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PUNITIVE DAMAGES AND FRENCH COURTS
One of the main issues in international litigation is whether a decision given in one
jurisdiction can be enforced in another. A party can spend time and money to obtain
a judgment but all this effort will ultimately be wasted if the judgment cannot be
enforced because the defendant’s country does not recognize decisions given in the
claimant’s jurisdiction. Enforcement of foreign decisions is usually easier if there is a
bilateral or multilateral Convention between the countries concerned. However there
is no such Convention between France and the U.S.A. A party seeking to enforce an
American judgment in France must go through a specific procedure called exequatur
whereby the French judge checks whether the judgment satisfies the requirements
for enforcement here. Although there is no Convention, it is normally quite easy to
enforce an American judgment in France. However in a recent case, an award of
punitive damages in an American judgment posed a new problem for our courts, and
in a leading decision our supreme court, the Cour de Cassation, held that punitive
damages can be enforced but on condition that they are not disproportionate. I shall
explain this little later on. First I shall briefly describe our enforcement procedure.
I – Enforcement of foreign judgments in France.
When a party wants to enforce an American decision in France he must issue a writ
of execution and serve it upon the opponent, summonsing him to attend a hearing
before the civil court for an order for enforcement, which we call “jugement
d’exequatur”. The hearing will not be a new trial of the issues, but is to enable the
French judge to check that the foreign decision satisfies three requirements. These
criteria are not provided by any statute but have been laid down by the Cour de
Cassation in three cases: Munzer (1961), Bachir (1967) and Cornelissen (2007).
These three criteria are:
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The jurisdiction of the foreign court
The absence of any no fraud
That that the decision is not contrary to French public policy (“ordre public”).
The last of these three criteria is the most difficult to apply. There is no legal definition
of “ordre public”, so what does it exactly means? In an attempt to simplify this
analysis our courts generally held that the judgment in question must satisfy the basic
principles of French civil society. For example in some Muslims countries only the
husband has the right to seek a divorce, but not the wife. It has been ruled that such
divorce could not be enforced in France because it is contrary to the basic principle of
equality between sexes and thus contrary to “ordre public”. Does the same analysis
could apply to U.S. punitive damages? The question was raised in the case
Fountaine-Pajot.
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II – Punitive damages and public policy: the case Foutaine-Pajot.
In 1999, Mr. Schlenzka and his wife bought a sailing yacht built by the French
shipyard Foutaine-Pajot for a total price of USD 826,009. Arguing that the yacht
suffered several defects they sued the yard in California. In a decision of 26th
February 2003 a Californian court awarded to them USD 1,391,650.10 as damages
for the costs of repairs of the yacht, USD 402,084.33 as lawyers’ fees and USD
1,460,000 as punitive damages.
The Schenzkas brought exequatur proceedings against the yard before the Civil
court of Rochefort. Foutaine-Pajot raised various kinds of arguments in particular that
punitive damages were contrary to “ordre public”. That argument was admitted by the
Court of appeal of Poitiers in 2009. The judge considered that in a international sale
dispute, a foreign decision which awards punitive damages on top of damages for the
costs of repair and lawyer's costs was contrary to public policy.
To reach that ruling the judge of Poitiers took into considerations three points.
Firstly, the Vienna Convention on international sale of goods exclude punitive
damages at it provides that:
“Damages for breach of contract by one party consist of a sum equal to
the loss, including loss of profit, suffered by the other party as a
consequence of the breach. Such damages may not exceed the loss
which the party in breach foresaw or ought to have foreseen at the time of
the conclusion of the contract, in the light of the facts and matters of which
he then knew or ought to have known, as a possible consequence of the
breach of contract.” (CISG, article 74)
Secondly under French law, damages cannot be based on the negligence or the
financial situation of the liable party but can only be based on the the loss suffered
by the victim.
