The position of the chapter

How does legal science address standardization and monetization? The following chapter tries to explore the subject from a “positivistic perspective” – this means not from the perspective of legal history or legal philosophy, but rather, from a norm-oriented point of view. By adopting this approach, the chapter must face the challenge that standardization and monetization are not judicial concepts in the traditional sense. Accordingly, a clear definition of these concepts does not exist in legal doctrine. However, the chapter adopts a traditional methodological approach of a German law professor who firstly tries to set a definition of the concepts and, secondly, transposes them in some specific areas of life from a comparative and global perspective and, finally, addresses fairness and justice in order to explore their relationship to standardization and monetization.

Let me start by setting some definitions: the common use of the word “standard” implies that it is a generally accepted set of guidelines for interoperability or communication. In the context of social sciences, standardization often describes the process of establishing standards of various kinds, or the process of improving an efficient handling of interactions between men within a society. Seen from the legal perspective, standardization can firstly be defined as a legislative technique which underlies any legal system. Legal systems are aimed at standardizing human and social relations as well as economic exchange. Legal provisions describe and regulate typical transactions within social communities and among economic entities. Typical transactions relate to economic exchange on a contractual basis: the exchange of goods and services, the lending of money, the transfer of property. In this respect, legal provisions define typical exchange situations in economic life, including pathological situations. Standardization is also found in legal proceedings where the unfolding of the process is defined by legal provisions and claim forms which must be used by the court and the parties. Therefore, standardization is the underlying legal technique of any set of legal rules (or codification). In addition, it is often used in modern contracts.¹ Standardization in legal relationships refers to binding norms which are derived from legal provisions or contractual relations.²

In this chapter, monetization is firstly conceived as a (sophisticated) form of standardization, which refers to the use of money instead of a barter exchange. Accordingly, monetization makes economic transactions easier.³ In this respect, monetization directly refers to one of the basic functions of money as a media of exchange.⁴ In addition to this, monetization also reflects the general attitude of modern societies of evaluating most of the individual rights against their monetary value. This corresponds to the function of money as “storage of value”.⁵ Yet, this function is sometimes used for the valuation of non-tangible goods (life, health, freedom) which are not freely available in a liquid market.⁶ Legal literature criticizes this trend as a “commercialization” of personality and other (non-tangible) rights.⁷ In this context, monetization is mainly found in the law of compensation. This specific problem will be explained in more detail by Günter Thomas (Chapter 13 below).⁸

Standardization as a legal technique

Every legal system is based on the standardization of human relations. In this context, standardization simply means the description of repetitive human behavior.⁹Let’s start with the conclusion of a contract as a striking example. Any contract is concluded by the offer of one party and by the acceptance of the other. This mechanism is found in all legal systems which implement the right of the parties to conclude contracts freely.¹⁰ Legal systems which are based on codifications¹¹ provide for explicit provisions defining the persons able to act within the system as well as the method of how transactions within the system are performed. Accordingly, civil codes define who can conclude a contract,¹² as well as the conditions for its conclusion.¹³ Codifications regularly use standardization for setting different types of contracts (sale, gift, lease, loan, contract of service, contract for work and labor, progress contract, mandate, franchise, commission etc.). This example demonstrates that standardization is the typical legal technique of these codifications. However, the standards contained in civil codes are not binding (with rare exceptions).¹⁴ These standards are used as a kind of “fall-back position”. This means that parties are free to refer to the legal provisions or to deviate from them, their contractual obligations prevail over the corresponding legal norms, but their contract is also complemented by the legal provisions.¹⁵

This technique is demonstrated by the example of Section 434 of the German Civil Code which deals with the contract for purchase. The provision reads as follows:

According to this provision, the question of whether the delivered good is defective is determined firstly by the agreement of the parties, secondly by the use specified in the contract (implied agreement) and, finally, by normal standards of comparable goods and by the expectation of the buyer. Thus, if the parties do not agree on the quality of the good, the Civil Code opens up a way to determine the defects of the good. Accordingly, Section 434 functionally corresponds to a fall-back provision which complements the contract of the parties.

