PUNITIVE DAMAGES IN EUROPEAN LAW

*Prof. Dr. Bernhard A. Koch, LL.M., is a Professor of Civil Law at the University of Innsbruck and the Deputy Director of the Institute for European Tort Law of the Austrian Academy of Sciences.

1“Die Haltung der EU zum Strafschadensersatz ist nicht nur ambivalent, sondern evident widersprüchlich.” G. Wagner, Neue Perspektiven im Schadensersatzrecht – Kommerzialisierung, Strafschadensersatz, Kollektivschaden, Gutachten für den 66. Deutschen Juristentag, in: Verhandlungen des 66. Deutschen Juristentages Stuttgart 2006, vol. I, Part A (2006) A 71.

2K. Oliphant, The Nature and Assessment of Damages, in: H. Koziol/R. Schulze (eds.), Tort Law of the European Community (2008) 241 (no. 11/8).

3Regulation (EC) No. 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II), OJ L 199, 31.7.2007, 40–49.

its par. 2 that damages awarded under this instrument “shall not be punitive”.11 As the whole project has come to a standstill, with the debate focusing on more central aspects of the patent as such rather than remedies, it is unlikely that this point will ever see the end of the legislative pipeline in which it is currently stuck, despite the fact that the quoted phrase continues to appear in the latest version of the draft, which dates back to 2004.12

13Another explicit exclusion of punitive damages can be found in a completed piece of legislation, i.e. in the 26th recital of the preamble to the IPR Enforcement Directive,13 which reads in relevant part: “The aim is not to introduce an obligation to provide for punitive damages but to allow for compensation based on an objective criterion…”.

III. “Effective, Proportionate and Dissuasive”

14In contrast to this uprising of opponents in the first stage of the Rome II drafting process, the supporters of punitive damages also seem to run occasional attempts to sneak the concept into EU law. Such misunderstandings arise in particular with Community legislation providing for sanctions that seem to include or at least allow for such non-compensatory damages.

15However, such confusion is caused primarily by a somewhat carefree use of boiler-plate language, apparently inspired by the ECJ in its Greek Maize decision.14 The magic formula employed there which reoccurs like a mantra in legislation and court decisions ever since is that all sanctions shall be “effective, proportionate and dissuasive”.

16Whereas probably most reoccurrences of this formula in Community legislation explicitly address “penalties” as in the Greek Maize case15 and therefore

11Proposal for a Council Regulation on the Community patent, COM(2000) 412 final, 1.8.2000, OJ C 337E, 28.11.2000, 278–290.

12See http://register.consilium.europa.eu/pdf/en/04/st07/st07119.en04.pdf.

13Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, OJ L 195, 2.6.2004, 16–25.

14ECJ C-68/88, Commission v Hellenic Republic [1989] ECR 2965. In this case, the Court relied upon (what was then) art. 5 (now art. 10) ECT to circumscribe the measures Member States have to take in order to respond to infringements of Community law. The Court declared that “whilst the choice of penalties remains within their discretion, they must ensure in particular that infringements of Community law are penalised under conditions, both procedural and substantive, which are analogous to those applicable to infringements of national law of a similar nature and importance and which, in any event, make the penalty effective, proportionate and dissuasive” (no. 24).

15E.g. art. 13 Directive 2006/24/EC of the European Parliament and of the Council of 15 March 2006 on the retention of data generated or processed in connection with the provision of publicly available electronic communications services or of public communications networks and amending Directive 2002/58/EC, OJ L 105, 13.4.2006, 54–63; art. 46 Directive 2007/46/EC of the European Parliament and of the Council of 5 September 2007 establishing a framework for the approval of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles (Framework Directive), OJ L 263, 9.10.2007, 1–160;

do not imply that it extends to private law remedies, some provisions speak more broadly of “sanctions” without any further qualification.16 Of the latter, at least some include the caveat that this should be “without prejudice to Member States’ civil liability regimes”, thereby distinguishing private law remedies from the administrative or other “sanctions” they have in mind.17

art. 30 Directive 2007/59/EC of the European Parliament and of the Council of 23 October 2007 on the certification of train drivers operating locomotives and trains on the railway system in the Community, OJ L 315, 3.12.2007, 51–78; art. 16 Council Directive 91/477/EEC on control of the acquisition and possession of weapons as amended by Directive 2008/51/EC of the European Parliament and of the Council of 21 May 2008, OJ L 179, 8.7.2008. 5–11; art. 30 Directive 2008/50/EC of the European Parliament and of the Council of 21 May 2008 on ambient air quality and cleaner air for Europe, OJ L 152, 11.6.2008. 1–44.

