Punitive damages or
exemplary damages are
damages intended to reform or deter the
defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. Although the purpose of punitive damages is not to compensate the
plaintiff, the plaintiff will in fact receive all or some portion of the punitive damage award.
Punitive damages are often awarded where
compensatory damages are deemed an inadequate remedy. The court may impose them to prevent under-compensation of plaintiffs, to allow redress for undetectable
torts and taking some strain away from the criminal justice system.See
Kemezy v. Peters, 79 F.3d 33 (7th Cir. 1996) (
Posner, J.) However, punitive damages awarded under court systems that recognize them may be difficult to enforce in jurisdictions that do not recognize them. For example, punitive damages awarded to one party in a US case would be difficult to get recognition for in a European court, where punitive damages are most likely to be considered to violate
ordre public. See
Courts outside U.S. wary of punitive damages, International Herald Tribune 2008-03-26
Because they are usually paid the plaintiff in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, usually under
tort law, where the defendant's conduct was egregiously insidious. Punitive damages cannot generally be awarded in
contract disputes. The main exception is in
insurance bad faith cases in the United States, where the insurer's breach of contract is alleged to be so egregious as to amount to a breach of the "implied covenant of good faith and fair dealing," and is therefore considered to be a
tort cause of action eligible for punitive damages (in excess of the value of the insurance policy).The landmark cases that established this tort were
Comunale v. Traders & General Ins. Co.,
50 Cal. 2d 654, 328 P.2d 198, 68 A.L.R.2d 883 (1958) (third-party liability insurance), and
Gruenberg v. Aetna Ins. Co.,
9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973) (first-party fire insurance).
National applications
Australia
In Australia, punitive damages are not available for
breach of contract,
Gray v Motor Accident Commission (1998) 196 CLR 1 but are possible for
tort cases.
The law is less settled regarding equitable wrongs. In
Harris v Digital Pulse Pty Ltd,(2003) 197 ALR 626 the defendant employees knowingly breached contractual and
fiduciary duties to their employer by diverting business to themselves and misusing its confidential information. The
New South Wales Court of Appeal held that punitive damages are not available both for breach of contract and breach of fiduciary duty.
Heydon JA (as he then was) said there is no power to give punitive damages in respect of a claim in equity, although he was content to decide the case on the narrower ground that there is no power to award punitive damages for the specific equitable wrong in issue.
Spigelman CJ concurred, although he emphasized that the contractual character of the fiduciary relationship in question, and refrained from deciding on whether punitive damages would be available in respect of equitable wrongs more analogous to torts.
Mason P dissented and opined that there was no principled reason to award punitive damages in respect of common law torts but not analogous equitable wrongs.
England and Wales
In
England and
Wales, exemplary damages are limited to the circumstances set out by
Lord Devlin in the leading case of
Rookes v. Barnard.
1964 AC 1129,
1964 1 All ER 367. They are:
- Oppressive, arbitrary or unconstitutional actions by the servants of government.
- Where the defendant's conduct was 'calculated' to make a profit for himself.
- Where a statute expressly authorises the same.
Rookes v Barnard has been much criticised and has not been followed in
Canada or
Australia or by the
Privy Council.See
Australian Consolidated Press Ltd v Uren (1967) 117 CLR 221, where the Privy Council upheld the Australian rejection of
Rookes v Barnard
Another case, that could arguably be seen as an example of punitive
damages, was that of
Attorney-General v Blake 2001 1 AC 268 in which the defendant profited from publishing a
book detailing his work for
MI5. The details were very old and therefore did not cause loss to the state. The publishing was however in
breach of the contract of employment (and incidentally
criminally in breach of the
Official Secrets Act 1911). He was required to give an account of his profits gained from writing the book.
The
courts have been very reluctant to follow this approach,see, for example
Experience Hendrix LLC v PPX Enterprises Inc 2003 EWCA Civ 323. emphasising the materiality of the
criminal element required for these
damages to be considered.
New Zealand
In
New Zealand it was held in
Donselaar v. Donselaar 1982 1 NZLR 97 and confirmed in
Auckland City Council v. Blundell 1986 1 NZLR 732 that the existence of the
Accident Compensation Corporation did not bar the available of exemplary damages. In
Paper Reclaim Ltd v Aotearoa International 2006 3 NZLR 188 it was held that exemplary damages are not to be awarded in actions for breach of contract but the Court left open the possibility that exemplary damages might be available where the breach of contract is a tort.
The
Liebeck v. McDonald's also used punitive
damages.
Punitive damages can also be awarded for equitable wrongs. In
Acquaculture Corporation v New Zealand Green Mussel Co Ltd,
1990 3 N.Z.L.R. 299 the majority of the New Zealand Court of Appeal held that in addition to compensation, punitive damages could be awarded for breach of confidence, albeit that, on the facts, they were not merited. Similarly, in
Cook v Evatt (No.2),
1992 1 N.Z.L.R. 676 Fisher J in the New Zealand High Court added exemplary damages of NZ$5,000 to an account of profits of over NZ$20,000 for breach of fiduciary duty.
