THE AUTHORS:
Michelle Donovan, Associate at Clyde & Co
Marina Sanjuán, Associate at Clyde & Co
Clyde & Co’s Young Arbitration Group provides a unique insight into international arbitration issues through the lens of young international arbitration practitioners working across different jurisdictions. In this series with Daily Jus, Clyde & Co explores the evolving landscape of damages in arbitration, analyzing recent developments, legislative changes, and their impact on dispute resolution worldwide.
Damages are a fundamental aspect of international arbitration proceedings. Success in a case depends not only on prevailing on legal arguments, but also on proving the existence and extent of the damages suffered. A strategic focus on damages from the outset of a case can significantly impact its outcome, potentially making a difference of millions of euros.
France holds a central position in the landscape of international arbitration. This article examines how damages are treated in France, focusing on key legal principles, types of damages, and the treatment of interest.
Determining the Applicable Law
Under French law, parties have the autonomy to select the law applicable to their dispute. If the parties remain silent, the arbitral tribunal may apply the law it deems appropriate, pursuant to Article 1511 of the French Code of Civil Procedure. In the French legal system, damages are governed by the law applicable to the substance of the case. In practice, this usually implies that arbitral tribunals apply the law of the contract to damages in contractual claims.
Importantly, the tribunal’s choice of applicable law does not, in itself, constitute grounds for setting aside an award. Such matters fall within the scope of a review on the merits (révision au fond), which is expressly prohibited in annulment proceedings. However, an exception exists where the tribunal disregards the law expressly chosen by the parties. In such cases, this may amount to a violation of the tribunal’s mandate and justify the annulment of the award (see, Paris Court of Appeal, 10 March 1988, Rev arb 1989, 269).
Compensatory Damages
Pursuant to Article 1217 of the French Civil Code, remedies for breach of contract include both specific remedies (réparation en nature), such as performance or termination, and remedies in the form of damages (réparation par équivalent). While French law does not establish any hierarchy between these remedies and allows the creditor to choose or even combine them, in practice, damages are awarded in the vast majority of cases.
These damages may take various forms and serve different functions. French contract law distinguishes between compensatory damages (intérêts compensatoires) and default interest (intérêts moratoires). Compensatory damages serve to provide the creditor with the monetary equivalent of the unfulfilled contractual obligation, while default interests compensate for delays in performance.
Article 1231-2 of the French Civil Code provides that compensatory damages generally cover both actual losses incurred (damnum emergens) and losses of expected profits (lucrum cessans). The French Court of Cassation upholds the principle of full compensation (réparation intégrale), which mandates that all losses caused by the breach must be compensated (no more, no less) to restore the injured party to the position it would have occupied but for the breach (Cass. 3e civ., 30 January 2025, No. 21-14.158; Cass. 2e civ., 23 January 2003, No. 01-00.200). In contractual liability, this is better understood as the principle of equivalence, which entitles the creditor to full compensation for all foreseeable losses directly caused by the breach (Article 1231-3 of the French Civil Code; Cass. com., 17 March 1987, No. 85-15.711). To succeed in a claim for compensatory damages, the injured party must therefore prove that the damages are personal, direct, certain, lawful, and foreseeable at the time the contract was formed.
French law recognizes three main categories of damages that may give rise to compensation, covering both pecuniary and non-pecuniary losses:
- Material or economic damages are the most common type awarded in contractual disputes. They refer to losses affecting the creditor’s financial or patrimonial interests.
- Physical damages are more typically associated with tort claims but are conceptually recognized within the broader framework of compensation. These include both monetary losses, such as medical expenses or lost income, and non-monetary losses, such as compensation for pain and suffering.
- Moral damages concern harm to non-material interests, including emotional distress, reputational harm, violations of privacy or honor. Under French law, such damages may be claimed not only by individuals but also by legal entities (Cass. com., 15 May 2012, No. 11-10.278).
Parties may agree to exclude or limit damages through liability clauses (Article 1231-3 of the French Civil Code; Cass. civ., 24 January 1874, DP 1876. 1. 133). However, these clauses are not absolute: they may be invalidated in consumer contracts or if they undermine essential contractual obligations or create a significant imbalance between the parties’ rights and obligations (Article R. 212-1, 6° of the French Consumer Code, Articles 1170 and 1171 of the French Civil Code).
French law does not require the injured party to mitigate damages to claim compensation, but any fault on the part of the injured party may reduce the compensation awarded.
Establishing damages requires more than simply proving the damage; it also necessitates demonstrating a breach of contractual obligations and a causal link between the breach and the resulting damage. Additionally, Article 1231 of the French Civil Code mandates that the creditor issue a formal notice (mise en demeure), except when non-performance is definitive, i.e., when it is no longer possible to remedy the breach.
Non-Compensatory Damages
The French Civil Code does not explicitly address non-compensatory damages.