16E.g. art. 16a of Council Directive 83/477/EEC on the protection of workers from the risks related to exposure to asbestos at work, as amended by Directive 2003/18/EC of the European Parliament and of the Council of 27 March 2003, OJ L 097, 15.4.2003, 48–52; art. 14 of Council Directive 1999/13/EC of 11 March 1999 on the limitation of emissions of volatile organic compounds due to the use of organic solvents in certain activities and installations, OJ L 85, 29.3.1999, 1–22; art. 20 of the E-Commerce Directive (Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market, OJ L 178, 17.7.2000, 1–16); art. 8 of Directive 2002/14/EC of the European Parliament and of the Council of 11 March 2002 establishing a general framework for informing and consulting employees in the European Community, OJ L 80, 23.3.2002, 29–34; art. 25 of Directive 2002/59/EC of the European Parliament and of the Council of 27 June 2002 establishing a Community vessel traffic monitoring and information system and repealing Council Directive 93/75/EEC, OJ L 208, 5.8.2002, 10–27; art. 11 of Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC, OJ L 271, 9.10.2002, 16–24; art. 3 of Council Directive 2002/90/EC of 28 November 2002 defining the facilitation of unauthorised entry, transit and residence, OJ L 328, 5.12.2002, 17–18; art. 17 of Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids, OJ L 142, 30.4. 2004, 12–23.

See also art. 8 of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, OJ L 167, 22.6.2001, 10–19, whose wording distinguishes between sanctions and remedies and attaches the qualification “effective, proportionate and dissuasive” only to the former.

While art. 4 of Council Directive 2004/82/EC of 29 April 2004 on the obligation of carriers to communicate passenger data, OJ L 261, 6.8.2004, 24–27, only speaks of “sanctions”, it seems obvious that it actually means penalties, since its par. 1 quotes minimum amounts of such sanctions that shall be imposed for infringements.

17See, e.g., art. 25 of Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC, OJ L 345, 31.12.2003, 64–89, or art. 30 of Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC OJ L 157, 9.6.2006, 87–107.

Cf. also art. 5 of Directive 98/84/EC of the European Parliament and of the Council of 20 November 1998 on the legal protection of services based on, or consisting of, conditional access, OJ L 320, 28.11.1998, 54–57, which speaks of “sanctions” without further qualifications in general in its first paragraph and of “appropriate remedies” in the second paragraph, which according to its wording include, inter alia, “bringing an action for damages”. The 23rd recital in the preamble to this Directive states, however, that “Member States’ provisions for actions for damages are to be in conformity with their national legislative and judicial systems.”

17Yet a few others, however, specifically address civil law remedies in general or compensation payments in particular which shall be measured by the said tripartite standard. A sample wording reads, for example:

“The sanctions, which may comprise the payment of compensation to the victim, must be effective, proportionate and dissuasive…”.18

18Furthermore, few pieces of legislation speak of civil law remedies as penalties, such as art. 28 of Directive 2004/109/EC, which reads in relevant part:

“Member States shall ensure, in conformity with their national law, that at least the appropriate administrative measures may be taken or civil and/ or administrative penalties imposed in respect of the persons responsible, where the provisions adopted in accordance with this Directive have not been complied with. Member States shall ensure that those measures are effective, proportionate and dissuasive.”19

19The 2002 proposal for a new Consumer Credit Directive20 would have required Member States in its draft art. 31 to “lay down penalties for infringements of national provisions adopted in application of this Directive”, and suggested as one example thereof to “provide for the loss of interest and charges by the creditor and continuation of the right of repayment in instalments of the total amount of credit by the consumer.” In the course of the legislative bargaining process, the latter explicit suggestion was dropped, and the final text of the new Directive in what is now art. 23 no longer gives such concrete advice, but resorts to the by far more innocuous vague phrase mentioned before: “The penalties provided for must be effective, proportionate and dissuasive.”21

IV. Equal Treatment of Damages Awards

20Language aiming at a deterrent function of compensation payments as cited above can be found, inter alia, in the current versions of directives combating

18Art. 15 of Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin, OJ L 180, 19.7.2000, 22–26; art. 17 of Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation, OJ L 303, 2.12.2000, 16–22.

