A topic of particular interest to me is the ways in which contract terminology used by those practicing in common-law jurisdictions doesn’t make sense in a contract governed by the law of a civil-law jurisdiction.
It’s a topic I’ve touched on sporadically; see for example this 2009 post on enforceability of time is of the essence provisions in civil-law jurisdictions. But I was reminded of it earlier this month, when I attended a presentation at a law firm on the other side of the Atlantic.
When the phrase consequential damages was raised, a Spanish lawyer present said that courts in civil-law countries are bewildered by the phrase and essentially ignore it. I wasn’t able to get any further information on the subject. So, dear readers, would you care to enlighten me?
And more broadly, I’d now like to attempt to crowdsource information about additional problematic common-law usages. What do you say, civil-law lawyers?
(In this post from way back in 2006 I wrote about civil-law drafting compared to common-law drafting. But it doesn’t address specific usages. And if you, like the rest of us, are confused about the phrase consequential damages, see this 2010 post and the later post that it links to.)
In Brazil, the Civil Code (Act 10,406) establishes in article 402 the general rule that the party causing loss/damage has the obligation to compensate the aggrieved party for the losses effectively suffered and for reasonable loss of profits. Therefore, despite the fact that we don’t
have a specific category of damages corresponding to “consequential damages” (“Such damage, loss, or injury as does not flow directly and immediately from the act of the party, but only from some of the consequences or results of such act”), the statutory obligation to compensate for “losses effectively suffered” and “reasonable loss of profits” certainly covers consequential damages.
A contractual exclusion of consequential damages could be more problematic. Since there is no corresponding category of damages in Brazilian law, a prudent translation of the contract into Portuguese would have to “transcreate” consequential damages using the Brazilian law expressions mentioned above, which may entail a wider or narrower exclusion depending on the choice. Ideally, the Brazilian counsel should advise the parties of the need to agree on what exactly will be excluded in the Portuguese text. If a literal translation were to be adopted (“danos consequentes” or “danos incidentais”), the courts would have to resort to the common law definition and that would leave too much to interpretation.
Thank you! This is just the sort of contribution I was hoping for.
You’re welcome. Happy to help with English/Portuguese legal translation and Brazilian law when you need it.
In Italy the Civil Code (art. 1223) says that compensation for breach of contract covers losses and loss of profit (as in the Brazilian one), when they are caused directly by the breach. The category of ‘consequential damages’ does not exist as such in Italian Contract Law.
It’s been awhile since I studied this, but in Quebec article 1457 of the Civil Code of Quebec is the starting point for analysis about causing harm to others. Doesn’t say “consequential damages”, so part of civilians’ confusion is likely just labels, rather than concepts. That said, civilians explain where they cut off responsibility for harm – remoteness of cause – a little differently than their common law counterparts – foreseeability. The result is nearly always the same, though, so perhaps it’s still all about labels.
And seriously, what does consequential damages mean anyway!?
Thank you. Regarding your question, I added a link at the end of the post.
1457 deals with extra-contractual/tort liability. Articles 1458 and 1607 are the relevant ones for contract damages in Quebec. 1607 in particular emphasizes the issue of “directness” which is a recurrent theme in all Civil law jurisdictions. The classic example comes from Pothier, who gives the example of a merchant who sells a diseased cow to a farmer. The disease kills the cow, spreads to the farmer’s other cows, kills them too, the farmer goes bankrupt, and his daughter loses an advantageous marriage. Where along the chain of causality does it stop being “direct”?
I can’t remember Pothier’s answer, but in Quebec at least, it can be very difficult to predict how courts will deal with novel causality arguments. There’s a lot of metaphysics and hand-waving, but ultimately, ciivilian judges tend to rely on causality arguments to establish reasonable limits on the scope of recovery, in the same way that common law courts would use foreseeability.
1458. Every person has a duty to honour his contractual undertakings.
Where he fails in this duty, he is liable for any bodily, moral or material injury he causes to the other contracting party and is bound to make reparation for the injury […].
