Estonia enables claiming punitive damages

24. January, 2011

On 31st December 2010 amendments to the Law Obligations Act (hereinafter LOA) came into force in Estonia, introducing the regulation allowing claiming punitive and preventive damages. Though the new regulation allows exemplary damages to be awarded only in the event of non-proprietary damages, it nevertheless constitutes a general paradigm shift, allowing for a much broader protection of personal rights.

Previous regulation did not allow for sufficient protection of the personal rights on one hand due to the fact that the damaged person had an unreasonable burden of proof while claiming non-proprietary damages and on the other hand because the courts tend to proceed solely from the need to place the aggrieved person in a situation in which one would have been, had the breach of rights not occurred. In doing so, the courts do not consider that a legal remedy must also fulfil a preventive function. Due to the latter the amounts of damages awarded did not motivate the potential violators to refrain from taking further actions that result in damages.

The regulation will most certainly have an effect on the press and right to freedom of expression, as on one hand the right to inviolability of private and family life and on the other hand the right to freedom of expression will have to be carefully weighed and at certain point one right will be preferred to the other.

The preventive nature of the non-proprietary damages is rather controversial even within the LOA, as the purpose of compensation for damage is to place the aggrieved person in a situation as near as possible to that in which the person would have been if the circumstances which are the basis for the compensation obligation had not occurred, thus and any gain received as result of the damage caused is to be deducted from the compensation as a general rule. However this controversy is overcome due to the fact, that in a way non-proprietary damage arising from infringement on personality rights, cannot be price-tagged. Thus in order for the damaged person to feel that his sufferings have been compensated, he need to feel that the amount of the compensation has a preventive effect, that will keep the violator from causing damage to the same person as well to the general public.

The punitive and preventive aspect of damages to be awarded shall be considered when compensating damage caused by defamation or by violation of any personality right, including passing undue judgements or unjustified use of the name or image and inviolability of the private life.

The main additions to the LOA in regard to punitive damages can be summed up as follows:

· the burden of proof of the aggrieved person is significantly lessened, as the need to compensate the damage is presumed, if the cause for the claim is any sort of infringement of personality right;
· when determining the amount of the compensation, gravity of breach as well as conduct and attitude of the violator toward the damaged person after the action causing the damage occurred;
· the amount of the compensation should be high enough to have a preventive effect on the violator, taking into account the financial situation of the violator.

Prior to the amendment of the LOA, the inviolability of private and family life, which is one of the main rights, that is protected by the new regulation, was protected primarily only by the relevant regulation in the Constitution. Even though protected by the highest legislative act in principle, the realisation of the right to inviolability of private and family life, as well as the right to honour and good name, was rather limited. Thus possible claims in regard to damages were based on general provisions, making it far more complicated to award any non-proprietary damages. The new regulation adds a significant amount of certainty to claiming punitive damages due to infringement of personality rights.

It is most certainly clear, that as the regulation has been in force for less than a month, thus Estonia has no practice of its own in regard to awarding punitive damages. It will take several years for such practice to evolve, mostly due to the fact that the new regulation cannot be applied to any damages caused prior to the regulation coming into force. Therefore in the first years Estonia will have to turn to foreign practice, including ECHR practice for guidelines in regard to both determining whether or not a breach of personality rights has occurred, as well as in regard to the amounts of compensations awarded in order for the compensation to have a punitive effect. In regard to the former, ECHR rulings Niemietz vs Germany and Brüggemann and Scheuten vs Germany might be of interest.

In addition to the issues discussed above, certain aspects of the procedural law cannot be disregarded in regard to suing for punitive damages. By abandoning the burden of proof and granting the aggrieved person the right a reasonable amount of compensation as well as by adding the punitive effect to the awarded damages through the necessity to take into account the financial status of the person causing the damage, it is encoded, that the appropriate damages may constitute a considerable amount, especially when claiming damages from a publisher as a result of infringement of private life or defamation.

The general rule of Estonian procedural law is that in the case of an action for the payment of money, the value of the action is determined by the amount of money claimed, and that determines the amount of the necessary state fee for the matter to be heard. For example if the claim is 20 000 EUR, the state fee is 2 200 EUR and when claiming 100 000 EUR, the plaintiff would have to pay a state fee 6400 EUR.Thus it would seem that the ability of the plaintiff to pay the high state fees would set the limit to the amount of damages being claimed. In case the plaintiff wishes to name the sum of damages, this would be so. However, the regulation also allows to consider the value of the claim to be just 1 595 EUR (state fee is respectively 319 EUR) provided that the requested amount of compensation is not set out in the action and fair compensation at the discretion of the court is requested.

While claiming non-proprietary damages according to the above mentioned regulation is very cost efficient, it also means that the aggrieved person cannot state the amount of damages that one would find satisfactory, as that will immediately result in the court qualifying the claim as monetary and applying the general rule. Thus the amount of awarded damages can be influenced primarily by examples of any analogical cases and by showing the financial status of the defendant in such a way, that it would be clear, that a relatively small amount of damages will not serve the punitive purpose.

In regard to determining the fair compensation at the discretion of the court, the Estonian Supreme Court has given several guidelines in the previous years. Both in 2005 and 2009 the Supreme Court stated, that the financial status of the parties as well as any other circumstances, which if disregarded, will lead to an unjust compensation, are to be taken into account. In 2009 the Supreme Court was also of the opinion that the amount of the compensation has to be adequate in regard to the general welfare of the society. These guidelines will most certainly be applicable also in the light of the new regulation concerning punitive damages.

For further information on these issues please contact Helen Hääl or Jaanus Mägi at Concordia Attorneys at Law by telephone (+372 6262 062) or by email