Punitive Damages: well-known in the United States but unrecognized in the Netherlands

High punitive damages are one of the aspects of U.S. law that attract a lot of attention. In the Netherlands punitive damages will not be awarded. This should be taken into account by Dutch companies that are active in the U.S. and American companies that file a claim in the Netherlands.

Russell Advocaten is the exclusive member in the Netherlands of Primerus, the network of the world’s finest law firms. Our lawyers and the lawyers of Mateer Harbert in the United States have joined forces to write a series of comparative law articles. In these articles we discuss important (international) topics for you as entrepreneur from a Dutch and American legal point of view. In the first article we explain why the Dutch and the U.S. approaches to punitive damages differ and what the consequences are for Dutch entrepreneurs that do business in the U.S. and for American companies that deal with the Dutch. If you have any questions after reading the article, please do not hesitate to contact us.

Two approaches

Two cases against one of the largest chemical companies in the world, DuPont de Nemours, Inc. (commonly referred to as DuPont), show the different approaches regarding damages that can be claimed in the United States and the Netherlands.

In a recent, popularly cited American case, Kenneth Vigneron v. DuPont Company, an Ohio jury ordered DuPont to pay $ 10.5 million in punitive damages to Mr. Vigneron. The jury found that DuPont acted maliciously in dumping C-8, a toxic chemical known to cause cancer, into the local water supply. The jury determined that Mr. Vigneron developed kidney cancer due to exposure to C-8.

In the Netherlands, 500 Dutch individuals have claimed compensation of € 50 million from DuPont for years of exposure to toxic chemicals. The claimed compensation consists of damage to health, immaterial damage and the devaluation of their houses. The Dutch court will only award these claims if the actual damage suffered can be substantiated.

How to explain the different approaches to damages in the U.S. case and the Dutch case?

The United States

The United States recognizes both compensatory and punitive damages. Punitive damages impose punishment against a defendant in order to deter not only that defendant, but also others from engaging in similar conduct. Compensatory damages are used to compensate a claimant for his or her loss. In determining awards for punitive damages, actual damage suffered is not taken into account. However, it is important to keep in mind that while punitive damages may be recoverable in some tort actions, they are ordinarily not recoverable in actions for breach of contract. Instead, a contract may contain a liquidated damages clause of its own. This is distinguishable from punitive damages: punitive damages are awarded by a court or a jury, while a liquidated damages clause is agreed upon by the parties to a contract and may be unenforceable if it constitutes a penalty.

U.S. courts generally only award punitive damages where the defendant’s actions are “fraudulent, malicious, deliberately violent or oppressive, or committed with such gross negligence as to indicate a wanton disregard for the rights of others”

Additionally, an award of punitive damages must pass a three-part test to ensure that it is not unconstitutionally excessive under the United States Constitution:

1. The degree of reprehensibility of the defendant’s misconduct;
2. The disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award;
3. The difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in similar cases.

The Netherlands

In the Netherlands, it is not possible for the court to award punitive damages. Only damages actually suffered are eligible for compensation. Due to the problem of proving the damage actually suffered, parties prefer to conclude a contract with each other in which they include a penalty clause. In that case only a violation of the contract has to be proven in order to be entitled to collect the fine that parties agreed upon. Of course, it is possible to include in the contract that (instead of the penalty) parties may claim the actual damage suffered if this amount is higher than the agreed penalty.

When parties do not have a contract, they will have to claim damages based in tort law and will have to substantiate in detail the actual damage suffered (i.e. a concrete amount supported by evidence). If the party cannot substantiate the actual damage suffered, he or she will not be able to claim damages.

Conclusion and Advice

If a Dutch individual or company has a contract with an American company applying the laws of the United States, punitive damages will most likely not be an issue. On the other hand, punitive damages may come into play if a cause of action arises under American tort law, such as personal injury.

On the contrary, if an American individual or company suffers damages in the Netherlands, they will have to substantiate the actual harm suffered in order to claim any damages regardless of whether such damages are based in contract or tort law. Thus, when contracting under Dutch law, it is important to include a penalty clause in order for the contracting parties to have more control over the resulting damages in the event of a breach.

If you need any help determining which law applies to your situation or need additional information related to claiming damages in the United States or the Netherlands, please contact: