Compensatory Damages Principles in Civil and Common Law Jurisdictions: Requirements, Underlying Principles and Limits

Compensatory damages, as the name indicates, are intended to compensate a claimant for losses suffered as a result of the other party's (wrongful) conduct. Those losses can be pecuniary (e.g., costs, loss of profit, related expenses) or non-pecuniary (e.g., for pain and suffering, loss of reputation).² The basic rule, in one common law formulation, is that a claimant is entitled to 'that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation'.³  This rule is formulated in similar terms in civil law jurisdictions – for example, French law recognises the principle of full compensation, the objective of which is to put the injured party in the position in which it would have been had the act that gave rise to the damage not occurred.⁴

This chapter will provide a comparative overview of the legal principles and elements of compensatory damages in civil law and common law jurisdictions, with a focus on contractual damages.There are several reasons why such a comparative analysis is important for international arbitration practitioners. It is common for disputes underlying international arbitrations to be governed by a range of applicable national laws, so it is important to be familiar with the broad principles of their substantive content – or, at least, of two of the main legal traditions,⁵ though the differences among national laws within those traditions should not be underestimated.While there is certainly a lot of common ground in relation to the legal principles and elements of compensatory damages claims in common and civil law jurisdictions, there are also differences, as described in more detail in the sections below. As advocates, it can be useful to be attuned to these differences when formulating written or oral pleadings, particularly where the arbitral tribunal is of mixed legal backgrounds.

While certainly less prevalent than national laws in international arbitration, transnational principles can also play a role in damages analyses in international arbitration, either where parties have agreed to apply them or where tribunals have cited them as a means of reinforcing or supplementing the applicable law.⁶ These principles may be influential even where not directly applicable and include, for example, those codified in instruments such as the 2010 UNIDROIT Principles of International Commercial Contracts (the UNIDROIT Principles), which 'reflect concepts to be found in many, if not all, legal systems'.⁷ Understanding the origin of these transnational principles is important preparation for their application.

As a final note, arbitration clauses sometimes contain broadly worded consents to arbitration that may be interpreted to include non-contractual (i.e., tortious or delictual) claims.⁸ However, the focus of this chapter will be on compensatory damages arising out of contractual claims. In addition, we do not consider non-compensatory damages, damages principles under the Convention on Contracts for the International Sale of Goods (CISG), contractual limitations on damages, damages in investment arbitration, interest and costs. These topics are addressed in other chapters of this publication.

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¹ Clare Connellan and Elizabeth Oger-Gross are partners at White & Case LLP. Angélica André is an associate at White & Case LLP. The authors thank Heather Clark for her contribution to the first edition of this chapter.
² H. McGregor, McGregor on Damages (20th ed. Sweet & Maxwell, London 2017), Section 2-001. As discussed below, there are restrictions on a party's ability to recover non-pecuniary losses in common law jurisdictions. See, e.g., Common Law Series: The Law of Damages/Part I General Principles/Chapter 4 Damages for non-pecuniary loss/E Disappointment, distress, humiliation and loss of enjoyment/Contract.
³ H. McGregor, McGregor on Damages (20th ed. Sweet & Maxwell, London 2017), Section 2-002, citing Livingstone v. Rawyards Coal Co [1880] 5 App Cas. 25 at 39.
⁴ Full compensation is the authors’ translation of the French term 'réparation intégrale'. See A. Bénabent, Droit des obligations (16th ed. L.G.D.J. Précis Domat, 2017) 683. See also H.Wöss and others, Damages in International Arbitration under Complex Long-Term Contracts (OUP, Oxford 2014) para. 2.03.
⁵ A discussion of compensatory damages principles under other legal traditions is beyond the scope of this chapter.
⁶ See E. F. Agrò, ‘The Impact of UNIDROIT Principles on International Dispute Resolution in Figures', www.unidroit.org/english/publications/review/articles/2011-3-finazzi-e.pdf, 721. The UNIDROIT provisions on damages were among those most frequently invoked by arbitral tribunals and domestic courts. See also P. Gélinas, 'General Characteristics of Recoverable Damages in International Arbitration' in Y. Derains and R. H. Kreindler (eds), Evaluation of Damages in International Arbitration, Dossiers of the ICC Institute of World Business Law, Volume 4 (Kluwer Law International; International Chamber of Commerce (ICC) 2006) 11, 20-29.
⁷ UNIDROIT Principles of International Commercial Contracts (UNIDROIT 1994), Introduction, xxiii (PDF 22).
⁸ See, e.g., ICC Case 9517, Interim Award, November 1998: 'The Arbitrators find that the scope of the wording of the arbitration clause "any dispute arising in connection with this Agreement" is clear and does not lend itself to construction. It is very wide and covers any claim which arises, directly or indirectly, with any relationship to the Management Agreement, and whether the claim is contractual or delictual of nature. There is also no basis for constructing the clause or the ICC Rules as applicable only to commercial disputes. The claims raised are, therefore, within the scope of the arbitration clause.'

An extract from the third edition of GAR's The Guide to Damages in International Arbitration, globalarbitrationreview.com/edition/1001283/the-guide-to-damages-in-international-arbitration-third-edition) first published in December 2018.

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