Standardization as a basic legal technique is not limited to economic relations. It also applies to other fields which are not dominated by economic exchange, such as family law, the law of succession, or the protection of privacy. One striking example is the following rule in German family law. The German Civil Code provides for three different regimes of matrimonial relations: the so-called legal regime (which applies when the spouses do not agree otherwise) is called the “statutory property regime of the community of surplus”. This means that the properties of the spouses remain separate (SS.1363, 1364 German Civil Code). However, when the matrimonial state is terminated (by the death of one spouse or by divorce) the gains obtained are equalized. The spouse who made a higher gain than the other is obliged to pay half of the amount to the other spouse, or his or her heirs. Yet, the spouses may conclude a contract governing their matrimonial relationship. In order to protect the weaker spouse and third parties, the Civil Code strictly limits the freedom of the spouses to agree on individual regimes. The Civil Code provides for only two additional regimes (complete separation of property or the complete community of property). Any additional deviation is strictly prohibited. Accordingly, the matrimonial regimes provided for by the German Civil Code are strictly standardized and limited by mandatory legal provisions.¹⁶

The standardization of legal relations also takes place in the common law world, i.e. in legal systems without a codified legal framework (especially England, the United States, Australia etc.).¹⁷ In these jurisdictions, standardization is mainly achieved by claim forms and standard contracts elaborated by private parties.¹⁸Accordingly, an American-style contract is much more comprehensive than its continental counterpart, as it must contain all the fall-back provisions of the civil code (which – principally – does not exist in the United States). Yet, private standardization also takes place in the civil law world, as the civil codes are not comprehensive enough to address all legal questions of economic and social exchange. Accordingly, businesses (i.e. banks and insurance), but also notaries and other stakeholders, normally use standardized contracts for their legal relationships.

Private standardization is very efficient, but has its price: as the more powerful party often imposes his or her standard forms on the weaker, standard forms are not usually “fair”, but often biased. Normally, parties do not negotiate on standard terms, and the terms are often agreed to without any precise knowledge of their content by the (weaker) party.¹⁹ In the second half of the twentieth century, national and European legislations realized the dangers of “contractual standardization” and addressed this problem in different ways. In modern legal systems, standard contracts are subject to judicial review and/or administrative control; in some legal fields, especially in the laws for the protection of consumers, they are forbidden by mandatory laws.²⁰ The criteria for judicial review are found in explicit legal provisions (e.g. German law largely refers to the legal provisions of the Civil Code which are considered fair for both parties) and in the case law of the courts. In addition to this, European law provides for a specific directive which empowers consumer associations to seek injunctions against businessmen who use unfair standard contracts.²¹ These examples show that the standardization of legal relations, especially of contracts, has become the usual situation in modern legal systems.²²

A short remark must be added in relation to the advantages of using standard forms in the cross-border context. Let’s take as an example a French merchant of wine who is suing a German client for the non-payment of a delivery. This businessman is facing enormous barriers: his lawsuit must overcome different legal systems and different languages: creditors seeking to enforce judgments in other European Member States must resort to different national procedures, use different languages, and seek translations. The outcome of these expensive and time-consuming proceedings is often unpredictable – many businessmen do not enforce their claims, but simply write them off. Standardization may overcome these obstacles: one striking example is the EC Regulation Creating a European Order for Payment,²³ which facilitates the cross-border recovery of monetary claims. It provides for a simplified procedure based on standard forms. The standard forms are available in all languages of the Community at the website of the European Commission.²⁴ A creditor who applies for a European Payment Order must simply fill out the standard form by inserting the names and addresses of the parties, the competent court and by specifying the respective claim (sale, rent, lease etc.).²⁵ The application is filed directly with the competent court. For instance, a Finnish judge who receives a German creditor’s application based on the German claim form may simply take the identical Finnish claim form in order to understand the meaning of the “German application”. The same technique applies to the cross-border enforcement of the European Payment Order. A Payment Order of a Finnish court in its own language can be enforced directly (without any prior translation) by a German bailiff on the basis of standard forms explaining its content. This example shows that sophisticated standardization may also overcome linguistic and legal obstacles in a single market with different national cultures and languages.²⁶

