Exemplary Damages
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Punitive damages, or exemplary damages, are
damages At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at ...
assessed in order to punish the defendant for outrageous conduct and/or to reform or deter the
defendant In court proceedings, a defendant is a person or object who is the party either accused of committing a crime in criminal prosecution or against whom some type of civil relief is being sought in a civil case. Terminology varies from one jurisdic ...
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 A plaintiff ( Π in legal shorthand) is the party who initiates a lawsuit (also known as an ''action'') before a court. By doing so, the plaintiff seeks a legal remedy. If this search is successful, the court will issue judgment in favor of the p ...
, the plaintiff will receive all or some of the punitive damages in award. Punitive damages are often awarded if
compensatory damages At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at ...
are deemed an inadequate remedy. The court may impose them to prevent undercompensation of plaintiffs and to allow redress for undetectable
tort A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
s and taking some strain away from the criminal justice system. Punitive damages are most important for violations of the law that are hard to detect. 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 violate
ordre public A suite, in Western classical music and jazz, is an ordered set of instrumental or orchestral/ concert band pieces. It originated in the late 14th century as a pairing of dance tunes and grew in scope to comprise up to five dances, sometimes with ...
. Because they are usually paid in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, usually under
tort A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
law, if the defendant's conduct was egregiously insidious. Punitive damages cannot generally be awarded in
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
disputes. The main exception is in
insurance bad faith Insurance bad faith is a tort unique to the law of the United States (but with parallels elsewhere, particularly Canada) that an insurance company commits by violating the "implied covenant of good faith and fair dealing" which automatically exis ...
cases 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 a ''tort'' cause of action eligible for punitive damages (in excess of the value of the insurance policy).


National applications


Australia

In Australia, punitive damages are not available for
breach of contract Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party ...
, but are possible for
tort A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
cases. The law is less settled regarding equitable wrongs. In ''Harris v Digital Pulse Pty Ltd'', the defendant employees knowingly breached contractual and
fiduciary duties A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...
to their employer by diverting business to themselves and misusing its confidential information. The
New South Wales Court of Appeal The New South Wales Court of Appeal, part of the Supreme Court of New South Wales, is the highest court for civil matters and has appellate jurisdiction in the Australian state of New South Wales. Jurisdiction The Court of Appeal operates pursu ...
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 England is a country that is part of the United Kingdom. It shares land borders with Wales to its west and Scotland to its north. The Irish Sea lies northwest and the Celtic Sea to the southwest. It is separated from continental Europe b ...
and
Wales Wales ( cy, Cymru ) is a Countries of the United Kingdom, country that is part of the United Kingdom. It is bordered by England to the Wales–England border, east, the Irish Sea to the north and west, the Celtic Sea to the south west and the ...
, exemplary damages are limited to cases in which at least one of the circumstances set out by
Lord Devlin Patrick Arthur Devlin, Baron Devlin, PC, FBA (25 November 1905 – 9 August 1992) was a British judge and legal philosopher. The second-youngest English High Court judge in the 20th century, he served as a Lord of Appeal in Ordinary fro ...
in the leading case of ''
Rookes v Barnard ''Rookes v Barnard'' 964 AC 1129 is a UK labour law and English tort law case and the leading case in English law on punitive damages and was a turning point in judicial activism against trade unions. The case was almost immediately reversed b ...
'' has been met: #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 Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
,
Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
or
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island count ...
, despite English cases often being influential in other Commonwealth countries. or by the
Privy Council A privy council is a body that advises the head of state of a state, typically, but not always, in the context of a monarchic government. The word "privy" means "private" or "secret"; thus, a privy council was originally a committee of the mon ...
. It was strongly criticised by the
Court of Appeal A court of appeals, also called a court of appeal, appellate court, appeal court, court of second instance or second instance court, is any court of law that is empowered to hear an appeal of a trial court or other lower tribunal. In much of t ...
in '' Broome v Cassell'', but on appeal the House of Lords upheld ''Rookes 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, in ''
Addis v Gramophone Co Ltd ''Addis v Gramophone Co Ltd'' 909AC 488is an old English contract law and UK labour law case, which used to restrict damages for non-pecuniary losses for breach of contract. Facts Mr Addis was Gramophone’s manager in Calcutta. In October 1905 ...
'': In 1997 the
Law Commission A law commission, law reform commission, or law revision commission is an independent body set up by a government to conduct law reform; that is, to consider the state of laws in a jurisdiction and make recommendations or proposals for legal chang ...
recommended that punitive damages should never be available for breach of contract.