19Art. 28 par. 1 of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC, OJ L 390, 31.12.2004, 38–57.

20Proposal for a Directive of the European Parliament and of the Council on the harmonisation of the laws, regulations and administrative provisions of the Member States concerning credit for consumers, COM(2002) 443 final, 11.9.2002, OJ C 331, 31.12.2002, 200–248.

21Directive 2008/48/EC of the European Parliament and of the Council of 23. April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC, OJ L 133, 22.5.2008, 66–92. The original wording specifying the kinds of penalties the Commission had in mind was actually already dropped right after the rejection of said draft art. 31 by the European Parliament and was no longer included in the amended proposal published immediately thereafter: COM(2004) 747 final, 28.10.2004, as further amended by COM(2005) 483 final, 23.11.2005.

discrimination.22 The Equal Treatment Directive,23 for example, as amended,24 at present provides (emphasis added):25

“Art. 6 par. 2 Member States shall introduce into their national legal systems such measures as are necessary to ensure real and effective compensation or reparation as the Member States so determine for the loss and damage sustained by a person injured as a result of discrimination contrary to art. 3, in a way which is dissuasive and proportionate to the damage suffered; such compensation or reparation may not be restricted by the fixing of a prior upper limit, except in cases where the employer can prove that the only damage suffered by an applicant as a result of discrimination within the meaning of this Directive is the refusal to take his/her job application into consideration.”

“Art. 8d. Member States shall lay down the rules on sanctions applicable to infringements of the national provisions adopted pursuant to this Directive, and shall take all measures necessary to ensure that they are applied. The sanctions, which may comprise the payment of compensation to the victim, must be effective, proportionate and dissuasive…”

In the original version of the Directive, sanctions were only foreseen in the 21 following provision:

“Art. 6. Member States shall introduce into their national legal systems such measures as are necessary to enable all persons who consider themselves wronged by failure to apply to them the principle of equal treatment within the meaning of art. 3, 4 and 5 to pursue their claims by judicial process after possible recourse to other competent authorities.”

This article was replaced by the above-mentioned current text in 2002 in reac- 22 tion to rulings of the ECJ, which had been called on several occasions before to evaluate sanctions introduced by the Member States on the basis of the original wording. In these decisions, the Court had regularly pointed at punitive aspects

of damages awards.26

22See supra fn. 18.

23Council Directive No. 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions, OJ L 39, 14.2.1976, 40–42.

24Directive 2002/73/EC of the European Parliament and of the Council of 23 September 2002 amending Council Directive 76/207/EEC on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions, OJ L 269, 5.10.2002, 15–20.

25A consolidated version of the Directive is available at http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri=CELEX:01976L0207-20021005:EN:NOT.

26A more elaborate presentation of the following case law can be found, inter alia, at D. Kelliher, Aims and Scope, in: H. Koziol/R. Schulze (eds.), Tort Law of the European Community (2008) 1, no. 1/41 ff.; Oliphant (fn. 2) no. 11/20 ff.; G. Wagner, Prävention und Verhaltenssteuerung durch Privatrecht, Archiv für die civilistische Praxis (AcP) 206 (2006) 389 ff.

23One of the seminal cases in this respect was Von Colson.27 While acknowledging that Member States are free to choose appropriate measures in response to violations of the Equal Treatment Directive based on its art. 6, the Court insisted that

“if a Member State chooses to penalize [sic!] breaches … by the award of compensation, then in order to ensure that it is effective and that it has a deterrent effect, that compensation must in any event be adequate in relation to the damage sustained and must therefore amount to more than purely nominal compensation such as, for example, the reimbursement only of the expenses incurred in connection with the application.”28

24The ECJ thereby blew hot and cold towards the unbiased reader inasmuch as these words offer a rollercoaster ride between compensatory and non-compen- satory language. The core message nevertheless apparently continues to be that “compensation must … be adequate in relation to the damage”, despite preceding indications that this may have a deterrent “effect” and that it may thereby help to “penalize” sex discrimination. Therefore, damages awards under the Von Colson doctrine continue to remain within the realm of classic tort law remedies, and the case may hardly be cited as being in favour of punitive damages (within the meaning of going beyond mere indemnification of the victim).29