Thirdly, punitive damages would be an unjust enrichment and a non punishment
which would be contrary to article 8 of the 1789 French bill of rights. That article
provides:
“the law shall provide for such punishments only as are strictly and
obviously necessary, and no one shall suffer punishment except it be
legally inflicted in virtue of a law passed and promulgated before the
conclusion of the offence. The penalty and the fine must be proportionate
to the fault”
The reasoning of the judges of Poitier was simple: under French law the purpose of
damages is to compensate the losses suffered by a party and give an undue
enrichment. A few years before the decision the Court of Poitiers a French scholar
stated about punitive damages that: "French judge remains attached to the functions
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of compensation of damages and that our legal system is not ready to such a foreign
institution" (Thomas Rouhette, The availability of punitive damages in Europe :
growing trend or nonexistent concept? 74 Def. Couns. J. 320 [2007])
III – Punitive damages are not contrary to public policy on condition that they
are not disproportionate, the ruling of the Cour de cassation in Foutaine-Pajot.
After losing before the Court of Poitiers, the Schlenzkas made a further appeal before
our supreme court, the Cour de Cassation. They argued that the three points was
taken into consideration by the Court of appeal were all irrelevant. Punitive damages
are not contrary to public policy. The proper law of the contract was Californian law
which allows such kind of damages and the Vienna Convention does apply to the
sale of a yacht. In their decision the judges actually applied their own French law to
the merits of the case and it is not possible in exequatur proceedings as the judge
cannot retry the case.
In a decision of 1st December 2010 the Cour de cassation rejected the appeal but did
it considered that punitive damages were against public policy? Not really.
The supreme court did not fully endorse the decision of the the Court Poitiers. It ruled
that punitive damages are not by themselves contrary to “ordre public”. They might
become contrary to public policy in one situation: if they are disproportionate
compares with the loss actually suffered and the extent of the breach of contract.
The Cour de cassation does refuse to enforce U.S. foreign punitive damage except if
they are over-assessed. If the punitive damages are reasonable, then there is no
reason not to enforce them. In Foutaine-Pajot the price of the yacht was less that
USD 830,000 but the Schlenzkas were awarded more than three times that amount.
Moreover, the amount of punitive damages was higher than the costs of repairs
which were actually the real losses suffered by the plaintiffs.
Although some authorities found that the decision of the Cour de cassation was too
restrictive, France appears to be more flexible than many others jurisdictions which
have ruled against recognition of punitive damages (e.g. Japan, Germany or Italy).
IV –The application of the Foutaine-Pajot ruling.
What are disproportionate punitive damages?
It will depend of the particulars of each case and in particular of the
compensatory/punitive damages ratio. If that is 1:1 or less there few doubts that
enforcement will be granted. If the ratio higher, things might be more difficult.
Two recent cases have applied the Fountaine-Pajot.
In another decision the Court of Poitiers of 4th March 2011 Charles-Edward S. v.
Mary-Helen N. that court refused to enforce a Texan judgment which awarded to the
plaintiff USD 2,474,767,96 after the breach of a building contract. Out of that figures,
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USD 759,001.60 were awarded to indemnify the economic loss and USD 1,500,000
as punitive damages. While the first instance judge admitted the exequatur the Court
of appeal of Poitiers admitted the appeal and refused to enforce the Texan decision
because the amount of punitive damages was largely higher than the harm actually
suffered by the plaintiff.
On the other hand in the case Sierra National insurance holding of 30th June 2011,
the Court of appeal of Paris enforced a decision of a Californian federal district court
which awarded to the plaintiff USD 10,846,246 as damages for unjust enrichment
and the same amount as “damages”. The defendant argued that such condemnation
was contrary to public policy because it was punitive damages. That argument was
rejected by the court of appeal which ruled that is was not established that the
Calfornian condemnation would is against the “ordre public”.
V –Conclusions: a few recommendations
To avoid what happened to the Schenzkas or to Charles-Edward S. I would have the
following suggestions:
- When a plaintiff claim punitive damages against a defendant who only have
assets in France he definitely shall not claim too much or be ready to face
difficulties if he wants to get paid on day. If the ratio compensatory/punitive
damages ratio is more than 1:1 otherwise there could be enforcement
difficulties.
- If as a matter of strategy the plaintiff still wants to claim large punitive
damages, to exercise a maximum pressure the opponent for example, then if
the case need to be enforced in France it could always be possible to exclude
punitive damages from the exequatur proceedings. At least the decision will
better chances to be enforced in France.
Sebastien Lootgieter
Villeneau Rohart Simon & Associés
[email protected]