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Punitive damages

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Judicial remedies
Legal remedies (Damages)
Equitable remedies
Related issues

Punitive damages,orexemplary damages,aredamagesassessed in order to punish the defendant for outrageous conduct and/or to reform or deter thedefendantand others from engaging in conduct similar to that which formed the basis of the lawsuit.[1]Although the purpose of punitive damages is not to compensate theplaintiff,the plaintiff will receive all or some of the punitive damages in award.

Punitive damages are often awarded ifcompensatory damagesare deemed an inadequate remedy. The court may impose them to prevent undercompensation of plaintiffs and to allow redress for undetectabletortsand taking some strain away from the criminal justice system.[2]Punitive damages are most important for violations of the law that are hard to detect.[3]

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 in which punitive damages are most likely to be considered to violateordre public.[4]

Because they are usually paid in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, usually undertortlaw, if the defendant's conduct was egregiously insidious. Punitive damages cannot generally be awarded incontractdisputes. The main exception is ininsurance bad faithcases in the US if 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 atortcause of action eligible for punitive damages (in excess of the value of the insurance policy).[a]

National applications[edit]

Australia[edit]

In Australia, punitive damages are not available forbreach of contract,[5]but are possible fortortcases.

The law is less settled regarding equitable wrongs. InHarris v Digital Pulse Pty Ltd,[6]the defendant employees knowingly breached contractual andfiduciary dutiesto their employer by diverting business to themselves and misusing its confidential information. TheNew South Wales Court of Appealheld 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 CJconcurred, 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 Pdissented and opined that there was no principled reason to award punitive damages in respect of common law torts but not analogous equitable wrongs.

Canada[edit]

In Canada, punitive damages may be awarded in exceptional cases for "malicious, oppressive and high-handed" misconduct.[7]The Supreme Court of Canada set out 11 principles to guide judges and juries for awarding punitive damages in the leading caseWhiten v Pilot Insurance Co2002 SCC 18. The principles are not intended to form a checklist or be mandatory, but instead is to be considered based on the facts of each case.[8]

England and Wales[edit]

InEnglandandWales,exemplary damages are limited to cases in which at least one of the circumstances set out byLord Devlinin the leading case ofRookes v Barnardhas been met:[9]

  1. Oppressive, arbitrary or unconstitutional actions by the servants of government.
  2. Where the defendant's conduct was 'calculated' to make a profit for himself.
  3. Where a statute expressly authorises the same.

Rookes v Barnardhas been much criticised and has not been followed inCanada,Australia[b]orNew Zealand,despite English cases often being influential in other Commonwealth countries. or by thePrivy Council.[b]It was strongly criticised by theCourt of AppealinBroome v Cassell,but on appeal the House of Lords upheldRookes v Barnard.

Exemplary damages go beyond the philosophical aims of a contractual remedy and are not available as damages for breach of contract. Lord Atkinson said, inAddis v Gramophone Co Ltd:

“In many other cases of breach of contract there may be circumstances of malice, fraud, defamation, or violence, which would sustain an action of tort as an alternative remedy to an action for breach of contract. If one should select the former mode of redress, he may, no doubt, recover exemplary damages, or what is sometimes styled vindictive damages; but if he should choose to seek redress in the form of an action for breach of contract, he lets in all the consequences of that form of action:Thorpe v Thorpe(1832) 3B.&Ad. 580. One of these consequences is, I think, this: that he is to be paid adequate compensation in money for the loss of that which he would have received had his contract been kept, and no more.”

In 1997 theLaw Commissionrecommended that punitive damages should never be available for breach of contract.[11]

Germany[edit]

Germancourts do not award punitive damages and consider foreign punitive damages unenforceable to the extent that the payment would exceed the damages plus an allowance for reasonable defence costs big enough so that the plaintiff would get a full reimbursement of its loss but not more.

Japan[edit]

Japanesecourts do not award punitive damages as a matter ofpublic policy,and Japanese law prohibits the enforcement of punitive damage awards obtained overseas.[c]

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.

New Zealand[edit]

InNew Zealandit was held inDonselaar v. Donselaar[13]and confirmed inAuckland City Council v. Blundell[14]that the existence of theAccident Compensation Corporationdid not bar the availability of exemplary damages. InPaper Reclaim Ltd v Aotearoa International[15]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.