Monetization within legal systems: compensation and rehabilitation

In the legal context, monetization has a twofold meaning. Firstly, it refers to the legal regime of claims for payment. In legal history, the replacement of bartering by a monetary economy was often the first step towards the implementation of a legal system.²⁷ Several centuries later, the elaboration of the Bill of Exchange in the late twelfth century (in northern Italy) enabled merchants to engage in transactions without coins and to minimize the risk of transporting and losing large sums of money when traveling between different marketplaces.²⁸ The standardization of commercial contracts, especially the standardization of payments since the Middle Ages, was the main incentive for the elaboration of transnational uniform legal instruments in the nineteenth and twentieth centuries.²⁹ The introduction of a single currency has similar effects: it facilitates not only economic, but also legal, exchange.

Nevertheless, it should be noted that most of the legal systems do not provide for a comprehensive definition of money; jurists prefer to describe money by its different functions.³⁰ The famous German law professor, Friedrich Carl von Savigny (1779–1861), described money as “a mere instrument for measuring the value of individual parts of wealth”.³¹ In addition, von Savigny stressed a second function of money serving as an abstract purchasing power.³² This conception is approved by the law – all modern legal systems define money as a legal tender,³³ by setting denominations and technical specifications of coins and bills intended for circulation.³⁴ By virtue of the law, parties are obliged to use the legal tender as the medium of exchange. In the European Currency Union, the pertinent provision is found in Article 128 of the Treaty on the Functioning of the European Union.³⁵ Private law largely refers to these provisions. According to section 244 of the German Civil Code, all payments effected in Germany may be made in euros unless payment in the other currency has been expressly agreed. In order to guarantee the stability of the currency, parties are not free to agree a different tender or to stipulate that the payment shall be measured by the price of a certain commodity (depreciation or index clause). However, in cross-border transactions and with regard to long-term agreements, the parties are free to stipulate index clauses.³⁶

Secondly, monetization refers to the commercialization of legal entitlements and of non-tangible goods.³⁷ Especially in the context of the law of compensation, jurists distinguish two kinds of damages: pecuniary damages, which can be calculated in a precise sum of money, and non-monetary damages, which cannot be determined in a precise sum of money. Examples of non-monetary damages are pain and suffering, the loss of relatives, infringements of privacy etc. In practice, it is extremely difficult to evaluate non-pecuniary damages, and the legal solutions vary significantly among the legal systems.³⁸ The pertinent legal provisions of the German Civil Code on the compensation of damages read as follows:

These provisions clearly demonstrate the basic features of the German law of compensation which, as a matter of principle, provides for full compensation of the damage which is normally implemented by payment for the loss suffered. However, if the damages consist of a non-pecuniary loss, the situation is more complicated. In this constellation, the payment of money has mainly a symbolic function: it is to compensate the loss of quality of life (especially in the case of severe violations of body or health) and demonstrate a kind of “recognition” of the injury incurred. Some legal systems (especially the United States) also provide for punitive damages: they not only compensate the loss incurred, but punish the tortfeasor and deter them from committing similar torts. The main disadvantage of this kind of damages lies in the fact that the victim will get much more compensation than the loss incurred. In Germany, there is a clear trend of standardizing the compensation for non-pecuniary losses. In legal practice, monetization is implemented by so-called schedules of money for pain and suffering. These schedules are compilations of the case law on compensation awarded for pain and suffering. These compilations do not have any binding legal effect. However, lawyers, courts, and (especially) assurances are well aware of the “typical awards” and do not deviate considerably from these figures. However, judgments regularly do not refer to these compilations – the compensation of non-pecuniary damages is regularly awarded according to the circumstances of the individual case.³⁹ Nevertheless, the guiding value of these compilations for practice cannot be disregarded – monetization allows for a comparison of the injuries incurred.⁴⁰

