© Springer International Publishing Switzerland 2015Ewoud Hondius and André Janssen (eds.)Disgorgement of ProfitsIus Comparatum – Global Studies in Comparative Law810.1007/978-3-319-18759-4_8
8. Disgorgement of Profits in Portugal: A Journey Between the Present and the Future
Lisbon School of Law, Catholic University of Portugal, Lisbon, Portugal
Henrique Sousa Antunes
In Portuguese private law, as it happens in other legal systems in continental Europe, the removal of the benefits obtained by the injuring party as a result of his committing the unlawful act do not fall within the scope of civil liability. In general, the restitution of patrimonial advantages obtained via intervention in the legal rights of another has been dealt with in law according to the rules of unjust enrichment. However, in our view, there is a relationship between the presuppositions of civil liability and the recognition of the duty to disgorge illegal profits and, even, of punitive effects. According to Article 496 (1) of the Portuguese Civil Code, any non-patrimonial damage which, due to its severity, warrants legal protection is indemnifiable. We advocate that a relevant non-patrimonial damage occurs whenever an economic benefit for a third party is the result of the culpable sacrificing of rights of the injured party. It is damage which is born out of a rupture in the fair patrimonial relationship between individuals. Compensation for this damage may only, naturally, be achieved by passing into the sphere of the injured party the advantages that the third party obtained unlawfully. The restitution of profit as a consequence of civil liability is nothing more than complying with the need to satisfy the injured party, both with regard to the fixing of compensation for other non-patrimonial damage, and in the autonomous restoring of the situation prior to this harm.
KeywordsDisgorgement PortugalRestitution PortugalDamages PortugalUnjust enrichmentNegotiorum gestioNon-patrimonial damagesPunitive damagesAdministrative offencesPrivate enforcement
Professor at the Lisbon School of Law of the Catholic University of Portugal.
The Alleged Missing Link Between Civil Liability and Disgorgement of Profits
The debate as to the pertinence of the means for remedying the consequences of harmful action has been widely discussed in the writings on civil liability within the Anglo-Saxon legal systems. There is a somewhat different scenario in the legal orders from the Roman-Germanic family, where harm constitutes the presupposition and the limit of the agent’s obligations. Review of the reach of fault, reinterpretation of causation and re-examination of the concept of relevant harm are themes which have been the primary focus of attention of these legal systems, in which the issue of the conditions of liability is given precedence over the remedies that this justifies.
In Portuguese private law, as it happens in other legal systems in continental Europe, the removal of the benefits obtained by the injuring party as a result of his committing the unlawful act do not fall within the scope of civil liability. In the words of Júlio Gomes1: “(…) when the party committing the unlawful act gains profit from his conduct which is greater than the harm caused, the legal theory which is clearly dominant in the civil law countries shrugs its shoulders, in resignation, and repeats, as if evident, the principle that the obligation to indemnify may not be transformed into a source of enrichment for the injured party. In the expressive words of Pereira Coelho one injustice should not be committed in order to avoid another”. Unlawfulness does not pay. The principle that one who engages in illegal behaviour should not benefit from this conduct is common to all areas of Law.2
There are very few legal situations which allow the judge to consider the economic advantage gained as a result of the practice of the harmful action in his calculations of the indemnity. This basically occurs in situations where there is an undetermined level of damage, in some cases, via the transposing of European legislation.
This is what happens, particularly, in the field of compensation for non-patrimonial damage. Article 496(1) of the Portuguese Civil Code rules on this issue. The law refers to any damage which, due to its severity, warrants protection under the law, and it lays down that, by reference to the criteria of Article 494 of the same Civil Code (on the reduction of indemnity in the case of mere recklessness), the amount due is established equitably, considering the level of fault of the injuring party, the economic situation of both parties and the other circumstances in the case. There is no limit in the legislation regarding the type of non-patrimonial damage to be compensated, and the judge is responsible for assessing the seriousness of the harm which has occurred. In a Judgment of the Coimbra Court of Appeal issued in 5 June 1979, one may read that serious damage “is considerable damage, which, at least, reflects the intensity of pain, of anguish, of heartbreak, of moral suffering which, according to the rules of experience and good sense, one cannot be required to resign oneself to”.
The Portuguese courts base their decisions, with some consistency, on the simultaneously compensatory and punitive nature of the indemnity provided for in Article 496. In line with this classification, which is, in fact, permitted by the criteria set out in Article 494, the advantage obtained by the injuring party via the practice of the harmful act forms the basis for some compensation for non-patrimonial damage, namely regarding infringement of the right to privacy and the right to honour, credit and good name. Thus, the Supreme Court of Justice ruled in 12 January 2000 that “profit from sales achieved at the expense of including material which offends the dignity of the persons concerned, as well as the economic capacity of the respondents” should affect the calculation of the indemnity claimed.
