The question "Is there such a thing as moral damage to companies?" can seem not serious only to those who think: it has nothing to do with me. Such people reply, "There surely is", and are mostly to be right. May be they never tried to reimburse moral damage and think that it is easy to do.
Those who reply in disappointment "There surely isn't" have another experience and understanding.
In the decree of Supreme Court of Ukraine #4 form March 31, 1995 it is said " the right to reimburse moral (nonmaterial) damage is an important guarantee for protection of rights and freedoms of companies". All misunderstanding with moral damage to companies usually start with terminology. It is hard to find an answer to a question "What is the moral of the company?"
Dictionary of foreign words describes category of moral as morality, sum of norms and principles of human behavior in the society.
Thus, neither common sense nor description in the dictionary gives an answer to our question...
But the legislation is written with this term and somehow we have to work with it. In the explanation of Higher Court of arbitration of Ukraine "About some questions in reimbursement of moral damage" №02-5/95 February 29, 1996 with further changes on November 18, 1997 and November 13, 1998 they specify that company has a right to demand reimbursement for moral damage in compliance with articles 7 and 440 of Civil Codex of Ukraine and other special laws"
In the explanation they also say, "the main example of causing moral damage is distribution of information that is not true … and besmirches business reputation", "Author's rights and related rights also implies responsibility to reimburse moral damage"…
A company, according to Paliyuk, has its own "specific qualities" - individual peculiarities. Such things relate to these peculiarities: place of dislocation, name, company name, brand name, etc. (Paliyuk V.P., Moral nonmaterial damage. Odessa state juridical academy, 1999)
In juridical literature they accent that fact that companies participate in market relations and it conditions competitiveness. The law prohibits attempts for unfair competition…
But factors that lower chances to compete among companies are an obstacle in free entrepreneurial activity and it causes moral damage. This aspect is not deeply researched yet, but it impedes possibility to protect rights of companies…
Social organizational psychology considers that organization (company) - is a system that has specific parameters for existence (functioning) and tendencies for development… Companies have clearly defined goals, tasks, structure, organizational climate, stages of development, strategic planning, etc.
It is obvious that in most legal conflicts between companies the problem is not necessarily connected with business reputation, dignity and honor…Nonmaterial damage can be seen as deep disruption in the company's structure, change in strategic planning, appearance of obstacles for future development. This list is far from the full list of damages caused to the company due to illegal actions...
The main problem is that the lawsuit in the court of Arbitration according to the article 54 of the Arbitration procedural Codex of Ukraine must begin with a writ. In this writ the plaintiff must write full demands and explain how the moral damage was caused and support his demands with documents. (point 7 in the Explanations)
My experience shows that problems that appear on this level of case solution depend on the subjective problems, not objective. The main problems are:
- the plaintiff does nor have enough information about moral damage
- attorneys are not qualified enough to work in the case with reimbursement for moral damage
- absence of court practice in cases on reimbursement for moral damage at certain courts with certain judges
… At the first sight we don't see a problem when a plaintiff has low legal education level. But the practice proves that a whole row of important decisions is made by the plaintiff and his "illiteracy" negatively influences the case. What are these decisions?
Decision number one - who should take the case and prepare all the documents for the court? As a rule, to save some money, they ask staff lawyer to prepare a writ and lead the case in the court. But staff lawyers think of cases with reimbursement of moral damage as of minor importance cases… The best solution would be to ask a staff lawyer to lead the case but pay for consultations with lawyers who had experience with cases on reimbursement of moral damage.
Another important problem is uncertainty and absence of legal position of a plaintiff in the stage of decision-making process about pre-trial solution of the case. Absence of firm legal position leads to waste of time and money in the future…
Another key solution - who is the plaintiff: a director himself (group of directors) or a company. It really matters, because different cases go to different courts and if the case is not solved pre-trial then it will be solved either in common court either in arbitration court...
The third important decision must be made about gathering evidences. Don't hope that the court will believe in moral damage without any supporting documents… There are some competent specialists in Ukraine who write small research on personal damage and present them in the court... Another possible solution to some questions might be investing in the staff lawyer to improve his professional level.
Absence of court practice in arbitration courts in cases with moral damage will not be a ver serious factor. Current legislation does not give limited amount of situations when company can be morally damaged. If the company thinks that illegal activity or inactivity led to damage of his nonmaterial status then he is free to gather necessary evidences and protect his rights in the future...
So, the objective legislation of Ukraine allows companies to protect their rights in reimbursement of moral damage… So if a company solves subjective problems, then it can gather evidences and solve the problem either in pre-trial or trial.
Some excerpts from mentioned work can help you make the first decision: to sue or not to sue for violation of your rights.
Moral, nonmaterial damage to a company is:
"violation of its personal nonmaterial and material rights, damage to his honor, dignity or business reputation, and touch company's name, brand; distribution of untruthful information (discredit), disclosure of secret information… if these action led or can lead to material damages" (page 61).
Such things conform to negative consequences: "breach of production rhythm, failure to carry out agreed responsibilities, decrease in company's profit, etc"… (page 105)