Punitive damages explained.

Punitive damages are particularly prevalent in the USA where they are often left to the discretion of a group of citizens, a jury, who may impose them when they determine that a defendant’s conduct has been uncivilized or to deter other from acting in such an underhanded way, to improve, generally, law and order, or simply to reward the plaintiff for his financial risks in litigating and enforcing the law.

Where awarded, they are an exception to the rule that damages are to compensate not to punish.

The exact threshold of punitive damages varies from jurisdiction to jurisdiction.

In some countries, and in certain circumstances, punitive damages might even be available for breach of contract cases but, again, only for the exceptional cases where the court wants to give a strong message to the community that similar conduct will be severely punished.

Many countries very reasonably refuse to impose punitive damages in tort cases because such damages have no place in the compensatory character of tort law, generating a windfall for the plaintiff unrelated to the damages or injury suffered.

When a judgment from an American court, including punitive damages, is presented for enforcement, many jurisdictions will not do so. As of 2008, both Italy and Germany have declined to do so saying that it offends their standards of justice, whereas other international cases, Canada and Spain have both enforced American punitive judgments.

Punitive damages are not foreign to the common law of tort (see below) but most jurisdictions that allow punitive damages do so in moderation and usually limited to cases of intentional torts such as rape, battery or defamation.

Some jurisdictions prefer using the word “exemplary damages” and there is an ongoing legal debate whether there is a distinction to be made between the two and even with the concept of aggravated damages.

As set out in TWNA v Clarke 2003 BCCA 670:

“Aggravated damages are compensatory in nature, while punitive damages are awarded as punishment for egregious conduct. The distinction is explained by McIntyre J. in Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085 at 1098-99:

Punitive damages, as the name would indicate, are designed to punish. In this, they constitute an exception to the general common law rule that damages are designed to compensate the injured, not to punish the wrongdoer. Aggravated damages will frequently cover conduct which could also be the subject of punitive damages, but the role of aggravated damages remains compensatory….

“Aggravated damages are awarded to compensate for aggravated damage. As explained by Waddams, they take account of intangible injuries and by definition will generally augment damages assessed under the general rules relating to the assessment of damages. Aggravated damages are compensatory in nature and may only be awarded for that purpose. Punitive damages, on the other hand, are punitive in nature and may only be employed in circumstances where the conduct giving the cause for complaint is of such nature that it merits punishment.”

“Punitive damages … are an exception to the general rule that damages are compensatory. Their provenance is described in Daniels v. Thompson, [1998] 3 N.Z.L.R. 22 at 28 (C.A.):

“The origin of exemplary damages (probably better described as punitive damages), is usually said to lie in two cases decided in 1763, Huckle v. Money (1763) 2 Wils 205 and Wilkes v. Wood (1763) Lofft 1. In those cases substantial damages awarded by juries for improper interference by public officials with subjects were justified as exemplary damages. The purpose of the awards was said to punish and deter, and to express the jury’s outrage at the defendant’s conduct. A related purpose mentioned in subsequent cases was to appease the victim and to discourage revenge: for example Merest v. Harvey (1814) 5 Taunt 442, where the Judge more specifically referred to the undesirable practice of duelling. Punishment and deterrence are of course purposes which are served by the criminal law. The introduction of criminal law purposes into the law of torts did not represent a new development, but reflected the common historical roots of the laws of tort and crime. Both branches of the law being addressed in large parts to same type of conduct, the modern separation of their different purposes and procedures was still being completed at that time.”

“Punitive damages are triggered by conduct that may be described by such epithets as high-handed, malicious, vindictive, and oppressive. They are awarded where the court feels that the award of compensatory damages will not achieve sufficient deterrence and that the defendant’s actions must be further punished.

“Punitive damages may be awarded in situations where the defendant’s misconduct is so malicious, oppressive and high-handed that it offends the court’s sense of decency. Punitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. …They are in the nature of a fine which is meant to act as a deterrent to the defendant and to others from acting in this manner. It is important to emphasize that punitive damages should only be awarded in those circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence.”

In Whiten, Justice Binnie of Canada’s Supreme Court embarked upon a world tour of punitive damages and came up with a code:

“… I draw the following assistance from the experience in other common law jurisdictions which I believe is consistent with Canadian practice and precedent.

“First, the attempt to limit punitive damages by “categories” does not work and was rightly rejected in Canada…. The control mechanism lies not in restricting the category of case but in rationally determining circumstances that warrant the addition of punishment to compensation in a civil action. It is in the nature of the remedy that punitive damages will largely be restricted to intentional torts (and) … in the exceptional case in contract….

“Second … the general objectives of punitive damages are punishment (in the sense of retribution), deterrence of the wrongdoer and others, and denunciation (or … the means by which the jury or judge expresses its outrage at the egregious conduct).

“Third, there is recognition that the primary vehicle of punishment is the criminal law (and regulatory offences) and that punitive damages should be resorted to only in exceptional cases and with restraint. Where punishment has actually been imposed by a criminal court for an offence arising out of substantially the same facts, some jurisdictions, such as Australia and New Zealand, bar punitive damages in certain contexts, but the dominant approach in other jurisdictions, including Canada, is to treat it as another factor, albeit a factor of potentially great importance.

“Fourth, the incantation of the time-honoured pejoratives (“high-handed”, “oppressive”, “vindictive”, etc.) provides insufficient guidance (or discipline) to the judge or jury setting the amount. Lord Diplock … called these the “whole gamut of dyslogistic judicial epithets”….

“Fifth, all jurisdictions seek to promote rationality. In directing itself to the punitive damages, the court should relate the facts of the particular case to the underlying purposes of punitive damages and ask itself how, in particular, an award would further one or other of the objectives of the law, and what is the lowest award that would serve the purpose, i.e., because any higher award would be irrational.

“Sixth, it is rational to use punitive damages to relieve a wrongdoer of its profit where compensatory damages would amount to nothing more than a licence fee to earn greater profits through outrageous disregard of the legal or equitable rights of others.

“Seventh, none of the common law jurisdictions has adopted (except by statute) a formulaic approach … such as a fixed cap or fixed ratio between compensatory and punitive damages. The proper focus is not on the plaintiff’s loss but on the defendant’s misconduct. A mechanical or formulaic approach does not allow sufficiently for the many variables that ought to be taken into account in arriving at a just award.

“Eighth, the governing rule for quantum is proportionality. The overall award, that is to say compensatory damages plus punitive damages plus any other punishment related to the same misconduct, should be rationally related to the objectives for which the punitive damages are awarded (retribution, deterrence and denunciation). Thus there is broad support for the “if, but only if” test….

“Ninth, it has become evident that juries can and should receive more guidance and help from the judges in terms of their mandate. They should be told in some detail about the function of punitive damages and the factors that govern both the award and the assessment of a proper amount. Juries should not be thrown into their assignment without any help, then afterwards be criticized for the result.

“Tenth, and finally, there is substantial consensus (even the United States is moving in this direction) that punitive damages are not at large and that an appellate court is entitled to intervene if the award exceeds the outer boundaries of a rational and measured response to the facts of the case.”

Hill v Church of Scientology [1995] 2 SCR 1130.
Whiten v Pilot Insurance [2002] 1 SCR 595.