On the 11th of May 2018, I attended the conference on Punitive Damages and European Private International Law: State of the Art and Future Developments, in Milan. The judgment of the Full Court of Cassation, of the 5th of July 2017, No 16601, was thoroughly discussed (and critizised by some speakers). An English translation of the judgment was also circulated during the conference.
Below is the English version of the Italian comment to the judgment I wrote and originally published in http://www.bbmpartners.com on the 3rd of October 2017. The full text of the jdugment is easily retriavable on the web, for instance at this link: https://www.lavorodirittieuropa.it/sentenze/sentenze-danni-puntivi/80-cassazione-civile-sezioni-unite-sentenza-05-07-2017-n-16601.
“Judgments awarding sc. punitive damages undergo the public policy test”
International public policy has recently hit the headlines with court order n. 16/9978 (an “ordinanza di remissione”, i.e. a request for a preliminary ruling made by a division of the Court of Cassation and addressed to its Full Court), by which the Full Court of the Italian Court of Cassation (hereafter, “Full Court”) has been asked to consider whether decisions – rendered in the United States – awarding sc. punitive damages, which up to then had been considered as being incompatible with the Italian law system, may be recognized and enforced. In particular, the question raised in the court order is to assess whether the principles enshrined in the Italian law system have changed, or whether, following European law, public policy constraints of Article 64 of Law 218/1995 (i.e. the Italian Private International Law Act) have loosen, so as to allow the recognition and enforcement of the mentioned decisions.
In European courtrooms, the public policy limit has often been raised against the recognition and enforcement of decisions – rendered in the United States – ordering compensation of sc. punitive damages, a legal instrument that unveils a significant difference between the objectives underlying tort law in European and North American countries.
In fact, whilst European tort law systems usually pursue a compensatory objective, in North American countries tort law also pursues a punishing purpose.
In particular, in Europe, the principle according to which tort law aims at restoring the statu quo ante – and thus, at compensating a loss – has been long established. As underlined by scholars (Zeno-Zencovich), in mainland Europe, the punishing feature of Roman tort law was eliminated by the doctrine of natural law, when tort law was limited to its compensatory objective. The same evolution occurred in English law, when, during the second half of the fourteenth century approx., the action of trespass, of a criminal and punishing nature, evolved into the action of trespass on the case, of a private law and compensatory nature. Conversely, overseas, the legal instrument has maintained, aside the compensatory one, a punishing purpose. Such purpose is pursued through exemplary (or punitive) damages, whereby the tortfeasor is punished in an exemplary way, in order to discourage him from doing other wrongs.
The English law system, though a system of common law as that in force in most North American countries, is yet reluctant towards the legal instrument of punitive damages. Also Germany, France and Italy have refused the recognition and enforcement of judgments rendered in North American countries awarding punitive damages.
This negative attitude is well pictured in a judgment rendered by the Bundesgerichthof in 1992, where the recognition of a Californian judgment awarding punitive damages was refused, as being contrary to German public policy. According to the court, the German law system did not allow that compensation of damages could be higher than the damage suffered. Moreover, the German Supreme Court held that to permit punitive damages would have entitled private parties to use punishing power, which may only be exercised by State authorities.
Similarly in Italy, in 2001, the Venice Court of Appeals (Venice CA, 15/10/2001) refused the execution of a North American judgment awarding punitive damages. The opinion held by the Court of Appeals was maintained by the Court of Cassation (Italian Court of Cassation 07/1183 and 12/1781) that, as mentioned, refused the recognition of judgments awarding punitive damages, as being inconsistent with the fundamental principle by which tort law pursues a compensatory objective and may not pursue a punishing one.
Also French commentators and judges refused the recognition of judgments awarding punitive damages. In fact, they held that punitive damages were inconsistent with the fundamental principle of the sc. reparation intégrale, under which tort law may only grant a compensation and rather not an enrichment (or loss).
This negative attitude towards the legal instrument of punitive damages has come to an end.
In fact, as noticed in the above mentioned in court order n. 16/9978, following a decision of the Spanish Supreme Court of 2001, the German Constitutional Court in 2007 first and the French Court of Cassation in 2010 then, have maintained that judgments awarding punitive damages are not per se inconsistent with the respective notion of public policy. Moreover, such courts have also maintained that the requested judge must assess whether the recognition and enforcement may actually breach the rule by which tort law pursues only a compensatory objective. To that aim, for instance, French courts have introduced the sc. proportionality test, which consists in assessing the difference between punitive damages awarded and the actual loss suffered.
In this new scenario, of a changed attitude amongst European law systems, by its decision n. 17/16601 the Full Court has answered the questions raised by the First Division of the Italian Court of Cassation with its court order n. 16/9978.
The disputed case brought before the Italian Supreme Court – as may be understood from its own decision – is the following.
During a motocross race, a racer was injured because of an alleged defect in the helmet he was wearing when the accident occurred. The helmet, produced by an Italian company, was imported in the United States by a North American company and resold to the racer by a company in Florida. Following the injury, the racer summoned the reseller, the distributor and the producer to appear before the Broward County Court in Florida, seeking compensation for damages, which he claimed amounted to 10 – 30 million dollars.
While proceedings were pending, the claimant reached a settlement with the distributor: in change of one million dollars, the former waived all claims against the latter. Before entering the agreement, the distributor notified the producer of the settlement, without gaining any reply from the latter.
Under the rule of the sc. product liability test, by its judgment, the seized judge held that the producer should have held the distributor harmless (i.e. should have paid the sum of one million dollars the latter had paid the claimant). In fact, under the rule, when the distributor makes a settlement with the injured party, the producer has the choice either to approve the settlement, in which case he will be bound to its effects, or challenge it by standing in defence of the producer. In fact, though having the right, the producer had not challenged the settlement, nor had he stood in defence of the distributor.
