Punitive Damages Due to Failure to Inform

Tribunal II of the Court of Appeals in Civil and Commercial Matters of Azul (the “Court of Appeals”) recently ordered Whirlpool Argentina S.A. (“Whirlpool”) to pay AR$11.000 for punitive damages, plus AR$6,000 for moral damages.

The claim was filed by the purchaser of a refrigerator that was advertised as being made in USA, who later discovered that the refrigerator’s motor was Brazilian-made, a situation that had not been informed by the supplier.

Whirlpool filed different motions and defenses, the most important one being that the determination of the refrigerator’s origin (“made in USA”) was done in accordance with the specific legal framework in force, which makes reference to the country in which the product was assembled.

The Trial Court’s decision granted the complainant and awarded the payment of AR$7,000, plus interest, for moral damages, and AR$3,000 for punitive damages. It took into account that plaintiff had no way of knowing that the motor was Brazilian, which is the reason why the Trial Court considered that the information should have been provided by defendant before the purchase, and that as a consequence of the subsequent break down of the motor, plaintiff was unable to use the refrigerator during ten months, until it was repaired by defendant.

Both parties appealed. The Court of Appeals substantially upheld the Trial Court’s decision. Given that the case was settled in the context of a consumer relationship, the defense attempted by Whirlpool regarding its limited participation in the case’s facts was rejected, because the notion of “supplier” in the Law is broad.

Regarding the generic duty to inform provided in the Consumer Protection Law, which the tribunal considered breached, the most striking part of the decision is that it acknowledges that, according to the Customs and the Fair Trade Laws, the refrigerator is North American, and that this circumstance was consequently certified by the General Customs Directorate. These laws lay down that if a good is manufactured in a sole country, even if that is done with the complete or partial contribution of supplies from another country, it is deemed to have originated in the country in which the assembly was carried out.

Thus, even though the specific legal framework determines that the refrigerator is North American, the Court of Appeals is of the opinion that the information was not correctly disclosed to plaintiff, nor properly inserted into advertising brochures. According to the Court of Appeals, the information was relevant because it regarded one of the product’s central parts (its motor) and should have been provided in due time because it is one of the “aspects of the commercial operation that the consumer has no obligation nor means to know”.

In other words, although the Court of Appeals reached the conclusion that Whirlpool fully complied with the laws that regulate the import of products and that determine their origin, this compliance does not release it from fulfilling the duty to inform that is typical of a consumer relationship.

As to punitive damages, the Court of Appeals made reference to the different known precedents and the majority of legal scholars’ opinion which require, regarding the subjective element necessary for the existence liability, the presence of a “deliberated conduct, gross fault or intentional misconduct, gross negligence, recklessness, a conduct close to malice”. However, the decision does not point out how Whirlpool’s conduct satisfies these requirements, and limits itself to stating that defendant misled plaintiff regarding the product’s identity, in addition to reproaching the defense strategy it undertook during the administrative and judicial proceedings.

Regarding the objective element, the Court of Appeals held that the conduct must “cause damages that exceed a minimum floor or threshold, that imply, due to their social gravity, institutional repercussion.”

In order to establish the amount of the punitive damages to be awarded, the Court of Appeals took into special consideration the fine imposed by the Administration and the need to avoid an excessive punishment.