Punitive damages

Punitive damages

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Punitive damages or exemplary damages are damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 intended to reform or deter the defendant
Defendant
A defendant or defender is any party who is required to answer the complaint of a plaintiff or pursuer in a civil lawsuit before a court, or any party who has been formally charged or accused of violating a criminal statute...

 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
Plaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...

, 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 tort
Tort
A tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...

s and taking some strain away from the criminal justice system. 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.

Because they are usually paid in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, usually under tort
Tort
A tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...

 law, where the defendant's conduct was egregiously insidious. Punitive damages cannot generally be awarded in contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 disputes. The main exception is in insurance bad faith
Insurance bad faith
Insurance bad faith is a legal term of art that describes a tort claim that an insured person may have against an insurance company for its bad acts. Under the law of most jurisdictions in the United States, insurance companies owe a duty of good faith and fair dealing to the persons they insure...

 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).

Australia


In Australia, punitive damages are not available for breach of contract
Breach of contract
Breach of contract is a legal cause of action 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's performance....

, but are possible for tort
Tort
A tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...

 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 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
James Spigelman
James Jacob Spigelman AC QC is a former Australian judge. He served as Lieutenant Governor of New South Wales and Chief Justice of the Supreme Court of New South Wales from 19 May 1998 until 31 May 2011.-Early years and education:...

 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
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

 and Wales
Wales
Wales is a country that is part of the United Kingdom and the island of Great Britain, bordered by England to its east and the Atlantic Ocean and Irish Sea to its west. It has a population of three million, and a total area of 20,779 km²...

, exemplary damages are limited to the circumstances set out by Lord Devlin in the leading case of Rookes v. Barnard
Rookes v. Barnard
Rookes v Barnard [1964] is a UK labour law case and the leading case in English law on punitive damages and was a turning point in judicial activism against trade unions....

:
  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 Barnard has been much criticised and has not been followed in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

 or Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...

 or by the Privy Council
Privy council
A privy council is a body that advises the head of state of a nation, 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 monarch's closest advisors to give confidential advice on...

.

Another case that could arguably be seen as an example of punitive damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 was that of Attorney-General v Blake in which the defendant profited from publishing a book detailing his work for MI5
MI5
The Security Service, commonly known as MI5 , is the United Kingdom's internal counter-intelligence and security agency and is part of its core intelligence machinery alongside the Secret Intelligence Service focused on foreign threats, Government Communications Headquarters and the Defence...

. The details were very old and therefore did not cause loss to the state. The publishing was, however, in breach of the contract
Breach of contract
Breach of contract is a legal cause of action 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's performance....

 of employment (and incidentally criminally
Criminal law
Criminal law, is the body of law that relates to crime. It might be defined as the body of rules that defines conduct that is not allowed because it is held to threaten, harm or endanger the safety and welfare of people, and that sets out the punishment to be imposed on people who do not obey...

 in breach of the Official Secrets Act 1911
Official Secrets Act 1911
The Official Secrets Act 1911 is an Act of the Parliament of the United Kingdom. It replaces the Official Secrets Act 1889....

). The defendant was required to give an account of his profits gained from writing the book.

The court
Court
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...

s have been very reluctant to follow this approach, emphasising the materiality of the criminal
Criminal law
Criminal law, is the body of law that relates to crime. It might be defined as the body of rules that defines conduct that is not allowed because it is held to threaten, harm or endanger the safety and welfare of people, and that sets out the punishment to be imposed on people who do not obey...

 element required for these damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 to be considered.

New Zealand


In New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...

 it was held in Donselaar v. Donselaar and confirmed in Auckland City Council v. Blundell that the existence of the Accident Compensation Corporation
Accident Compensation Corporation
The Accident Compensation Corporation is a New Zealand Crown entity responsible for administering the Accident Compensation Act 2001. The Act provides support to citizens, residents, and temporary visitors who have suffered personal injuries....

 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.

More recently in Couch v Attorney-General the New Zealand Supreme Court 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.

United States


Punitive damages are a settled principle of common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...

 in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

. They are a matter of state law, and thus differ in application from state to state. In many states, including California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...

 and Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...

, punitive damages are determined based on statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...

; elsewhere, they may be determined solely based on case law. Many state statutes are the result of insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 industry lobbying
Lobbying
Lobbying is the act of attempting to influence decisions made by officials in the government, most often legislators or members of regulatory agencies. Lobbying is done by various people or groups, from private-sector individuals or corporations, fellow legislators or government officials, or...

 to impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional.

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. 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
Negligence
Negligence is a failure to exercise the care that a reasonably prudent person would exercise in like circumstances. The area of tort law known as negligence involves harm caused by carelessness, not intentional harm.According to Jay M...

.

Punitive damages are a focal point of the "tort reform
Tort reform
Tort reform refers to proposed changes in common law civil justice systems that would reduce tort litigation or damages. Tort actions are civil common law claims first created in the English commonwealth system as a non-legislative means for compensating wrongs and harm done by one party to...

" 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
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...

 has made several decisions which limit awards of punitive damages through the due process of law clauses of the Fifth
Fifth Amendment to the United States Constitution
The Fifth Amendment to the United States Constitution, which is part of the Bill of Rights, protects against abuse of government authority in a legal procedure. Its guarantees stem from English common law which traces back to the Magna Carta in 1215...

 and Fourteenth Amendments
Fourteenth Amendment to the United States Constitution
The Fourteenth Amendment to the United States Constitution was adopted on July 9, 1868, as one of the Reconstruction Amendments.Its Citizenship Clause provides a broad definition of citizenship that overruled the Dred Scott v...

 to the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...

. 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 Liebeck v. McDonald's Restaurants (1994), a very high and therefore often criticized amount of damages were awarded to a woman who burned herself with hot coffee she purchased from McDonald's
McDonald's
McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving around 64 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by the eponymous Richard and Maurice McDonald; in 1948...

.

In BMW of North America, Inc. v. Gore
BMW of North America, Inc. v. Gore
BMW of North America, Inc. v. Gore, 517 U.S. 559 , was a United States Supreme Court case limiting punitive damages under the Due Process Clause of the 14th Amendment.-Facts:...

(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
Philip Morris USA v. Williams
Philip Morris USA v. Williams, 549 U.S. 346 , was a decision by the Supreme Court of the United States, which held that the due process clause of the Fourteenth Amendment bars punitive damages for harm caused to individuals not involved in the litigation.Mayola Williams, the widow of Jesse D...

(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
John Paul Stevens
John Paul Stevens served as an Associate Justice of the Supreme Court of the United States from December 19, 1975 until his retirement on June 29, 2010. At the time of his retirement, he was the oldest member of the Court and the third-longest serving justice in the Court's history...

 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 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 reported in wide 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 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 the it results in death or heavy injuries. Since this is a rather 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.

Japan


Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

ese courts do not award punitive damages as a matter of public policy
Public policy (law)
In private international law, the public policy doctrine or ordre public concerns the body of principles that underpin the operation of legal systems in each state. This addresses the social, moral and economic values that tie a society together: values that vary in different cultures and change...

, 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.