Comparative Law II. The Common / Civil Law Divide. Unit 5: Damages

Transcription

1 Comparative Law II The Common / Civil Law Divide Unit 5: Damages

2 Unit 5 Overview Damages for breach of contract Damages under the law of tort o Intention, negligence, and strict liability o Choosing between different liability standards o Comparative vs. contributory negligence Compensatory damages vs. punitive damages Martin Fries 2

3 Why Award Damages? Damages can be awarded because of Breach of Contract Negligent Behavior Other Torts Martin Fries 3

4 Contract Performance or Damages? Priority for Contract Performance The contract is the law both parties agreed on Moral reason: Promises should be kept It will often be difficult to calculate damages à A damage award might not fully compensate the other party Priority for Monetary Compensation To force people to comply with their contractual obligations is rather left to equity Interference with individual freedom only where really unavoidable Contract performance might be inefficient Martin Fries 4

5 Restitution Return what you have received from the other party! o Example: S lures B into a deceptive car purchase à When B finds out about being defrauded, she claims her money back In some civil law countries: Restore what you have destroyed! o Example: Graffitist G beautifies V s house wall with a large painting à G is responsible for the damage repair; however, G might have a right to do the repair himself Reason: Efficiency! Martin Fries 5

6 Expectation Remedy Pay the other contractor what she expected to earn from the contract! o Example: S sells a new Chrysler to taxi driver T for US$ 40,000; T needs the car from the stipulated day of delivery; when the car is delivered 2 weeks later, T complains of loss of revenue amounting to US$ 1,500 However: Limited damages in case of disproportionate losses o Example: T claims a loss of income amounting to US$ 15,000 as he turns out to be a 24/7 celebrity cab driver Martin Fries 6

7 Reliance Remedy Pay your contractor what he invested (and was foreseeable to invest) relying on contract performance! o Example: B agrees on a car purchase from S and rents a garage relying on the contract Consequential damages and losses due to reliance on the contract cannot be claimed at the same time o Reason: If a contractor had been able to make the expected profit, she would also have had to bear the associated costs o Example: If B in the example above was the taxi driver from the previous example, he can only claim the loss of profit (treats him like with proper contract performance) or the garage rent (treats him as if he never purchased the car) Martin Fries 7

8 Damages in Tort Law The French civil law codifies tort law in only 5 provisions (Art code civil a blanket clause for damage claims due to deliberate or negligent behavior The German civil law contains a similar provision, however, restricting damage claims to a short list of legal rights such as life, health, property, liberty of action, etc. Common law traditionally awards damages dependent on the availability of a writ-like action type Martin Fries 8

9 Damage Claims under Common Law Trespass: Straight attack on land, things or people à Damages or injunction Conversion: Violation of ownership rights à Damages Nuisance: Little sister of conversion à Damages or injunction or sale of rights Defamation in the form of slander (spoken) or libel (written) à Damages or injunction Fraud/deceit à Damages Negligence (satisfying a need due to dangerous industrial inventions): Breach of a duty of care à Damages (precondition: proximate cause) Martin Fries 9

10 Civil Law: Relying on Liability Standards Intention: The injurer is liable only for those damages which he deliberately caused Example: Train writing Negligence: The injurer is liable for damages she caused due to taking precautions deemed insufficient Example: Spilling coffee on so. else s laptop Strict liability: The injurer is liable regardless of her precautions simply because of the hazardousness of his action Example: Owning a horse that lashes out Martin Fries 10

11 Which Liability Standard is Appropriate? Level of precautions o Does the respective standard incentivize the involved persons to take optimal precautions? o Hand rule: Optimal precautions = Expected damages Activity level o Does the respective standard incentivize the involved persons to restrict the activity level of a dangerous activity to a socially desirable level? o Example: What incentives does a negligence standard set for the extent to which people launch fireworks? Administration costs o How difficult / burdensome is it to enforce a particular standard? o Example: How good are courts in defining reasonable car traffic precautions? Martin Fries 11

12 Comparative and Contributory Negligence Comparative Negligence (Civil law tradition) Under the comparative negligence rule, the injurer is exempted from liability to the extent the victim acted negligently herself The victim s negligence is weighed against the injurer s negligence The victim s negligence would rarely be rated between 0 and 20% Contributory Negligence (Common law tradition) The injurer is completely exempted from liability as soon as the victim acted negligently herself o Exceptions: Intentional action by the injurer, last clear chance The victim s negligence supersedes the injurer s negligence Martin Fries 12

13 Immaterial Damages Civil Law Slow movement towards the acknowledgement of immaterial damages Traditionally, a claim for damages requires physical rather than emotional distress No compensation for emotional pressure from damages incurred by someone else Common Law Economic approach: Any disadvantage might be subject to a claim for compensation Hypothetical contract: How much would the victim have been willing to pay to avoid the damage? In some jurisdictions, there is a cap on immaterial damages (e.g., at US$ 250,000) Martin Fries 13

14 Tort costs in the US, US$ billion Crisis of Tort Law? Including benefits incurred or paid to third parties (damages), defense costs, and administrative costs, excluding court administration costs and costs for litigation avoidance (useless precautions) Source: Towers Watson Martin Fries 14

15 Liebeck v. McDonalds Restaurants In 1994, Stella Liebeck suffered third degree burns when she spilled hot coffee (around 85 C 180 F) purchased from a McDonald s drive-in Liebeck s product liability lawsuit became a flashpoint in the debate in the U.S. over tort reform after a jury awarded a sum of US$ 2.86 million to her The jury damages included $160,000 to cover medical expenses and compensatory damages and $2.7 million in punitive damages The trial judge reduced the final verdict to $640,000, and the parties settled for a confidential amount before an appeal was decided Martin Fries 15

16 McDonald s Calculus If there is liability for damages caused by strategic behavior the courts may want to eliminate any incentive to breach the law The incentive for illegal behavior is 0 if the profit derived from illegal action equals the expected damage payment Sample calculation: Assume a time frame of 10 years. By overheating its coffee by 10 F McDonalds wins an additional customers at an annual extra profit of US$ There is a probability of 20% that the overheating practice will be discovered and that damages are successfully claimed. Solution: The court would have to award US$ 5 million in punitive damages to eliminate any incentive for illegal behavior. (In this case, the expected payment would be US$ 1 million and thus equal the illegal profits. Martin Fries 16

17 McDonald s Today Punitive damages are debatable wherever companies o endanger their customers even though it is still somewhat unlikely that the risks eventually materialize o defraud their customers by small sums and count on their rational disinterest in enforcing their rights o provide goods or services needed in emergency situations where customers sense a pressure to pay even though the stipulated contracts are probably void Examples: Mounting defeat devices into cars, adding small surcharges to mobile phone invoices, charging excessive prices for lock and key services, categorically refusing to acknowledge, the occurrence of an event insured, etc. Martin Fries 17

18 See you next week! Wednesday, March 22, noon, EW 148 Feedback: martin.fries [at] jura.uni-muenchen.de