1607. The creditor is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor’s default
The situation is the same in Québec,
which as you know, is also a civil law jurisdiction. The Civil Code of Québec
states in Article 1607 ” The creditor is entitled to
damages for bodily, moral or material injury which is an immediate and direct
consequence of the debtor’s default” and in Article 1611 “The damages due to
the creditor compensate for the amount of the loss he has sustained and the
profit of which he has been deprived. Future injury which is certain and assessable is taken into
account in awarding damages.”
The typical exclusion of “indirect damages”
in damage limitation clauses also does not have the same meaning in common law
and under the Civil Code of Québec. Under the laws of Québec, all foreseen and foreseeable
damages that are an immediate and direct
consequence of the debtor’s fault will be considered as direct damages. This
distinction between what are direct and indirect damages under Québec law has
been the object of numerous court cases but, as an example, the Supreme Court
of Canada ruled as far back as the 1920’s in a Québec case that the employer of
a victim of an automobile accident that continued to pay wages to its employee
while he was incapacitated as a result of the accident, could recover theses
wages as direct damages from the person who was responsible for the accident. Therefore,
a common lawyer who would insert an indirect damage exclusion clause in a
contract would, in fact, for the purposes of Québec law, exclude a lot less
than he or she would have thought.
There are several other instances where contract terminology used by those practicing in common-law
jurisdictions doesn’t make sense in a contract governed by the laws of Québec,
such as, for instance, the notion of “merger” of the representations and
warranties at closing in a sale contract (concept unknown in civil law and the
notion of survival of the representations and warranties (effect of the provision
different in civil law from its effect in common law) or a provision to the
effect that indemnification proceedings must be started no later than for
example one year after closing (against public policy).
The fact that Québec is the only
civil law jurisdiction in Canada, combined with its geographical proximity with
the United States and the integration of its economy with the rest of Canada
and the US makes the situation very peculiar in that corporations often want to
have the same standard agreement for the whole of Canada and the US. These
standard agreements (even when translated in French) are usually drafted by
lawyers trained in common law and don’t take in consideration the difference of
concepts between common law and civil law.
I’m also Brazilian and would like to add to Leonardo’s comments by saying that compensation for loss of profits is seldom granted by courts, because it is considered hard to prove. This is one of the reasons Penalty Clauses with fixed values are used in Brazilian agreements.
Dear Ken:
I am very pleased to read about this topic in your blog. As a frequent reader I found your posts extremely useful for my professional activity, and this time I will dare to make a small contribution.
I’m a Spanish translator specialized in legal translation from English into Spanish (I’m also Law graduate, Spanish Law). Some of the documents I translate more frequently are, not surprisingly, contracts. For this reason, I struggle almost every day with problems to translate Common Law terms. An average contract drafted in English under a Common Law jurisdiction may contain many terms quite difficult to translate into Spanish, not because of the terminology itself, but because of its content and legal implications. Some of my “favorites” are terms of art related to Equity. The term Equity itself is very difficult to translate either, because if translated by “Equidad” (the Spanish direct translation) a Spanish Lawyer would think about an abstract concept of fairness and justice, while the English term and its by-products (equitable remedies, injuction, etc.) relate to specific developments of the Equity Court that do not exist under the
Spanish Law.
Another one is “termination”, which, as far as I know, is very frequently used to refer to many different ways of terminating a contract. There is no such a thing under the Spanish Law, but it is necessary in each case to refer to the particular way of terminating such contract, so I must
translate it by “rescisión”, “resolución” o “extinción” depending on the context.
As regards to “special damages” or “consequential damages”, in fact, there is no specific provision under the Spanish Civil Code (as far as I know) that refers to this type of damages. Only article 1,107 of the Spanish Civil Code includes a very wide reference saying that, in case of willful misconduct (mens rea) the debtor may indemnify all damages that may arise from the
breach of his/her obligations under the contract.
Best regards,
Fernando.
Hi Ken,
Parts of this presentation might be useful:
https://apps.americanbar.org/buslaw/committees/CL560016pub/materials/Presentation_by_Glenn_West_&_Hermann_Knott_on_Damages_given_at_the_Spring_Meeting_in_Las_Vegas_-_March_2012.pdf