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Tambet Toomela: Introducing preventive damages – are we standing on the brink of American enormous compensations?

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The very last day of the last year witnessed the entry into effect of a formally rather unnoticeable, but substantially a highly important amendment to the Law of Obligations Act. Namely, § 134 (6) of the Law of Obligations Act, effective as of 31 December 2010, lays down that in the case of violation of personal rights, inter alia, defamation or breach of inviolability of personal life, the court may, when establishing the amount of compensation for non-patrimonial damages, take into consideration the need to encourage the person to refrain from causing further damages, taking thereby into consideration the patrimonial standing of that particular person.

The said subsection contains provisions governing the so-called preventive damages, and to date an interesting case attracting a fair deal of public attention has arisen, see (in Estonian): Seppikud ähvardavad Äripäeva 100 000 eurose trahviga (Seppik family threatens Äripäev with a 100 000 euro penalty).

The said provision is remarkable, because it represents a departure from the hitherto adopted legal approach to compensation for damages, according to which the person causing the damage compensates the injured person only losses and expenses stemming from the causing of damages (compensation method). Thus the injured person cannot claim more compensation than what is needed to place him or her in a situation, which is as similar as possible to the situation not affected by the damage. In the context of violating personal rights it would mean that the injured person may not receive an indemnity for non-patrimonial damage in an amount that is greater than is required to compensate for the person's mental or physical suffering.

Preventive compensation, however, takes into consideration the need to ensure that the person causing the damage is discouraged from performing any acts that the person is accused of in the future, and therefore the compensation paid must make the causer of the damage feel its unpleasant impact, which, in turn, would discourage the person from causing damages again. This could be done, if necessary, by increasing the compensatory damages, taking into consideration the proprietary situation of the person causing the damage. Simply said, based on a relevant court judgement a person earning a higher income can be ordered to pay a higher compensation as well.

In its essence this concept is similar to the American punitive damages, which have given rise to stories about court cases involving humongous compensations. The judicial practice will soon show whether our legal system too has reached the stage of awarding such damages. Establishing the amount of non-patrimonial damages always involves making evaluative decisions, and therefore the actual application of preventive damages and the extent thereof will still be left to the discretion of judges.

More info: Tambet Toomela

The article was published at Äripäev, 8.07.2011