer suit for punitive damages based on Chinese food safety law, would have granted the plaintiff a maximum amount of five thousand yuan (approximately USD 730).
In this manner, after almost 10 years following their adoption in consumer law, punitive damages have been accepted into the Chinese and Argentinian legal systems and have become part of legal practice in those countries. However, in contrast to the US system and its exemplary judgments, the limited scope and reach that both legislations have given punitive damages is counterproductive to their usefulness as a real deterrent.
Only time will tell if the judiciary and legislature will hear the voices of authors on the subject and consumers, and remain on the path towards enhancing the protection of consumer rights through this civil law response. Perhaps even setting an example for other civil law countries in the world.