25This is also true for subsequent cases building upon Von Colson and clarifying further which Member State’s measures to implement the Equal Treatment Directive had and which lacked “deterrent effect”: In Marshall and Draempaehl,30 the ECJ, inter alia, found ex ante caps on damages to be in violation of the Directive. While the Court criticised that such limits may discourage victims from bringing suit altogether, which may have less of a dissuasive effect on the employer, the Court’s prime argument against that consequence seems to have been in both cases that claimants will thereby not receive compensation adequate to the losses sustained.31

27ECJ C-14/83, Sabine von Colson and Elisabeth Kamann v Land Nordrhein-Westfalen [1984] ECR 1891. See also a corresponding case decided on the same day, C-79/83, Dorit Harz v Deutsche Tradax GmbH [1984] ECR 1921.

28Von Colson (fn. 27) no. 28. See also ECJ C-271/91, M. Helen Marshall v Southampton and South-West Hampshire Area Health Authority [1993] ECR I-4367; C-180/95, Nils Draehmpaehl v Urania Immobilienservice OHG [1997] ECR I-2195. The Court also demands that the sanctions imposed (such as damages awards) must be in line with and correspond to similar remedies on a national level: Apart from the afore-mentioned cases, see e.g. C-460/06, Nadine Paquay v Société d’architectes Hoet + Minne SPRL [2007] ECR I-8511.

29W. Wurmnest, Grundzüge eines europäischen Haftungsrechts (2003) 104 f.

30Supra fn. 28. In Draehmpaehl, the Court also insisted that violations of the Directive as implemented by national law should trigger the sanctions foreseen per se, without a further requirement of fault on the side of the employer.

31Cf. also ECJ C-177/88, Elisabeth Johanna Pacifica Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus [1990] ECR I-3941, where the Court held exemptions from liability to be incompatible with the Directive.

32See the citations in Wagner, AcP 206 (2006) 392 f.

33See B.A. Koch, Nationales Deliktsrecht vor dem EuGH – Irrungen und Wirrungen, in: G.H. Roth/P. Hilpold (eds.), Der EuGH und die Souveränität der Mitgliedstaaten. Eine kritische Analyse richterlicher Rechtsschöpfung auf ausgewählten Rechtsgebieten (2008) 481, for examples.

34Von Colson (fn. 27) no. 18.

35Cf. G. Wagner (fn. 26) A 19: “Das Schadensersatzrecht dient als Instrument zur praktischen Durchsetzung des EG-Rechts, weil es wirtschaftliche Anreize zur Einhaltung gemeinschaftsrechtlicher Verhaltensnormen setzt. Folgerichtig sieht es der EuGH als Äquivalent zu anderen Instrumenten der Verhaltenssteuerung aus den Arsenalen des Straf-, Ordnungswidrigkeitenund Verwaltungsrechts.” Similarly idem, AcP 206 (2006) 398 ff., 413, 421.

tem of the Member States. As the ECJ has clarified in Brasserie du Pêcheur and Factortame, “it must be possible to award specific damages, such as the exemplary damages provided for by English law, pursuant to claims or actions founded on Community law, if such damages may be awarded pursuant to similar claims or actions founded on domestic law.”36

29In such cases, however, the non-compensatory element of the overall award as such is not founded in EU law, but continues to be a purely national peculiarity respected at European level.

30Oddly enough, such respect is occasionally not even granted by the national system called upon: In a follow-up decision to one of the joined cases cited above, the English Divisional Court in what became Factortame IV turned down the claim for exemplary damages permitted earlier by the ECJ, interestingly by using that Court’s very arguments against such an award:

“For English law to give the remedy of penal damages for breaches of Community law would decrease the move towards uniformity, it would involve distinctions between the practice of national courts and the liabilities of different Member States and between the United Kingdom and the Community Institutions, and would accordingly in itself be potentially discriminatory since litigants in England would be treated differently from those elsewhere. The arguments of the Applicants under this head need to be considered with great caution. Their acceptance would risk introducing into the law of Community obligations anomalies and conflicts which do not at present exist and would not serve a useful purpose.”37

31Another ECJ case recognising the availability of punitive awards for breaches of Community law if granted by the national legal system for domestic claims is Manfredi, dealing with an infringement of art. 81 ECT.38 The Court in essence repeated its Brasserie du Pêcheur and Factortame ruling and stated that

“in accordance with the principle of equivalence, if it is possible to award specific damages, such as exemplary or punitive damages, in domestic actions similar to actions founded on the Community competition rules, it must also be possible to award such damages in actions founded on Community rules. However, Community law does not prevent national courts from taking steps to ensure that the protection of the rights guaranteed by

36ECJ joined cases C-46/93 and C-48/93, Brasserie du Pêcheur SA v Federal Republic of Germany and Reg. v Secretary of State for Transport, Ex parte Factortame Ltd. (No. 4) [1996] ECR I-1029, no. 89 f.

