Thursday, 5 July 2012

French Courts Now May Enforce Foreign Judgments for Punitive Damages

France’s highest court, the Court of Cassation, has ruled that foreign judgments awarding punitive damages are enforceable, at least in principle.  This ruling ends France's long-standing blanket prohibition on enforcement.  In France until now, as in some other European countries, damages are available only to compensate for loss, not to deter or punish wrong-doing. 

The judgment in question was awarded by a court in California against a French yacht manufacturer that had failed to disclose to its customer, the plaintiff, the fact the yacht had been damaged and repaired before delivery to the customer.  The court awarded $1,391,650 for general damages and $1,460,000 for punitive damages. 

In France, as in Canada and elsewhere, foreign judgments contrary to public policy are not enforceable. Up until now, in France that meant that judgments for punitive damages are not enforceable at all.  The Court of Cassation ruled that in principle, punitive damages are not contrary to public policy, unless the amount of punitive damages is disproportionate to the amount of the damage sustained and the debtor’s breach of contractual obligations.   In this case, the Court held the amount was “manifestly disproportionate”, and thus declined to enforce the judgment.   Unfortunately the Court did not provide much guidance on what constitutes a disproportionate amount.

French legislators have proposed a revision to the French Civil Code to permit punitive damages, up to twice the amount of the compensatory damages.  However, owing to the recent change of government in France, enactment of that amendment is not expected soon.

This court decision and the proposed legislative amendment are part of a trend in French law toward greater receptivity to foreign legal traditions and philosophies.  Article 14 of the Civil Code permits a French citizen to sue non-resident defendants in French courts regarding contracts made in France, or even those made outside France, which provision is at odds with principles of jurisdiction in a number of countries including Canada .  In 2007, the French Court of Appeal tempered the reach of this provision when it ruled that a French citizen that has agreed to arbitrate a dispute may not avoid arbitration by relying on Article 14 of the Civil Code.   In other words, by agreeing to arbitration the French citizen surrendered his rights under Article 14.  

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