An Analytical Look at the Impact of Inflation on Monetary Compensation in Civil Liability with a Comparative Study

Introduction
Inflation, as a persistent yet unwelcome feature of Iranian society, has had significant consequences in the legal domain. Indeed, considering that the majority of existing legal institutions were developed within a low-inflation environment, it becomes evident that these institutions fail to perform their intended and anticipated functions under inflationary conditions. In the realm of civil liability—which was designed to safeguard the rights of injured parties—high inflation has resulted in the diminution or even nullification of compensatory mechanisms. Since most remedies in this area involve monetary damages, inflation erodes their real value. Furthermore, the variation in asset prices from the time of harm occurrence to the issuance of a judgment creates substantial challenges in the assessment of damages.
Moreover, regarding future damages, inflation increases living costs, severely undermining the effectiveness of compensation. Accordingly, the principal question of this article is: how can the adverse impact of inflation on monetary compensation in civil liability be mitigated, through a novel and coherent legal analysis?
 
Methods
This study employs a descriptive-analytical approach, drawing on library-based research. Initially, it endeavors to study and compare the existing approaches to three key areas—damage assessment, reduction in the value of awarded compensation, and future damages—both within Iranian law and in comparative legal systems. Subsequently, through the critical evaluation of prevailing analyses, and by employing a rigorous legal methodology together with insights drawn from comparative law, this research aims to develop new analyses that would mitigate the detrimental effects of inflation on monetary compensation in civil liability and align existing legal institutions more closely with their fundamental philosophy.
 
Findings
Following these steps, it is concluded that in the domain of damage assessment, the proper approach under Iranian law is to consider the date of trial as the valid point for damage valuation. In other words, among the possible temporal references—the date of injury, the date of trial, and the date of judgment enforcement—the date of injury is subject to criticism, both due to its inconsistency with the aims and philosophy of civil liability and its lack of conformity with Iranian legal sources. On the other hand, although considering the date of judgment enforcement (except in specific cases such as property loss due to criminal acts, where a special rule applies) would better align with the objectives of civil liability, it lacks sufficient support in Iranian legal doctrine.
Furthermore, regarding the reduction in the value of monetary compensation, the study establishes that although the utilization of the late payment damages mechanism under Article 522 of the Civil Procedure Act is permissible in relation to debts arising from civil liability claims, a more effective compensation for the decrease in value can be achieved by exercising the broad judicial discretion explicitly granted to judges under Article 3 of the Civil Liability Act. Finally, in relation to the compensation of future damages, the study concludes that in order to account for the increase in the cost of living resulting from inflation, the most effective solution is the application of periodic payments based on Articles 3 and 4 of the Civil Liability Act, utilizing appropriate adjustment indices to maintain the real value of the sums awarded over time.
Conclusions
From the foregoing analysis, it is clear that examining the effects of inflation on monetary compensation in civil liability—particularly through a comparative lens—can lead to solutions that mitigate, as far as possible, the negative impact of inflation on legal relations, even when approaching law descriptively (as it is) rather than normatively (as it ought to be). Indeed, by adopting the date of judgment as the valid point for damage valuation, employing legal mechanisms such as late payment damages under Article 522 of the Civil Procedure Act, utilizing the broad judicial discretion granted under Article 3 of the Civil Liability Act to adjust reduction in the value of monetary compensation until enforcement, and finally resorting to indexed annuities (as authorized by Articles 3 and 4 of the Civil Liability Act), it becomes possible to achieve the desired objective: upholding the underlying principles of civil liability while adhering to a sound methodology of legal interpretation.