Upon the distributor’s request, the judgment rendered by the Broward County Court was thus recognized and made enforceable in Italy by the Venice Court of Appeals. By filing an appeal before the Court of Cassation, the producer challenged the enforcement. Put simply, by one of the grounds of appeal raised, the appellant averred that the enforced judgment was contrary to public policy under Article 64 of Law n. 218/1995, considering the excessive compensation awarded to the injured party, also by reason of punitive damages. To back his argument, the appellant cited judgments by the Court of Cassation, where, as mentioned, judgments ordering compensation of punitive damages where held as being contrary to public policy.
By its judgment, the Full Court, in first place, underlined that the duty to compensate did not arise from the enforced judgment, but rather from the underlying settlement. Moreover – the court further argued -, the settled compensation of one million dollars was not excessive, especially in the light of the initial amount claimed by the injured party, between ten and thirty million dollars. Nor the punitive nature of compensation could have been suggested by the lack, in the enforced judgment – or better, in the underlying settlement –, of a clear distinction between the different parts of the awarded compensation.
The ground for appeal was dismissed and though the enforced decision did not award punitive damages, yet the Full Court moved on by addressing the issue whether the Italian law system admits judgments awarding punitive damages.
Firstly, the Full Court examined that, few years earlier, in line with the Constitutional Court’s case law, the Court of Cassation had embraced the sc. multifunctional doctrine of compensation: in the Italian law system, tort law pursues, a part from the one of compensation, also a punishing objective. Furthermore, the Supreme Court (Italian Court of Cassation, Full Court, n. 15/9100) had also specified that the punishing objective may be pursued as far as a statutory rule so expressly provides, in accordance with the principle by which punishment is allowed only where it is provided by statute (sc. riserva di legge) under Article 25(2) Italian Constitution (and Article 7 ECHR). Moreover, as stressed in court order n. n. 16/9978, the Full Court underlines that, actually, the Italian law system provides tort law instruments that pursue, among the rest, a punishing objective (for instance, the well known legal instrument provided for in Article 96(3) of the Italian Civil Procedure Code, on contempt of court).
Hence, whilst the punitive nature of compensation is being recognized in the Italian law system, that nature is slowly disappearing in North American countries. The Full Court in fact considered that the United States Supreme Court has taken a contrary position against grossly excessive compensations, and has also held that the punishing objective may not exceed the compensatory one (Exon case). Moreover, the judges from piazza Cavour have also considered that in certain North American countries – amongst which Florida – punitive damages are governed by statute.
In essence, the court has held that judgments rendered in North American countries that award punitive damages are not contrary to public policy, since the punishing objective they pursue is common to the Italian tort law system, provided that they are grounded on a statutory provision, as required by Article 25(2) of the Italian Constitution.
Thus, the Italian judge is not exempted from assessing whether or not similar judgments may be recognized and enforced. In fact, the Full Court conclusively states that, a part from the requirement of a statutory ground as per Article 25(2) of the Italian Consistution: “the recognition of a punitive compensation must in any case by assessed in view of the effects that the decision of the foreign judge may have in Italy, by the broad assessment that must be made, in case of foreign decisions, when implementing an unknown legal instrument though not incompatible, in general, with the legal system”.
Before coming to the merits of the decision, it must be said that, actually, in the Italian law system a provision concerning the recognition and enforcement of foreign judgments awarding punitive damages already exists. This is a private international law provision which is often forgotten – as the Full Court has –., possibly due to its meagre practical interest: Article 11(1) of the 2005 Hague Convention on choice of court agreement (that has been ratified only by the European Union, Mexico and Singapore). The article provides: “Recognition or enforcement of a judgment may be refused if, and to the extent that, the judgment awards damages, including exemplary or punitive damages, that do not compensate a party for actual loss or harm suffered”. Therefore, if a requested judgment awarding punitive damages were ever rendered by a Mexican or Singaporean judge – having jurisdiction by virtue of an exclusive choice of court agreement compliant with the requirements provided for in the Convention –, the provision would entitle the Italian requested judge to refuse recognition. It is thus clear that this is a quite unlikely case… In any case, furthermore, Article 11 of the Convention has been maintained in Article 9 of thel 2016 Judgments Project Preliminary Draft, that is the treaty on the recognition and enforcement of foreign judgments that is being at present negotiated at the Hague Conference on Private International Law.
Article 11 of the Hague Convention and 9 of the draft convention, are the result of the continuing reluctance raised by certain law systems – and, in particular, European ones – against the legal instrument arriving from the United States, which embodies the punitive objective of tort law; and perhaps the appellant could have mentioned them to back his arguments before the judges of the Court of Cassation.
Finally, coming to the merits of the Full Court’s decision, foreign judgments awarding punitive damages are not per se contrary to the concept of public policy provided for in art. 64 Law n. 218/1995, since the punishing objective of tort law is acknowledged also in the Italian law system. Nevertheless, this does not mean that similar judgments may be automatically accepted in the Italian law system. On the contrary, the Full Court provides the requested judge with ample discretion to refuse recognition. In fact, the latter may determine – according to his own discretion and under his own rules – whether damages awarded are punitive or not. Therefore, whenever the Italian judge deems the award as being punitive, the related judgment may enter the Italian law system only if it is based on a statutory rule of the foreign State. In essence, a part from raising the limit of the statutory ground, the Full Court introduces in the Italian law system the solution that has already been introduced in France, that is the proportionality test, which implies, necessarily, on the one hand an in depth examination of the requested judgment, and on the other hand the requested judge’s ample discretion.