Germany

German German(s) may refer to: * Germany (of or related to) ** Germania (historical use) * Germans, citizens of Germany, people of German ancestry, or native speakers of the German language ** For citizens of Germany, see also German nationality law **Ge ...
courts 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

Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north ...
ese courts do not award punitive damages as a matter of
public policy Public policy is an institutionalized proposal or a decided set of elements like laws, regulations, guidelines, and actions to solve or address relevant and real-world problems, guided by a conception and often implemented by programs. Public p ...
, and Japanese law prohibits the enforcement of punitive damage awards obtained overseas. 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

In
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island count ...
it was held in '' Donselaar v. Donselaar'' and confirmed in ''Auckland City Council v. Blundell'' that the existence of the
Accident Compensation Corporation The Accident Compensation Corporation (ACC) ( mi, Te Kaporeihana Āwhina Hunga Whara) is the New Zealand Crown entity responsible for administering the country's no-fault accidental injury compensation scheme, commonly referred to as the ACC sch ...
did not bar the availability of exemplary damages. In ''Paper Reclaim Ltd v Aotearoa International'' 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, in ''Couch v Attorney-General'' the
New Zealand Supreme Court The Supreme Court of New Zealand ( mi, Te Kōti Mana Nui, lit=Court of Great Mana) is the highest court and the court of last resort of New Zealand. It formally came into being on 1 January 2004 and sat for the first time on 1 July 2004. It re ...
barred exemplary damages for cases of negligence unless the defendant acts intentionally or with subjective recklessness. Punitive damages can also be awarded for equitable wrongs. In ''Acquaculture Corporation v New Zealand Green Mussel Co Ltd'', 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)'', 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

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 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 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 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

Punitive damages are a settled principle of
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipresen ...
in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
. 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, including
California California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...
and
Texas Texas (, ; Spanish language, Spanish: ''Texas'', ''Tejas'') is a state in the South Central United States, South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2 ...
, punitive damages are determined based on
statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by le ...
; elsewhere, they may be determined solely based on case law. Many state statutes are the result of
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
industry
lobbying In politics, lobbying, persuasion or interest representation is the act of lawfully attempting to influence the actions, policies, or decisions of government officials, most often legislators or members of regulatory agency, regulatory agencie ...
to impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional. They are rare, occurring in only 6% of civil cases that result in a monetary award. 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. Although state laws vary, punitive damages are usually allowed only 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 Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort law known as ''negligence'' involves harm caused by failing to act as a ...
, or causes an injury through action taken in reckless disregard for the lives and safety of others. Punitive damages are a focal point of the
tort reform Tort reform refers to changes in the civil justice system in common law countries that aim to reduce the ability of plaintiffs to bring tort litigation (particularly actions for negligence) or to reduce damages they can receive. Such changes a ...
debate 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. 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 The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...
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 The Constitution of the United States is the Supremacy Clause, supreme law of the United States, United States of America. It superseded the Articles of Confederation, the nation's first constitution, in 1789. Originally comprising seven ar ...
. 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 of ''TXO 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. In the case of '' Liebeck v. McDonald's Restaurants'' (1994), 79-year-old Stella Liebeck spilled
McDonald's McDonald's Corporation is an American Multinational corporation, multinational fast food chain store, chain, founded in 1940 as a restaurant operated by Richard and Maurice McDonald, in San Bernardino, California, United States. They rechri ...
coffee 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's
discovery Discovery may refer to: * Discovery (observation), observing or finding something unknown * Discovery (fiction), a character's learning something unknown * Discovery (law), a process in courts of law relating to evidence Discovery, The Discovery ...
process, 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 like '' Hot Coffee'' argued 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 permanent
injury An injury is any physiological damage to living tissue caused by immediate physical stress. An injury can occur intentionally or unintentionally and may be caused by blunt trauma, penetrating trauma, burning, toxic exposure, asphyxiation, o ...
to her genitals and groin requiring surgery, and that McDonald's had already received numerous complaints about the temperature of the coffee. In '' BMW 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. In '' State 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, in '' Philip 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 the ''Williams'' case, Justice
John Paul Stevens John Paul Stevens (April 20, 1920 – July 16, 2019) was an American lawyer and jurist who served as an associate justice of the Supreme Court of the United States from 1975 to 2010. At the time of his retirement, he was the second-oldes ...
found 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.


Important cases

* '' Pac. Mut. Life Ins. Co. v. Haslip'', * '' TXO Production Corp. v. Alliance Resources Corp.'', * '' Honda Motor Co. v. Oberg'', * '' BMW of North America, Inc. v. Gore'', * ''
Cooper Industries, Inc. v. Leatherman Tool Group, Inc. ''Cooper Industries, Inc. v. Leatherman Tool Group, Inc.'', 532 U.S. 424 (2001), was a decision by the Supreme Court of the United States, United States Supreme Court involving the standard of review that United States court of appeals, Federal App ...
'', * '' State Farm Mutual Automobile Insurance Co. v. Campbell'', * '' Philip Morris USA Inc. v. Williams'', * '' Exxon Shipping Co. v. Baker'',


See also

*
Non-economic damages caps Non-economic damages caps are tort reforms to limit (''i.e.'', "cap") damages in lawsuits for subjective, non-pecuniary harms such as pain, suffering, inconvenience, emotional distress, loss of society and companionship, loss of consortium, and l ...
*
Collateral consequences of criminal conviction Collateral consequences of criminal conviction are the additional civil state penalties, mandated by statute, that attach to a criminal conviction. They are not part of the direct consequences of criminal conviction, such as prison, fines, or pro ...
*
Penal bond A penal bond is a written instrument executed between an obligor and an obligee designed to secure the performance of a legal obligation through the '' in terrorem'' effect of the threat of a penalty for nonperformance. Types of bonds At its s ...


Explanatory notes


References

{{Reflist Legal terminology Judicial remedies