In 2007, I addressed this issue of non-pecuniary damages by referring to the example of infringement of privacy and the case law of the European Court of Human Rights on Caroline of Hanover. The European Court of Human Rights in Strasbourg held that Princess Caroline of Hanover’s privacy had been severely infringed by photographers who secretly took photos of her and her children in a golf club.⁴¹ These photos had been published by different newspapers throughout Europe without the princess’s consent.⁴² However, it was impossible to give a precise calculation of the damage sustained by the princess. The European Court of Human Rights held that in order to deter the photographers (“paparazzi”) from infringing the privacy of victims, the national systems must grant a considerable sum of money to the victims. As a result, the princess settled the case for about €115,000.⁴³ However, the compensation in this case (and in comparable lawsuits) was much higher than that normally awarded to persons who had been severely injured. In Germany, bodily injured victims may recover damages for medical expenses, future medical expenses, and rather a small sum of damages for pain, suffering, and similar non-pecuniary losses. Damage awards should position the plaintiff where he would be had the damage not occurred. Damages should not enrich the plaintiff or aim to punish and deter the tortfeasor beyond the general effect that is inherent in all compensatory damages obligations.⁴⁴

The current legal situation is not undisputed. Some years ago, the German Constitutional Court was seized by two plaintiffs whose four children had been killed by a drunk driver in a road accident.⁴⁵ The civil court had awarded the parents compensation of about €30,000 for pain and suffering.⁴⁶ The parents filed a constitutional complaint in the Constitutional Court. They argued that the Princess of Monaco had received four times more for the violation of her privacy than they had been awarded by the German civil courts, and asserted a violation of the fundamental guarantee of equal treatment (Art. 3(1) German Constitution).⁴⁷ The Constitutional Court held, however, that the case law which awarded higher compensations for infringements of the right of privacy did not impair the constitutional right. The Court distinguished the damages for the infringement of privacy from the damage sustained by the applicants. It held that in the case of infringement of privacy, the idea of deterring future perpetrators justified the different amount of compensation.

It goes without saying that this result remains unsatisfactory. But it demonstrates the practical difficulties in evaluating non-pecuniary damages and awarding a “just compensation”. During the last decade, civil courts throughout Europe have improved their case law on the compensation of non-pecuniary damages.⁴⁸ At present, there is a clear trend to increase the sums of money awarded to victims in these kinds of cases.⁴⁹ This development is sometimes described as “economization” or as “monetization” of tort law.⁵⁰

Günter Thomas’s chapter below describes the differing compensation paid to victims persecuted during the Holocaust and to persons who were persecuted by the former communist regime of the GDR.⁵¹ He correctly stresses inconsistencies between the compensation paid to different groups of victims. Yet, from a legal perspective, the application of specific regimes may be justified by the following considerations.

First, these losses relate to the category of mass torts. Modern legal theory describes mass torts as a distinct category of the law of torts, due to the amount of the damages incurred and the number of victims. Individual handling of thousands of individual cases is not possible. Accordingly, mass claims processing on the basis of standardized criteria takes place – individual compensation is awarded on the basis of “rough justice” on the basis of an administrative procedure.

Second, the compensation is not paid by the individual perpetrator to the victim, but by public authorities. Accordingly, not private law, but social law applies – compensation is paid mainly in order to prevent social injustice and individual plight. The payments are aimed at enabling the victims to build up a new future and to overcome physical and mental losses. A comprehensive establishment of the wrongs committed and the reparation of damages sustained are not of paramount importance in this context. Therefore, rehabilitation is of paramount importance and only an appropriate compensation is granted.⁵²

Nevertheless, from the perspective of the individual victim, his or her individual fate and the individual losses remain of paramount importance. Sometimes the processing of mass claims in this context is felt to be “disregarding the individual case”.⁵³ In the context of historical wrongs, the reparation of injuries by providing for financial compensation should not constitute the only redress available. In the context of rehabilitation, additional avenues for dealing with the past seem to be important, such as the recognition that injustice has been committed. The sincere excuse for unlawful conduct and for its continuing consequences may also entail acknowledgment and forgiveness. In this respect, experience shows that the coming to terms with injustices of the past cannot be done by courts alone. A broader process of remembrance in society as a whole is needed. In addition, the monetization or commercialization of historical wrongs may entail strong resistance from the victim’s side. When American lawyers in the late 1990s initiated large human rights class actions against all companies which had undertaken investments in South Africa during the time of apartheid, the government of South Africa intervened in the pending proceedings in New York and contested the legitimacy of these lawsuits. The government referred to the Truth Commissions which were trying to overcome the crimes of apartheid and held that the parallel institution of judicial proceedings in other states amounted to an unwelcome interference in the internal affairs of a sovereign state.⁵⁴ Finally, the US Supreme Court held (in a footnote) that American courts should respect this statement and dismiss the lawsuits.⁵⁵ This example demonstrates that the judicial handling of historical wrongs is only one possible way of dealing with these sensitive issues.