In 2010, inCouch v Attorney-GeneraltheNew Zealand Supreme Courtbarred exemplary damages for cases of negligence unless the defendant acts intentionally or with subjective recklessness.[16]

Punitive damages can also be awarded for equitable wrongs. InAcquaculture Corporation v New Zealand Green Mussel Co Ltd,[17]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, inCook v Evatt (No.2),[18]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.

People's Republic of China[edit]

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 Rights and Interests enacted on October 31, 1993, provides 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 widely reported[citation needed]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 added 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 substantial statutory amount considered by the legislative organ is based on several extremely serious food quality incidents in the past two years, such as the notoriousSanlu 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 expressly aware of the defects in products but still produces or sells them if it results in death or heavy injuries. Since this is a somewhat new law so far, no further explanatory regulation regarding a detailed amount and applicable scope is promulgated guiding the application of this rule, so a court judge may have discretional power to decide punitive damages case by case under this new law.

United States[edit]

Punitive damages are a settled principle ofcommon lawin theUnited States.[19]They are generally a matter of state law (although they can also be awarded under federal maritime law), and thus differ in application from state to state. In many states, includingCaliforniaandTexas,punitive damages are determined based onstatute;elsewhere, they may be determined solely based on case law. Many state statutes are the result ofinsuranceindustrylobbyingto impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional.[20]They are rare, occurring in only 6% of civil cases that result in a monetary award.[21]Punitive damages are entirely unavailable under any circumstances in a few jurisdictions, including Nebraska, Puerto Rico, and Washington.

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.[22]Although state laws vary, punitive damages are usually allowed only when the defendant has displayed actualintentto cause harm (such as purposefully rear-ending someone else's car), rather than in cases of merenegligence,or causes an injury through action taken inrecklessdisregard for the lives and safety of others.[23]

Punitive damages are a focal point of thetort reformdebate in the United States, where numerous highly publicized multimillion-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.[20]

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, theSupreme Court of the United Stateshas made several decisions which limit awards of punitive damages through thedue process of lawclauses of theFifthandFourteenth Amendmentsto theUnited 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. However, the Supreme Court carved out a notable exception to this rule of proportionality in the case ofTXO Production Corp. v. Alliance Resources Corp.,where it affirmed an award of $10 million in punitive damages, despite the compensatory damages being only $19,000, a punitive-to-compensatory ratio of more than 526-to-1. In this case, the Supreme Court affirmed that disproportionate punitive damages were allowed for especially egregious conduct.[24]

In the case ofLiebeck v. McDonald's Restaurants(1994), 79-year-old Stella Liebeck spilledMcDonald'scoffee in her lap which resulted in second and third-degree burns on her thighs, buttocks, groin and genitals. The burns were severe enough to require skin grafts. Liebeck attempted to have McDonald's pay her $20,000 medical bills as indemnity for the incident. McDonald's refused, and Liebeck sued. During the case'sdiscoveryprocess, internal documents from McDonald's revealed the company had received hundreds of similar complaints from customers claiming McDonald's coffee caused severe burns. At trial, this led the jury to find McDonald's knew their product was dangerous and injuring their customers, and that the company had done nothing to correct the problem. The jury decided on $200,000 in compensatory damages, but attributed 20 percent of the fault to Liebeck, reducing her compensation to $160,000. The jury also awarded Liebeck $2.7 million in punitive damages, which was at the time two days of McDonald's coffee sales revenue. The judge later reduced the punitive damages to $480,000. The case is often criticized for the very high amount of damages the jury awarded. Nevertheless, many legal scholars and documentary film makers likeHot Coffeeargued that corporate lobbyists seized the opportunity to create public misinformation and distrust of the legal system by leaving out important facts in their television advertisements, such as, that the verdict was roughly equivalent to two days of coffee sales for McDonald's, that Liebeck received permanentinjuryto her genitals and groin requiring surgery, and that McDonald's had already received numerous complaints about the temperature of the coffee.[25]

InBMW of North America, Inc. v. Gore(1996), the Supreme 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. InState Farm Auto. Ins. v. Campbell(2003), the Supreme Court held that punitive damages might 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, inPhilip Morris USA v. Williams(2007), the Supreme 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 theWilliamscase, JusticeJohn Paul Stevensfound that the "nuance eludes me", suggesting that the majority had resolved the case on a distinction that makes no difference.

