Scope of Claim for Consequential Damage in Delict Law
| Author | Margus Kingisepp |
| Pages | 203-210 |
Margus Kingisepp
Scope of Claim for Consequential Damage in Delict Law
The entry into force of the Law of Obligations Act (LOA)1 on
The purpose of this article is to analyse the question of the scope of claims for compensation of damage in delict law from the position of the persons whose damage consists of consequential damage only. The author therefore first tries to explain which damages may be treated as consequential damage and to point out the differences between consequential damage and direct damage. The analysis that follows mainly focuses on the circumstances and conditions under which the payment of or refusal to pay compensation is justified in the case of consequential damage.
The discussion is structured mainly according to the modern legal principles generally accepted in Europe, the regulation of the new Estonian Law of Obligations Act, as well as the traditions common to current judicial practice.
As a rule, compensation for damage is made possible to a person who incurs direct damage. Yet, it is questionable whether a person who only incurred consequential damage should have the right to claim compensation2.
To explain which persons who have incurred damage are entitled to compensation, a line should be drawn at first between direct and consequential damage.
According to the traditional approach, direct damage is understood as direct damage to or loss of property, as well as the expenses incurred in this relation. According to Estonian law, property damage also includes reasonable expenses on filing a claim for compensation and identifying the amount of damage, as well as on preventing or diminishing damage. Damage that does not fall within the scope of direct damage can thus be viewed as consequential damage.
Consequential damage may become apparent in different ways.
(1)Consequential damage can imply a further negative impact caused by direct damage, particularly loss of income. For example, when a person who has suffered a car accident cannot undergo training and expect higher wages, the loss of income may be regarded as consequential damage.
(2)Consequential damage may also become apparent independently of direct damage, in forms such as pure economic loss or non-patrimonial damage.
As opposed to Scandinavian countries and Germany, the Estonian regulatory law does not define consequential damage, but the term was used in the draft Civil Code of 1940 and signified the damage caused by the concurrence of special circumstances (§ 1371).
According to the delict law approach, loss of income (lucrumcessans) is expressed in the income that a person would probably have received as a result of his or her preparations if the damaging circumstance had not occurred3. In the legal theory of foreign countries, the term 'pure economic loss' has been used instead of loss of income. Legal theory speaks about pure economic loss where the damage does not pertain to persons or things, but to other matters related to economic activities4. In this sense, economic loss can be understood as damage arising from commercial transactions as well as other economic activities.
The author believes that it is not correct to equalise loss of income with pure economic loss. Pure economic loss is rather a part of loss of income, but the latter also includes the potential gain outside economic activities (such as the potential gain resulting from training). Distinction between direct or actual damage (damnumemergens) and loss of income (lucrumcessans) is familiar to all European law families. It is similar to the distinction between existing and future damage.
The Austrian Supreme Court has found that loss of income is direct damage, if receiving the income was almost certain. According to the position of the court, loss of income may be regarded as direct damage if the entitlement to income actually existed5. Estonian law does not allow for such interpretation, as according to the meaning of the Law of Obligations Act, direct damage includes reduction in value and expenses incurred in relation to damage, while loss of income associates with potential income.
Compensation for consequential damage only is clearly limited in both the judicial practice and regulatory law of different countries. The Danish judicial practice has found that entitling a person who has suffered only consequential loss to compensation is not justified6. Article 1151 of the French Code Civil also provides epressisverbis that only damage that is "the immediate and direct consequence of the violation of an obligation" is subject to compensation. The predominant approach of German law in delimiting the circle of persons entitled to compensation is described in the writing by Karl Larenz7. According to this, third parties who have no absolute rights or to whom the protection set out by a legal provision does not extend, are not entitled to compensation. However, events where damage is being attempted against a third party directly under BGB § 826 are an exception.
The author of the article supports the restricted approach when defining the circle of persons entitled to compensation, mainly because giving the right of claim to a person who has only suffered consequential damage would result in an unreasonable extension of the sphere of application of delict liability. For example, it is not reasonable to give the right to a claim for compensation to persons whose damage is only expressed by the fact that they must visit a more distant supermarket because their nearby shop burned down.
Allowing for the right of claim to those who have suffered consequential damage only would also materially damage the legitimate expectations of the tortfeasor. It is important for every person who may potentially cause damage to know and be familiar with the practically recognised criteria of liability. Knowing such criteria would also enable an adequate and rational assessment of the potential risks of damage. The principle of private autonomy gives the tortfeasor the opportunity to manage their own liability risks based on their knowledge, by making choices between the permitted (obliged) and prohibited alternatives of behaviour. The limit of protected legal merits must be clearly understandable for participants in law. Uncontrolled risk may lead to an unreasonable limitation of people's freedom to act, which would be contrary to the main goal of a market economy-based society.
The legal-economical aspect of the issue also justifies the limitation of the circle of persons entitled to compensation. When providing the right of claim not only to the person who incurs direct damage but to all other persons who have indirectly suffered from the event, the legal system would be overloaded by the number of claims, and this would significantly increase the cost of maintaining the legal apparatus. Payment of larger compensation for damage is often excessively ruining for the tortfeasor.
Teaching of the purpose of the protective provision helps to further delimit the circle of persons entitled to compensation for consequential damage. According to the theory of legal protection of a provision, the scope of compensation for damage is limited depending on whether the type and method of causing damage is covered by the aim of protecting the violated provision or not.
Normzweck's teaching is reflected in Estonian positive law directly in LOA § 127 (2): "Damage shall not be compensated for to the extent that prevention of damage was not the purpose of the obligation or provision due to the non-performance of which the compensation obligation arose". According to delict law regulation, the unlawfulness of causing damage is excluded if the purpose of the violated provision was not to protect the aggrieved person against that type of damage. Like Estonian law, the sphere of application of the legal provision is also limited in the Dutch Civil Code, according to which there is no obligation to compensate for damage if the purpose of the violated provision was not to protect against the type of damage that the aggrieved person incurred (6.163).
According to the position adopted by the Austrian judicial practice, the teaching on the protective provision allows for compensation for consequential damage only to the persons entitled to compensation for direct damage; damage to third parties is not covered by the protective purpose of the...
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