The second area in which U.S. punitive damages come into conflict with the European legal systems is the field of applicable law. When a dispute containing cross-border elements is brought before a court of an EU Member State, the court will first establish whether it has jurisdiction to adjudicate the matter. If the answer is positive, the court then needs to determine what jurisdiction's law will apply to the case. The judge will look at the forum's private international law rules to select which country's laws will apply to the lawsuit. This is, mostly in the United States, referred to as the choice-of-law analysis.
When the private international law rules point to the application of American law (i.e. federal law or the laws of one of the states), it is possible that the designated law provides for punitive damages. At that point the penetration of foreign punitive damages into Civil Law is imminent. The question to be answered is whether the court will apply that foreign rule or will dismiss it for contrariety to public policy. This issue will be addressed in this chapter.
THE CONCEPT OF PUBLIC POLICY
Both public policy and its cognate notion of international public policy were briefly mentioned in chapter 2. It was explained how the escape provision in article 13.1 of the Hague Service Convention is to be construed very restrictively and is, therefore, closely related to the narrow notion of international public policy. The escape clause allowing for refusal of service can certainly not be equated to the broader domestic public policy.
As the public policy mechanism plays a prime role in the private international law arenas of applicable law and enforcement of judgments, it deserves further elaboration. The notion of public policy or ordre public refers to the common core of principles that are vital for the effective operation and social acceptance of a legal system. It reflects the fundamental socio-economic and moral values of a society. It has both a procedural and a substantive dimension. For punitive damages the latter is usually the most relevant of the two.
Private international law cases, however, deal with a more restricted form of public policy, namely international public policy. The latter is, despite the name, a purely national concept.