- Punitive damages are traditionally not awarded under French law, as they are considered incompatible with the principle of réparation intégrale. Nonetheless, some commentators note that courts may exercise broad discretion in assessing harm and occasionally award damages exceeding the actual loss (Cass. ch. mixte, 6 September 2002, No. 98-22.981; Cass. 2e civ., 21 December 2006, No. 04-13.567). A significant development occurred with the entry into force of Article 1254 of the French Civil Code on 3 May 2025. This new provision allows judicial or administrative courts to impose civil penalties in cases of deliberate professional misconduct aimed at obtaining undue profit, where multiple victims are harmed. It remains uncertain whether this provision could apply in arbitral proceedings, as it explicitly refers to state courts. Even so, arbitral awards, including those with punitive damages, may be enforced in France, provided they do not violate French international public policy. While case law on setting aside or enforcing such awards remains limited, decisions on the recognition of foreign judgments offer guidance. In particular, the French Court of Cassation has held that foreign judgments awarding punitive damages are not inherently contrary to French public policy but may be refused enforcement if the amount awarded is manifestly excessive in relation to the harm caused (Cass. 1e civ., 1 December 2010, No. 09-13.303).
- While French law does not recognize punitive damages, it does allow parties to include penalty clauses (clauses pénales) in contracts, which may serve a punitive function by fixing in advance a lump sum payable in the event of breach. Under Article 1231-5 of the French Civil Code, judges or arbitral tribunals may revise the agreed amount if it is manifestly excessive or derisory. For example, the French Court of Cassation upheld the reduction of a contractual penalty to a symbolic one euro where the original amount was deemed excessive (Cass. com., 11 February 1997, No. 95-10.851).
- Restitutionary damages, which aim to recover benefits obtained through a wrongful act regardless of whether the other party suffered a corresponding loss, are generally not awarded under French law, as they risk resulting in unjust enrichment. An exception exists in intellectual property law, where the French Intellectual Property Code, implementing Directive 2004/48/EC, permits restitutionarydamages in certain cases (Articles L331-1-3, L521-7, L615-7, and L716-14 of the French Intellectual Property Code).
- Nominal damages, which are awarded when a wrong has occurred, but no actual loss is proven, are likewise generally not recognized under French law, as they conflict with the principle of réparation intégrale. The French Court of Cassation has held that damages must reflect the real and complete harm suffered, not a symbolic sum (Cass. 1e civ., 21 November 2018, No. 17-26.766). However, an award of one euro may be permitted if it fully compensates a limited but genuine patrimonial loss, rather than merely sanctioning a rights violation without any actual damage.
Interests on Damages Awarded
Under French law, interest on damages is an important mechanism to ensure the effective compensation of the party entitled to damages. It both preserves the value of the awarded sum over time and compensates for any loss caused by late payment.
As a general rule, default interest (intérêts moratoires) on monetary obligations begins to accrue from the date of formal notice of default (Article 1231-6 of the French Civil Code). When a sum is awarded by judicial decision, interest accrues automatically from the date of the decision, unless the judge decides otherwise (Article 1231-7 of the French Civil Code). This rule extends to arbitral awards, which are treated as having a judicial nature under French law (Paris Court of Appeal, 18 January 2001, Rev arb 2002.935; Cass. 1e civ., 30 June 2004, Nos. 01-10.269, 01-11.718)
The applicable interest rate depends on the parties’ agreement. If a contractual rate has been stipulated, arbitral tribunals will apply it. In the absence of such agreement, the French statutory interest rate applies, which is set biannually by decree. The rate varies depending on the creditor’s status (Article L.313-2 of the French Monetary and Financial Code). For example, for the first half of 2025, the interest rate stands at 7.21% for natural persons not acting in a professional capacity, and 3.71% in all other cases.
French law also permits capitalization of interest, known as anatocism, which allows accrued interest to bear interest. This is allowed only where explicitly agreed by the parties or ordered by the tribunal, and only for interest that has accrued over a period of at least one year (Article 1343-2 of the French Civil Code). In ICC Case No. 24954/DDA, the tribunal awarded post-award interest compounded annually at the French legal rate, considering it appropriate to encourage timely payment.
Another mechanism available under French law is the astreinte, a periodic financial penalty ordered by a tribunal to compel compliance with an arbitral award. The Paris Court of Appeal has confirmed that arbitral tribunals are entitled to include an astreinte in the dispositive part of an award and are not required to provide specific justification (Paris Court of Appeal, 12 January 2021, No. 17/07290). However, once the award is issued, only state courts have the authority to determine the amount of the astreinte payable (Paris Court of Appeal, 11 October 1991, Rev arb 1992.625).
Conclusion
As French law is often chosen as the governing law in international commercial contracts, it is important for parties to understand how damages are assessed under that legal framework. Generally, arbitral tribunals applying French law have broad discretion in determining the appropriate remedy and the amount of damages.
ABOUT THE AUTHORS
Louise Sura is a French-qualified lawyer specialising in international arbitration and arbitration-related litigation. She has experience in both commercial and investment arbitration under the rules of major institutions (e.g. ICC, ICSID, UNCITRAL, DIS, DIFC-LCIA), with expertise across industries such as energy and natural resources, mining, and construction. She is based in Clyde & Co’s Paris office.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
