A recent decision of the First Chamber of the Supreme Court has established that compensation for damages suffered by a person or company must be determined by the judge on a case-by-case basis. Consequently, indemnity capped by law is unconstitutional. Although it is not mandatory for judges to follow this decision, it is persuasive and provides guidance on the court's views with respect to the importance of fully compensating for damages suffered.

The decision states that the right to receive full compensation for damages suffered is a substantive right and may not be limited without good cause. To reach the decision, the court considered the criteria set forth by the Inter-American Court of Human Rights, which provides that the right to full compensation allows for (to a certain extent) the annulment of negative effects of an illicit act and contributions to be made for the restoration of the previous state. In cases where such restoration is impossible, the aggrieved party is entitled to fair compensation for the damages suffered.

In this vein, fair compensation must be calculated in light of:

  • the extent of the damage suffered;
  • the nature of such damage; and
  • the circumstances of the aggrieved party.

Further, the circumstances of the offender are irrelevant to the determination of the amount of indemnity. The underlying reason for this is that the aggrieved party is entitled to receive only a sufficient amount to compensate for the damage suffered, not an amount that allows the aggrieved party to benefit from the damage. In other words, an indemnity must cause no enrichment or impoverishment of the aggrieved party.

The decision also establishes that since such calculation is made with variables that change on a case-by-case basis, it is neither possible nor fair to establish a cap for the amount that may be granted as indemnity for a specific damage; to do so would be inappropriate, considering that the extent and nature of the damage are different in each case – but more importantly, the circumstances of the aggrieved party are unique.

In light of such considerations, the court concluded that the amount of compensation due to the aggrieved party in liability cases must be set by the judge, as he or she is the only one acquainted with the circumstances of the case and thus the only one qualified to determine the amount. Therefore, any limitation on compensation for damages established by law is contrary to justice and equity – and, as a result, is unconstitutional.

In addition to the general rule in the Federal Civil Code which provides that damages must be an immediate and direct consequence of the failure to comply with a given obligation, this decision is an important precedent for providing additional parameters on the calculation of compensation for damages and for determining the extent of the offender's liability.

For further information on this topic please contact Luis Enrique Graham or Angelica Huacuja at Chadbourne & Parke by telephone (+52 55 3000 0600), fax (+52 55 3000 0698) or email (lgraham@chadbourne.com or ahuacuja@chadbourne.com).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.