Punitive Damage in the Draft Bill of the Consumer Protection Law Reform

As informed in the article titled “Preliminary Reform Bill of Consumer Protection Law” within the draft bill of the comprehensive reform of the Consumer Protection Law No. 24,240, which was submitted to the Argentine Justice and Human Rights Ministry in December 2018 (the “Draft Bill”), intends, among other issues, to reform the currently regulated punitive damage comprehensively. Below we will analyse the more substantial changes which are suggested.

The concept of punitive damage was included to  Law No. 24,240 in 2008, through the enactment of Law 26,361, having included the text of section 52 bis, which is currently in force.

As per the text of that article, punitive damage is understood as a civil fine which can be imposed by the judge on the provider who breaches legal or contractual obligations in relation to the consumer. The consumer is  the only party authorized to request such fine and the only recipient of the amount which the provider would have to pay.

The Draft Bill treats the punitive damage in a separate chapter, named “Punitive Sanction”, consisting of only one Section,  number 118, which regulates this sanction. In addition, it is treated as a “punitive sanction for gross disparagement for the consumer’s rights”.

The legal sources used by the authors to write this article are both Argentine and foreign.

National legal sources: Current Section 52 bis of  Law 24,240 incorporated by the Law 26,361, the parliament debate of such law, the 2012 Draft Bill of the Civil and Commercial Code and the current text of the Civil and Commercial Code.

Foreign legal sources: Legislation and legal opinion from United States of America and  section 1266  of  the draft bill of the Civil Liability Reform issued by the French Justice Minister on March 2017.

The main changes proposed regarding the current system of section 52 bis of Law No. 24.240 and taking into account not only the text of the Draft Bill, but also its author’s opinions are:

Name: It is no longer called a “civil fine” , but “punitive sanction”, to show the penalizing purpose and, simultaneously, the purpose to prevent and dissuade repetition of this type of behaviour.

Facts required: Currently the law requires as factual requirement the breach of a legal or contractual obligation by the provider in relation to the consumer. On the other hand, the Draft Bill requires that the provider acts with gross disparagement for the consumer’s rights. As per the authors’ opinion, it was clarified that this means that the configuration of a subjective factor of attribution of the liability is required, such as malice, indifference or gross negligence from the provider in connection to the generated damage.

Active Legitimation: The intention is to make it broader, as the Draft Bill includes not only the damaged consumer as the only legitimate party to request this sanction, but also extends that legitimation to the Prosecutor Office and to the judge, who can impose the sanction ex officio (after informing the possibility of that imposition to the provider once the claim has been initiated). In class actions, all parties who may initiate them are also included. This was justified by the principle that the sanction exceeds the particular interests of the consumer, as preventing these behaviours is in the public interest too.

Graduation: In addition to the “gravity of the act” and “other circumstances of the case”, which are the guidelines considered by the law in force the following guidelines  are also included to graduate the amount of the sanction: social repercussion of the behaviour, benefits that the provider got or could have got, dissuasive effects of the sanction, the assets of the provider, the possibility of the existence of other administrative or criminal sanctions.

Maximum: A fixed amount of ARS 5.00.000 is currently set, whereas in this Draft Bill the maximum is the highest of the following alternatives: i) 5.000 Minimum Salaries (currently ARS 62.500.000), or ii) 10 times the profit obtained by the provider as a result of the illicit act, i.e. from one side an amount with its own updating system and from the other side, an amount related directly with the profit obtained or to be obtained by the provider, the highest one.

Destination of the sanction: As per the current system, the amount which results from the imposition of the sanction only benefits the consumer, while the Draft Bill proposes that the judge would decide on the final destination of the sanction payment, through a justified resolution. The Draft Bill gives the judge the possibility to choose the sanction destiny –totally or partially- the damaged consumer or other entities (such as charities or specific funds). In addition, it clarifies with examples, which subjects are the ones to be taken into account by the judge to decide the destiny of the sanction: if it was imposed ex officio or It was requested by one of the parties, who was the legitimate who requested it, the litigation behaviour of the consumer, the situation of the consumer (in consideration of the “hyper vulnerability”), the type of interests affected and if it is a class action or an individual one. Finally, it clarifies that the idea to change the current system which is based on the fact that it discourages the imposition of high amounts due to the fear of the judges to generate an excessive enrichment of the consumer.

Joint liability: A joint liability system of all the providers is currently set when more than one is liable for the breach. However, the Draft Bill proposes a joint liability system only when the providers who are authors of the behaviour which caused the punitive sanction are more than one. The idea is to avoid joint liability in charge of the whole production and commercialization chain, limiting this only to the authors of the sanctioned behaviour.

Prohibition of Insurance: In addition, the Draft Bill adds the prohibition for the provider to insure the burden of paying this punitive sanction. The intention is to enforce the dissuasive aspect of the sanction .