37Reg. v Secretary of State for Transport, Ex parte Factortame Ltd. [1998] 1 All England Law Reports (All ER) 736, [1997] European Law Reports (Eu LR) 475, (1998) 10 Administrative Law Reports (Admin LR) 107, [1998] 1 Common Market Law Reports (CMLR) 1353, [1997] England and Wales High Court (EWHC) Admin 756 (Q.B.D.), no. 186 ff. (including this quotation in no. 189). This question was not pursued by Factortame on appeal.

38ECJ joined cases C-295/04 – C-298/04, Manfredi v Lloyd Adriatico Assicurazioni SpA [2006] ECR I-6619.

es claim than the situation they would be in ‘but for’the infringement”. The authors underline this by completely distorting the Manfredi ruling on the unjust enrichment aspect quoted above:44 While the Court had indeed insisted that national courts should be cautious to prevent (!) unjust enrichment of claimants by way of damages awards, the Commission claims that this merely allows (!) national courts to curtail such awards if concerned about their excessiveness, and therefore it comes to the conclusion that private claimants seeking revenge for antitrust measures may be unjustly enriched by a punitive damages award.

39Ibid. no. 99.

40Ibid. no. 69.

41Commission Staff Working Paper accompanying the White Paper on Damages actions for breach of the EC antitrust rules, SEC(2008) 494, 2.4.2008.

42See http://ec.europa.eu/comm/competition/antitrust/actionsdamages/index.html for all background documents.

43Ibid. no. 190.

44See the indented quotation supra no. 31.

36This tendentious document is particularly appalling in light of the main document that it is meant to support, where punitive damages are not mentioned at all. Instead, the latter insists that “full compensation is … the first and foremost guiding principle.”45

37The working paper itself acknowledges that the “majority of respondents” to the earlier Green Paper on this matter46 “argued that damages should be regarded as a compensatory instrument”, and that all therefore strongly “oppose a system that would result in damages that are higher than the loss suffered by the victim.”47 Not surprisingly, the same is true for the reactions to this new document.48 It remains to be seen which tricks the Commission will use next to take in the stakeholders in the further legislative process.

VII. Conclusions

38Despite constant rumours to the contrary, punitive damages do not seem to be of any significance in EU law yet. While language aiming at such noncompensatory awards reappears occasionally in documents of the European legislator or judiciary, it can hardly be interpreted as a serious plea for expanding this concept throughout Europe.

39The most frequent source of misunderstanding is the apparent struggle of legal staff employed by the European institutions with expressing the scope of sanctions foreseen by EU law. In their strive to emphasise that violations must be prevented to the extent possible, words like “dissuasive” or “deterrent” reoccur also in the context of tort law remedies available under European law, even though they are hardly ever meant to promote payments exceeding indemnification.

40More recent bits of legislation instead rather seem to take a stand against punitive awards, even though hardly any attempt has ever survived the drafting process in light of the fact that such remedies are available in at least some Member States, and before that diversity between European legal systems remains to be unresolved, it is unlikely that we will see either European institution take a clear stand in favour of or against punitive damages.

41This does not mean that there are no sightings of punitive awards in Community legislation at all. One such provision can, for example, be found in a 1995 regulation, whose scope of application is admittedly not extremely extensive,49

45White Paper on Damages actions for breach of the EC antitrust rules, COM(2008) 165 final, 2.4.2008, 3.

46Green Paper – Damages actions for breach of the EC antitrust rules, COM(2005) 672 final, 19.12.2005.

47Commission Staff Working Paper (fn. 41) no. 182.

48See http://ec.europa.eu/comm/competition/antitrust/actionsdamages/white_paper_comments. html.

49See art. 18 of Commission Regulation (EC) No. 1768/95 of 24 July 1995 implementing rules on the agricultural exemption provided for in art. 14 par. 3 of Council Regulation (EC) No. 2100/94 on Community plant variety rights, OJ L 173, 25.07.1995, 14–21 (emphasis added):