Standardization, monetization, and the quest for justice

As explained above, the standardization of legal relations may lead to unjust results, especially when the (legal) standards do not meet the specific circumstances of the individual case and lead to unfairness and injustice. In such constellations, parties should be free to deviate from the standardization. In this respect, two different situations must be distinguished: standardization by legal provisions and standard terms. Standardization by legal provisions, as a matter of principle, is acceptable and leads to satisfactory results. As legal provisions are elaborated by legislation, the (democratically legitimated) legislator is obliged (by constitutional law) to balance the different interests and to elaborate a neutral provision which normally does not put one party at a disadvantage. Accordingly, standardization of legal relationships by legal provisions is an adequate tool for rationalizing legal transactions. In addition to this, the general principle of good faith enables the courts to deviate from the standards of the Civil Code in order to adopt the legal regime to the specific circumstances of the individual case.⁵⁶ Finally, under constitutional law, each party may have recourse to the Constitutional Court (or to similar bodies) if legislation does not sufficiently protect individual rights. The Constitutional Court may balance the conflicting rights and interests and correct imbalanced standardization of a legal system in specific circumstances.

Still, the situation of private standardization is different. In this context, the judicial (or administrative) control of standard terms is absolutely necessary for the protection of legal rights and the interests of the weaker party. As the parties normally do not negotiate all terms and conditions of a contract, the standard terms are not the result of a freely agreed transaction, but imposed by the stronger party on the weaker counterpart. In order to restore the balance of the contractual relations, modern legal systems empower judges to control the standard terms and to declare unfair terms void. By imposing these safeguards, modern legal systems implement the freedom of contract in private law which remains the main guarantee (and valid basis) for a fair and just legal regime between the parties.

The quest for justice is also a challenge in the context of monetization. This has been demonstrated in relation to the compensation of damages. The guiding principle of compensating all damage incurred completely does not apply in two constellations: on the one hand, the monetary compensation of non-pecuniary damages seems to be impossible, as an evaluation of this kind of damages in money is excluded. Nevertheless, all legal systems provide for monetary compensation for pain and suffering. In practice, the calculation of the compensation often remains unsatisfactory, and the sums paid are considered either as being too high (and, consequently, as an enrichment of the injured party) or as being too low (providing only for a symbolic compensation). Yet, modern law is clearly oriented towards an increasing economization or monetization of non-pecuniary damages. In legal practice, so-called schedules of compensation for pain and suffering provide for guidance and transparency. Finally, the fundamental question remains whether any infringement of non-pecuniary rights must give rise to an action for the payment of money.

The second situation refers to so-called mass torts (especially the compensation of war damages or damage incurred by dictatorial regimes). In this constellation, the number of victims and the total amount of all (individual) damages are too high and prevent full compensation of the losses incurred. Accordingly, only partial compensation is organized by providing for mass claim processing on a standardized basis which – at least partially – disregards the individual cases. Compensation paid to the victims of such “historical wrongs” often amounts to a partial, or even mere symbolic, compensation.⁵⁷ Victims often consider such “rough justice” as unsatisfactory or even as “unjust” (especially compared with the “full reparation” for victims under the civil code).⁵⁸ Still, it should not be forgotten that these injuries are not only a matter for compensation, but should be addressed by a broader concept of reconciliation and of rebuilding a society as a whole. In this context, the quest for possible alternatives to administrative and judicial proceedings is needed.⁵⁹ On the other hand, injuries individually incurred should also be considered as part of the individual’s fate. In this context, justice can also be done by non-economic redress such as rehabilitation and acknowledgment. This does not exclude, however, providing for compensation and rehabilitation (especially by social law) in order to prevent social injustice and individual plight.