Punitive damages: a blessing or a curse?

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PUNITIVE DAMAGES A BLESSING OR A CURSE? AMIN LAROSSI Student at the Honours College of Law at the University of Amsterdam

“OPPONENTS OF PUNITIVE DAMAGES SEEM TO BASE THEIR GRIEVANCES ON THE FEAR OF ‘AMERIKAANSE TOESTANDEN’ , WHILST FAILING TO REALIZE THAT THE CRADLE OF THE CIVIL LAW SYSTEM FORESAW IN THE ABILITY TO METE OUT PUNITIVE DAMAGES.” Januari 2021 | ALIBI Magazine

Dutch tort law has recently undergone changes with the passing of the WAMCA (wet afwikkeling massaschade in collectieve actie). The recent changes brought to 3:305a BW by the WAMCA enable a form of class-action modelled after American practices. The ‘Americanization’ of Dutch private law has been a continuous trend. As early as 2017 the famous ‘LegalEagle’, Ton Hartlief has advocated for the introduction of punitive damages within Dutch tort law.1 His plea for the instalment of punitive damages was primarily founded on the idea of prevention. Punitive damages would supposedly not only pressure possible tortfeasors into being more diligent, but also specifically deter calculated malicious actors in the realm of antitrust.2 Consequently, fertile soil has been created for the introduction of punitive damages in the Netherlands. The call for the introduction of punitive damages within Dutch tort law has raised questions about the desirability of said damages. Are they a feasible force for good or merely a product of theoretical academic contemplation? To answer the question this piece wishes to describe the visions on tort law and weigh the arguments for and against the institute of punitive damages.

Purpose of punitive damages viewed through a historical and theoretical perspective It is commonly said that tort law aims at compensation as opposed to criminal law which seeks to attain retribution.

This oversimplified statement does, however, not look below the surface of things. It is often forgotten that the cradle of civil law societies, Roman law, recognized the possibility of punitive damages. In instances where the tortfeasor was caught in the act (manifest theft) the plaintiff was awarded fourfold of the actual material damages.3 A remarkable given is that the US (with its common law origins) recognizes the same possibility of punitive damages.

Proponents of punitive damages claim that prevention through deterrence is best served when high damages are awarded to the plaintiff.

Contrary to popular belief, in cases where the tortfeasor is a natural person his/her financial position is taken into account by American courts when meting out damages.4 Exorbitant amounts of money are usually only awarded in cases of product liability. It is exactly within this realm of product

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“THE POSSIBILITIES OFFERED BY PUNITIVE DAMAGES TO PUNISH AND THUS DETER LARGE COMPANIES FROM TAKING MALICIOUS CALCULATED DECISIONS IN THE REALMS OF ANTITRUST AND PRODUCT LIABILITY WILL HOPEFULLY PREVENT FURTHER DAMAGES SUFFERED BY CITIZENS THROUGH PRICE FIXING OR PRODUCT DEFECTS.”

liability that companies tend to make the same calculated and malicious decisions that Hartlief wanted to combat. The idea is that punitive damages would have been an extra (much needed) incentive for companies such as Ford when designing their Ford Pinto subcompact car, for instance. Instead of putting the gasoline tank in the back of the vehicle which made the car prone to explosions in accidents, $13 could have been spent (per car) to massively reduce this threat. However after having made a cost-benefit analysis Ford decided that the damages it would have to award plaintiffs were far less than spending the extra $13 per car to fix this shortcoming.5 The largest obstacle in preventing the establishment of punitive damages in the Netherlands is the fear that they will lead to a claim culture.6 The question is whether this fear is justified. There are indeed indications that show that there is a correlation between the existence of punitive damages and the amount of litigation. Correlation however does not imply causation. The discrepancy in (per capita) litigation statistics between the US and the Netherlands can be largely explained by examining the results of political decision making. Unlike the Netherlands the US has refused to instate a strong social welfare system. The lack of a social welfare net could incentivize

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citizens to look for financial reassurance through legal claims. Another factor that perpetuates the claim culture is the possibility for claimants to use no cure no pay services offered by counsellors.

These services mitigate the financial burden to go to court and thus lower the bar to litigate even further.

Civil law societies have transitioned further from the tradition of punitive damages that was first brought forth by Roman law to a more compensatory tradition.

According to this reparative theory one who has caused injury to another must compensate the damage whether it was their fault or not (see Boek 6 titel 3 afdeling 2 BW). The Netherlands has moved from the idea of ‘corrective justice’, in which culpability determined liability to that of a ‘distributive justice’, in which compensation and not culpability determines liability.7 A good example is article 6:170 BW which ,despite the absence of culpability, constitutes the liability on the employer for a tortuous act of his employee. A society in which damage needs to be repaired at all cost seems to me to be more prone to a claim culture as a result of the feeling of entitlement that it breeds amongst victims.

Academic contemplation Stolker has been at the forefront of describing the benefits of punitive damages, when the idea of their implementation was still in its infancy.

