Damages for Non-Performance and the Fault Principle

Abstract

One of the controversial issues in contract law is whether damages for non-performance should be based on fault liability or strict liability. The article illustrates the functions of the fault principle in contract liability using the example of German contract law. While fault liability constitutes the rule, there is considerable room for exceptions, and in sum, the approach of German contract law can be characterised as a combinational system which balances the fault principle with countervailing principles. Not surprisingly, other legal systems that use strict liability as a rule allow for exceptions or limitations to liability too. The comparative survey provides the basis for an evaluation. While neither starting point, fault or strict liability, can claim to be clearly superior to the other, it is submitted that the fault requirement is a tool that conveniently allows for the necessary fine-tuning as the issues in question can be addressed directly and openly. Where a legislator considers a change from one system to the other, he carefully needs to assess the systematic implications and the compatibility of the alternative approach with established business practice.

Keywords: Fault Principle, Contract Law, Non-Performance, Damages, Comparative Law, Law Reform

JEL Classification: K 12