Profit is also considered in Article 73(3) of Decree-Law No. 236/98, of 1 August, on the subject of protection of the aquatic environment: where it is not possible to accurately quantify the damage caused, the judge, using fairness criteria, should establish the amount of the indemnity, considering, in particular, the harm to the environment, the estimated cost of restoring the situation prior to the practice of the harmful act and any possible economic gain obtained as a result of the infringement.
According to Article 211 of the Code of Copyright and Related Rights, “when determining the amount of indemnity for loss and damage, whether patrimonial or non-patrimonial, the court should pay attention to the profit obtained by the infringing party, to the lost profits and resulting harm suffered by the injured party and the costs borne by the latter in order to protect the copyright and related rights, and also to investigate and cease the conduct which harmed his right” (paragraph 2) and “when calculating the compensation due to the injured party, it should pay attention to the amount of the proceeds derived from the unlawful conduct of the infringing party, namely from the performance or performances which have been unlawfully held” (paragraph 3). Article 338-L (2) and (3) of the Industrial Property Code also provides in the same sense.
In this context, it is worth highlighting Law No. 83/95, of 31 August, on the right of popular action in civil liability. The passing of this law provided the civil law with the means of overcoming its proverbial lack of efficacy in compensating harm to diffuse interests or to homogeneous individual interests or rights. Interests protected by the Constitution, such as public health, the environment, quality of life, consumers’ rights, cultural heritage and the public domain (Article 1(2)) justify the specific nature of the intervention, due to the nature of the protected interests or the lack of proportion between the individual impact of the harm and the collective repercussions of the damage. In this last case, the classic substantive and procedural forms of civil liability prove to be inadequate regarding compensation that only acquires expression when, due to the nature of the characteristics they take on, it is possible to combine them into a single sum.
The damages actions provided for in Law No. 83/95 relate to damage caused to transindividual and indivisible rights (for example, harm to the natural environment, which benefits all the persons in a community, due to the discharge of pollution by a company) and harm, with a common origin, to individual rights (personal or material damage suffered by the members of the aforementioned community).
Once the action has been admitted, Article 22(2) of the law in question provides that compensation shall be fixed globally. Given that the harm has evident social repercussions and, also, that the lack of determination of the damage is innate to compensation of supra-individual rights or interests, we are of the opinion that the obligation to compensate should, in this situation, follow a clearly preventive function. In this context, and regarding homogeneous individual interests, Miguel Teixeira de Sousa writes3: “(…) the rules on popular action, when they define a global compensation which is intended to be shared by the injured parties, (…) are more concerned with preventing the injuring party from gaining any advantage from the harmful act than with ensuring that each of those injured parties is really compensated in the exact measure of the loss suffered. The global compensation seeks to distribute the injuring party’s gains among the injured parties, although the result of this may be a certain breach of corrective justice, since this distribution cannot guarantee that all the damage suffered is effectively compensated in its exact amount. In order to quantify the global compensation the (global) gain obtained by the injuring party is used more than the (equally global) loss inflicted by him, which means that in quantifying it the criterion of restoring the hypothetical situation which is established in Article 562 of the Civil Code is not followed”.
Lastly, it is of interest to refer to the rules contained in Article 1271 of the Civil Code, on the fruits of possession in bad faith: “The possessor in bad faith shall restore the fruits that the thing has produced up to the end of the possession and respond, in addition to this, for the value of those that a diligent owner could have obtained”. The law determines that the gains are restored and punishes the agent with the duty of handing over the amounts which correspond to a diligent action. In both cases, this is regardless of the alternative behaviour of the owner.
The Traditional Framework for the Disgorgement of Profits
In general, the restitution of patrimonial advantages obtained via intervention in the legal rights of another has been dealt with in law according to the rules of unjust enrichment. This is what happens with the unlawful use of certain personal rights or immaterial rights. This understanding is summarised by Manuel Carneiro da Frada4: “(…) the sensitive task of eliminating the profit obtained by the party committing the unlawful act already falls, in theory, to unjust enrichment, although the idea of prevention may also corroborate the need for that elimination in the form of civil liability. The distinction between the two institutions will be difficult to establish in some cases, but it is important to respect it: we may note that disgorging the profit does not present any intrinsic connection of meaning with the idea of prevention in the form of liability for damage. Since what is at issue is the interference by the party committing the harm with rights which grant a reserved sphere of action to their holder (rights of exclusivity), the doctrine of allocation (Zuweisungsgehalt) will be charged with justifying, according to the principles of unjust enrichment (and not forgetting here the rules of the arrogated management of another’s affairs), the obligation to disgorge the profits obtained as a result of the harm”.