United States
Punitive damages are a settled principle of common law in the
United States.See
Grimshaw v. Ford Motor Co. (
Ford Pinto Case), 174 Cal. Rptr. 348 (Cal. Ct. App. 1981) (Tamura, J.), subhead VI. They are a matter of state law, and thus differ in application from state to state. In many states, including
California and
Texas, punitive damages are determined based on
statute; elsewhere, they may be determined solely based on case law. Many state statutes are the result of
insurance industry
lobbying to impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional.Douglas Laycock,
Modern American Remedies (Aspen, 2002), p. 732-736.
The general rule is that punitive damages cannot be awarded for breach of contract. But if an independent tort is committed in a contractual setting, punitive damages can be awarded for the tort.
See Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc.. 960 S.W.2d 41 (Tex. 1998) Punitive damages are usually reserved for when the defendant has displayed actual
intent to cause harm (such as purposefully rear-ending someone else's car), rather than in cases of mere
negligence.
Punitive damages are a focal point of the "
tort reform" debate in the United States, where numerous highly-publicized multi-million dollar verdicts have led to a fairly common perception that punitive damage awards tend to be excessive. However, statistical studies by law professors and the Department of Justice have found that punitive damages are only awarded in two percent of civil cases which go to trial, and that the median punitive damage award is between $38,000 and $50,000.
There is no maximum dollar amount of punitive damages that a defendant can be ordered to pay. In response to judges and juries which award high punitive damages verdicts, the
Supreme Court of the United States has made several decisions which limit awards of punitive damages through the
due process of law clauses of the
Fifth and
Fourteenth Amendments to the
United States Constitution. In a number of cases, the Court has indicated that a 4:1 ratio between punitive and compensatory damages is high enough to lead to a finding of constitutional impropriety, and that any ratio of 10:1 or higher is almost certainly unconstitutional.
In
BMW of North America, Inc. v. Gore (1996), the Court ruled that an excessive punitive award can amount to an arbitrary deprivation of property in violation of due process. The Court held that punitive damages must be reasonable, as determined by the degree of reprehensibility of the conduct that caused the plaintiff's injury, the ratio of punitive damages to compensatory damages, and any comparable criminal or civil penalties applicable to the conduct. In
State Farm Auto. Ins. v. Campbell (2003), the Court held that punitive damages may only be based on the acts of the defendants which harmed the plaintiffs. The Court also elaborated on the factors courts must apply when reviewing a punitive award under due process principles.
Most recently, in
Philip Morris USA v. Williams (2007), the Court ruled that punitive damage awards cannot be imposed for the direct harm that the misconduct caused others, but may consider harm to others as a function of determining how reprehensible it was. More reprehensible misconduct justifies a larger punitive damage award, just as a repeat offender in criminal law may be punished with a tougher sentence. Dissenting in the
Williams case, Justice
John Paul Stevens found that the "nuance eludes me," suggesting that the majority had resolved the case on a distinction that makes no difference.
People's Republic of China
In very few industries punitive damages could be awarded in either contractual or tort case, except a tort relevant to product defraud or defect. Article 49 of the PRC Law on Protection of Consumer's Rights and Interests enacted on October 31, 1993 first time provides for the rule that any consumer is entitled to a recovery of double the purchase price of products or service from the seller or service provider against their defraud. Successful cases have been reported in wide range in this regard.
Article 96 of the PRC Law on Food Safety adopted on February 28, 2009 raises the punitive damages to ten times the purchase price additional to the compensatory damages that the victim has already claimed from the producer or seller for food with poor quality not compliant to food safety standards. Such a huge statutory amount considered by the legislative organ is based on several extremely serious food quality incidents which in the past two years (e.g. notorious Sanlu tainted milk powder case).
Application of the punitive damage rule is further expanded with the enactment of the PRC Law on Tort Liability effective as of July 1, 2010. This new law sets forth that a victim is entitled to claim punitive damages from any manufacturer or seller who is expressly aware of the defects in products but still producing or selling them which results in death or heavy injuries. Since this is a rather new law so far, no further explanatory regulation regarding e.g. detailed amount and applicable scope is promulgated guiding the application of this rule, meaning that a court judge may have discretional power to decide punitive damages case by case under this new Tort Law.
Japan
Japanese courts do not award punitive damages as a matter of
public policy, and Japanese law prohibits the enforcement of punitive damage awards obtained overseas.General Act Related to the Application of Laws (法の適用に関する通則法) § 22(2) (2006) ("Should a tort be governed by the law of a foreign state, even if the facts to which the law of such foreign state apply constitute a violation of the laws of such foreign state and of the laws of Japan, the victim may not claim any compensation or other disposition other than that recognized under the laws of Japan."). This was predated by the judgment of the Supreme Court of July 11, 1997, 51-6 Minshu 2573, and other precedents.
In Japan, medical negligence and other species of negligence are governed by the criminal code, which may impose much harsher penalties than civil law. For instance, many causes of action which would subject a defendant to a potential punitive damage award in the U.S. would subject the same individual to prison time in Japan.
See also
References