In his article ‘Straffen met privaatrecht - of juist verzoenen?’, he describes how punitive damages in civil cases could aid the traditional objective of retribution that criminal law tries to achieve.8 According to Stolker civil law procedures are a more efficient and effective way

to punish a tortfeasor thanks to the relative speed and the lower burden of proof that is required. Where criminal law demands facts to be proven beyond a reasonable doubt , in civil law (in line with its accusatory origins) the plaintiff has the burden of proving his case by a preponderance of the evidence.

Another practical reason for the implementation of punitive damages in civil law procedures according to Stolker, is that they will alleviate the financial and administrative strain posed on the government by criminal procedures. Criminal law cases demand higher government spending by virtue of their nature.9 Unlike in civil law procedures a public prosecutor (and their team) is needed in order to start the case and attain the desired retribution sought for by the state. The additional costs of a team of public prosecutors and their staff can easily be alleviated, by seeking retribution in civil procedures, therefor making every party responsible for their own legal representation.

Stolker’s views are however not unopposed. For example, Siebergh and Kortmann point to the dangers of a possible introduction of punitive damages in Handhaving door Nederlands privaatrecht.10 Although Dutch law does not foresee a rule that prevents the taking of legal action twice (once in the realm of civil law and once in the realm of criminal law) for the same course of action. That does not mean that the desirability of such a double punishment in both realms is given. The principle of ne bis in idem (or double jeopardy for our common law friends) in the Netherlands - when textually applied - only prevents criminal action from being taken twice

Januari 2021 | ALIBI Magazine

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against the same action. By way of analogy however one could interpret ne bis in idem to include civil action as well : such an interpretation would prevent both a criminal action and (civil) punitive damages to be instituted against the same action.

Conclusion Although the introduction of punitive damages can dull out some of the weight that is put on the criminal law system as perpetuated by Stolker, incredible caution must be practised when applying and implementing them. The ne bis in idem principle forms a great obstacle when using punitive damages in civil law cases, to carry out the purpose of criminal law. A possible solution could be to only mete out punitive damages in civil law cases in which the tortfeasor has not been held liable for a criminal court. New provisions would however need to be taken to adequately prepare our legal system for such a change.

Dutch tort law has lost track of its Roman roots. Opponents of punitive damages seem to base their grievances on the fear of ‘Amerikaanse toestanden’ , whilst failing to realize that the cradle of the civil law system foresaw in the ability to mete out punitive damages. Ironically, the call for solidarity which has caused the expansion of the welfare state over the last half a century as well as the shift

to ‘distributive justice’, seems to be a counterargument for the (unfounded) fear of the existence of a claim culture.

A structured system of social welfare prohibits the need for citizens to seek financial reassurance through legal claims, despite the existence of punitive damages. The possibilities offered by punitive damages to punish and thus deter large companies from taking malicious calculated decisions in the realms of antitrust and product liability will hopefully prevent further damages suffered by citizens through price fixing or product defects. An extra instrument - such as punitive damages - this time in the hands of the public will incentivize companies to be more diligent, thus resulting in achieving the desired goal of prevention.

When given a careful second thought a sole compensatory system that seeks to achieve distributive justice carries large moral flaws. The idea that for every calamity in an accidentprone world someone solvent must be liable for the damages regardless of the existence of culpability is not only unfair and immoral but contributes to the existence of a society that is bent on litigation. One can only hope that the possible introduction of punitive damages in the future, will make an end to distributive justice, by creating more awareness on those who carry the cost of calamities.•

“CIVIL LAW SOCIETIES HAVE TRANSITIONED FURTHER FROM THE TRADITION OF PUNITIVE DAMAGES THAT WAS FIRST BROUGHT FORTH BY ROMAN LAW TO A MORE COMPENSATORY TRADITION.” 1.

T.Hartlief, ‘Aansprakelijkheidsrecht voor morgen’, NJB, January 9th 2017.

2.

T.Hartlief, ‘Aansprakelijkheidsrecht voor morgen’, NJB, January 9th 2017.

3. Institutes of Justinian 4.6.18.

4.

F.C. Schirmeister, ‘Punitive Damages: Amerikaanse lessen voor Nederland?’, in: BW‐krant Jaarboek, Doel en effect van civielrechtelijke sancties, Deventer: Kluwer 2003, p.146.

5. Milton Friedman on the price of a human life, 1978 : https://philebersole.wordpress. com/2011/08/11/milton-friedman-on-theprice-of-human-life/.

6. Kamerstukken II 1998/99, 26630, nr. 1, p. 1 7. Prof. Kortmann UvA 2020.

8. C.J.J.M. Stolker, ‘Straffen met privaatrecht – of juist verzoenen?’, Over de grenzen van strafrecht en burgerlijk recht, Deventer: Kluwer 1995.

9. Stolker 1995, pages 30-31.

10. J. Kortmann & C.Sieburgh, Handhaving door Nederlands privaatrecht, in: A. Scheltema, M. Scheltema, K. Deketelaere, B. Delveaux, S. Tormans, F. Krips, A. Winants, J. Kortmann, C. Sieburgh, C. Cauffman en B. Weyts, Preadviezen Vereniging voor de vergelijkende studie van het recht in België en Nederland, Den Haag: Boom juridische uitgevers 2009, p. 249-302.