The notions of consequential, special, incidental or punitive damages traditionally do not belong to the French civil and/or commercial law. Their use in contracts subject to French law often raises difficulties and uncertainties, if they are not very precisely defined by the parties.
French civil law does not give a specific meaning to consequential damage and consequential loss. However, these terms are currently not completely unknown under French law.
French civil law traditionally distinguishes between (i) direct and indirect damage and (ii) tangible and intangible damage.
The distinction between direct and indirect damage
According to Article 1231-4 of the Civil Code, the indemnification of a contractual breach shall be limited to damages which are the immediate and direct consequence of the breach. Therefore, the indirect costs are only indemnified if, and insofar as this results from an agreement between the offender and the victim.
Under French contract law, the question of whether the prejudice is direct or indirect is a matter of causal link. Therefore, a prejudice directly caused to a party should be qualified as “direct” under the meaning of Article 1231-4 of the Civil Code. Conversely, indirect damages are the damages which are too far from the chain of the circumstances to be linked to the breach, as well as indirect victims which are damaged by rebound.
Even though the principle is rather simple, no objective definition allows to determine in advance, with absolute certainty, which prejudice shall be considered as direct or indirect by the courts: it depends on the context of the contract, on the parties, and on the breach itself.
The distinction between tangible and intangible damage
Pursuant to Article 1231-3 of the Civil Code, the indemnification resulting from a contractual breach is limited to breaches that were expected or could have been expected at the execution date (this is obviously different in tort). However, it is not limited to tangible damage: loss of profit, which is intangible, is for instance included. That said, it is always possible to agree on the exclusion of intangible damage, especially when formally signing a contract before the damage occurs.
This difference between tangible and intangible damage is not defined by law. Historically, a distinction was set between tangible damage (préjudice matériel) and psychological damage (préjudice moral). The concept of intangible damage is relatively new and comes from insurance practice, rather than from laws or regulations. It is now more widely used in contractual practice, also due to the use of templates drafted under English Law, even though no harmonised definition exists. The contracts therefore usually list examples.
In view of case law resulting from practice and legal doctrine, it seems that tangible damage under this meaning is typically defined as damage to property – meaning the costs to make good this damage. Conversely, any damage which does not fall within this definition should normally be considered to be intangible damage.
Not every kind of loss can be recovered under French law and compensation is limited by virtue of articles 1231-3 seq. of the Civil Code, as interpreted by the French courts and as set out below:
- the loss must be certain – the loss suffered and the lost profit must be certain and not hypothetical – this does not exclude future losses that are certain nor missed opportunities, provided it can be demonstrated that there was a real opportunity;
- the loss must be foreseeable – article 1231-3 of the Civil Code limits the recoverable damages to losses which have been foreseen or foreseeable by the parties when entering the contract (save in case of fraud); and
- the loss to be recovered can be limited by the parties – compensation must be limited to the amount provided for in the contractual limitation of liability clause unless it is manifestly excessive or derisory.
Under construction law, the terms “dommages consécutifs” are sometimes used by the doctrine, in order to designate the damage to equipment resulting from a defect affecting the solidity of the construction works and which are covered as accessory damage under the legal decennial guarantee. In this respect, both tangible and intangible damage may be indemnified, as damage accessory to the decennial guarantee, subject however to the demonstration of a direct link of causality between the disorder affecting the works and the damage. The damage resulting in disturbance of possession may also be included in this respect.
There is therefore no general theory of consequential loss or consequential damage under French law, neither from civil law which does not conceptualise these terms, nor from specific laws. The latter, even though they use these terms, do not define them – or they do so by reference or with different meanings, sometimes as a synonym for indirect damage, otherwise in order to designate a damage which, even though direct, is an accessory damage.