Punitive damages are subjective by their very nature. Since their purpose is to punish—as opposed to compensate—opinions on how to accomplish this will vary widely among jurors. Regardless, research into punitive damages has revealed some common principles. Wealth of the defendant is positively correlated with large punitive damage awards, jurors either downplay or ignore jury instructions regarding punitive damages determinations, and jurors tend to punish defendants who have conducted a cost-benefit analysis.[21]

Important cases[edit]

See also[edit]

Explanatory notes[edit]

  1. ^The landmark cases that established this tort wereComunale v. Traders & General Ins. Co.,50 Cal. 2d 654, 328 P.2d 198, 68 A.L.R.2d 883(1958) (third-party liability insurance), andGruenberg v. Aetna Ins. Co.,9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032(1973) (first-party fire insurance).
  2. ^abInAustralian Consolidated Press Ltd v Uren[10]the Privy Council upheld the Australian rejection ofRookes v Barnard
  3. ^Enforcement of foreign awards of punative damaged was prohibited since 2006 by the General Act Related to the Application of Laws,[12]although was predated by the judgment of the Supreme Court of July 11, 1997, 51-6 Minshu 2573, and other precedents.

References[edit]

  1. ^Restatement of Torts, Second§ 908(l).
  2. ^SeeKemezy v. Peters,79 F.3d 33 (7th Cir. 1996) (Posner,J.)
  3. ^SeeHoward A. Shelanski & J. Gregory Sidak, Antitrust Divestiture in Network Industries, 68 U. CHI. L. REV. 1, 44 (2011),https://ssrn.com/abstract=265652.
  4. ^"Courts outside U.S. wary of punitive damages".International Herald Tribune.2008-03-26.
  5. ^Gray v Motor Accident Commission[1998] HCA 70, (1998) 196 CLR 1
  6. ^Harris v Digital Pulse Pty Ltd[2003] NSWCA 10, (2003) 197 ALR 626
  7. ^Whiten v. Pilot Insurance Co.,2002 SCC 18 (CanLII),[2002] 1 SCR 595, at para 36.
  8. ^Whiten v. Pilot Insurance Co.,2002 SCC 18 (CanLII),[2002] 1 SCR 595, at para 95.
  9. ^Rookes v Barnard[1964] AC 1129, [1964] 1 All ER 367
  10. ^Australian Consolidated Press Ltd v Uren(1967) 117 CLR 221,[1966] HCA 37
  11. ^"Aggravated, Exemplary and Restitutionary Damages"(PDF).The Law Commission. November 1997. LC247.Archived(PDF)from the original on 2019-02-14.
  12. ^Pháp の thích dụng に quan する thông tắc pháp § 22(2)[General Act Related to the Application of Laws]. 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.
  13. ^Donselaar v. Donselaar[1982] 1 NZLR 97
  14. ^Auckland City Council v. Blundell[1986] 1 NZLR 732
  15. ^Paper Reclaim Ltd v Aotearoa International[2006] 3 NZLR 188
  16. ^Couch v Attorney-General[2010] NZSC 27
  17. ^Acquaculture Corporation v New Zealand Green Mussel Co Ltd[1990] 3 NZLR 299
  18. ^Cook v Evatt (No.2)[1992] 1 NZLR 676
  19. ^Grimshaw v. Ford Motor Co.(Ford PintoCase), 174 Cal. Rptr. 348 (Cal. Ct. App. 1981) (Tamura, J.), subhead VI.
  20. ^abLaycock, Douglas (2002).Modern American Remedies.Aspen. pp. 732–736.
  21. ^abConklin, Michael (2020)."Factors Affecting Punitive Damage Awards".Rochester, NY.SSRN3615013.{{cite journal}}:Cite journal requires|journal=(help)
  22. ^Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc.960 S.W.2d 41 (Tex. 1998)
  23. ^McMichael, Benjamin J.; Viscusi, W. Kip (July 2017)."The Punitive Damages Calculus: The Differential Incidence of State Punitive Damages Reforms".Southern Economic Journal.84(1): 82–97.doi:10.1002/soej.12217.
  24. ^"TXO Production Corp. v. Alliance Resources Corp., 509 US 443 (1993)".
  25. ^Dryden, Dene (October 5, 2016)."Here's the story behind the 'Caution: Contents Hot' label on your coffee".Business Insider.
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