Much has been written on this subject, and there appears to be a predominant opinion which is inclined towards restricting the obligation to disgorge to the impoverishment, if this is less, or, according to those who do not agree with this limit, to the amount which corresponds to the market value of the good that the debtor has unlawfully appropriated. In support of this latter idea, Luís Menezes Leitão writes5: “(…) what should be restored is always the value of the exploitation and not the patrimonial gains of the intervener. The restitution of the patrimonial gains obtained by the intervener is an admissible solution within the frameworks of the arrogated management of another’s affairs, but it does not correspond to a solution provided for within the scope of unjust enrichment. It is sufficient to confirm that, in Article 479 (of the Civil Code), there is only an obligation to restore that which has been obtained at the expense of the impoverished party and not the profits obtained by the enriched party”.6
The disgorgement of profits resulting from the interference in the proper order of things is, therefore, governed by recourse to other institutions, namely to the law on negotiorum gestio or, in more serious situations, to rules provided for in criminal law or the law of administrative offences. The legitimacy for applying the rules on the benevolent intervention in another’s affairs is found in the interpretation of Article 472 of the Civil Code, on the management of another’s affair in the mistaken belief it is one’s own. Thus, Júlio Gomes writes7: “We believe that the possibility granted therein to the principal to approve the management and call for the gains made by the “manager” will apply, and all the more so, to whoever has acted with wilful intent”.
The proposals appear to be clearly unsatisfactory, for a number of reasons.
In the first place, obtaining an advantage of a patrimonial nature at the expense of a third party does not always correspond to the use of the right of another which may be assessed in monetary terms. This is the case, for example, with an environmental disaster which, caused by an ill-considered business decision to reduce costs, has led to serious physical injury to members of a given group. Manuel Carneiro da Frada highlights this difficulty, by means of another example8: “In the situation (…) of gains obtained by a magazine as a result of its defamation of someone, the doctrine of allocation presents certain difficulties since this is not, obviously, a case of taking advantage of the benefits of a right reserved to its holder and from whom these have been deflected. Here it appears that the disgorgement of the profit may be based on the idea, which is persuasive and easy to formulate, but which it is not easy to include within a simplifying theory of the enrichment in question, that nobody should be allowed to keep for himself the gain from an unlawful act which he has committed. In any case, it seems that this obligation to disgorge the profits depends on the fault – on the type of fault -, it being plausible in the case of wilful intent. This means we are confronted with the preventive and punitive functions of the actual unjust enrichment”.
Secondly, the fiction on which the recourse to the law on negotiorum gestio is based transforms it into a fragile basis for the injured party’s claim for restitution. The duties of the principal to waive his right to compensation, to reimburse the intervener for the expenses incurred and to compensate him for the loss he has suffered (Article 469 of the Civil Code) are somewhat of a paradigm.
Thirdly, the decision to disgorge, in whole or in part, the gain resulting from the unlawful act may also be conceived as a natural effect of civil liability. This is our own theory, which will be described below.
Lastly, the legitimacy that the State gives itself and other public and private entities to receive benefits obtained from the practice of crimes and administrative offences is open to question. This receipt should respect the subsidiarity of heteronymous intervention in private legal relations. In continental Europe, the legislator and case law have given civil liability the role of protecting personal rights, involving methods which, implicitly, frustrate, either totally or partially, the practical effects of criminal law or administrative law. Although the phenomenon of conforming civil law to constitutional law, or, even, of the immediate regulation of private legal relations by constitutional law, appears to be more extensive, the use of civil liability via the principle of effective protection of fundamental rights has the characteristic of being one of its most significant expressions, without prejudice to the limits that other principles impose on it.
It should be highlighted that, in Portuguese law, Article 18(2) of the Administrative Offences Act lays down that “if the agent gains from the infringement an economic benefit which can be calculated as being higher than the upper limit of the fine, and there are no other means to eliminate it, the latter may be raised up to the amount of the benefit, although this increase may not be more than one third of the upper limit established by law”. The fine may, therefore, not actually disgorge the gain. Given that the determination of the sanction also depends on the seriousness of the administrative offence, the fault and the economic situation of the agent (Article 18(1)) it is possible, at least in theory, to calculate an amount which, inclusively, is below the established upper limit.