Exemplary Damages

Introduction

‘Exemplary damages’ also known as punitive damages are damages which are intended to punish the defendant and seek to effect retribution, as well as being concerned to deter the defendant from repeating the outrageously wrongful conduct and others from acting similarly, and to convey the disapproval of the jury or court. In the England and Wales, to successfully claim exemplary damages, the’ categories test’ supplied by the Rookes v Barnard 1964 and the ‘cause of action test’ outlined in AB v South West Water Services Ltd 1993 should be satisfied. However the court still has discretion to refuse an award even though the criteria have been met in both tests. The award of punitive damages to plaintiffs has been over recent years, a subject of much controversy in the legal profession community since the dynamics involved in the course of proceedings and potential awards sometimes confuse legal practitioners. Some believe that punitive damages justify their existence by providing the remedies for some legal needs which otherwise would have been impossible whereas others would disagree on the fact that punishment should only be acceptable under criminal law since they embrace criminal elements. This report investigates both opinions and proposes reforms needed to enhance the functions of punitive damages.

Firstly, many people who are in favour of the existence of exemplary damages argue that exemplary damages which are civil punishments differ from criminal punishment in two distinctive ways:

In civil law, punishment is sought and enforced by individual victims of wrongdoing whereas criminal punishment is sought by or on behalf of the state even in the event that an individual is filing for a private case.

Unlike criminal punishment, exemplary damages do not carry a stigma and is viewed by society as a ‘less serious’ punishment.

Secondly, proponents of exemplary damages advocate that defendants can unjustly enrich themselves at the expense of the victim situation. Although they recognise that compensatory damages will cover for the plaintiff’s losses, they also believe that a form of punishment should be available to deter the defendant and others from similar conduct in the future. Sometimes, the defendant can also be favoured if he happened to be an insured defendant. If the defendant is insured under a compulsory insurance scheme in respect of negligent conduct, it is the insurer, not the defendant, who pays the exemplary damages. This shifting of the burden of payment thus has minimal deterrent effect upon the actual wrongdoer.

This function is duly satisfied by exemplary damages. Many opponents of exemplary damages disagree on this principle on the basis that a plaintiff can profit from a ‘windfall’. However Lord Diplock further backed this approach and famously stated in Broome V Cassell & Co Ltd 1972 that tort wrongdoers would be the one who would benefit in the event of an outrageous tort committed and believed that if there were to be a profit involved, then better that it goes to the plaintiff who is prepared to be financially exposed and file a case.

Thirdly, people arguing for the existence of Exemplary damages would really confuse the law if merged within criminal punishment since exemplary damages serve as a method to inflict punishment to a defendant although he has not been provided in a civil trial with the usual protections or safeguards of the criminal law for example, higher standard of proof, the right against self-incrimination, and the right to silence. It is therefore conceded that penal sanctions, in the form of exemplary damages, should continue to exist so as to satisfy its primary function of punishing and deterring wrongdoers which would otherwise fail in criminal proceedings.

However the other side of the coin demonstrates different facts:

One strong point which has been advocated against exemplary damages is that they contain several elements including punishment, deterrence and condemnation which also overlap with criminal law making it sometimes hard to draw the line between the tort and criminal aspect of a case. In a way, exemplary damages serve as a limited function of punishment and deterrence of wrongdoers and only lack criminal safeguards such as having a smaller burden of proof, right to remain silent to compete with criminal proceedings thus questioning both functions of each sections of law.

The monetary punishment for the anti social behaviour should be payable to the state and not to the individual plaintiff as this would leave the latter with an underserved windfall as seen in Riches v News Group Newspapers Ltd 1986. Due to the fact that exemplary damages are always awarded in addition to compensatory money, it follows that an attractive financial reward is potentially available. For this reason it is generally agreed that exemplary damages encourage litigiousness. In most cases, the wealth of the defendant will provide for the enrichment and the law provides the means of tapping it.

Moreover, opponents of exemplary damages deem them to be excessively punitive as not only it can sometimes bankrupt a defendant since they are awarded in conjunction with compensatory damages thus making it greater than necessary in order to punish the wrongdoer as compensatory damages on its own covers a plaintiff’s pecuniary losses. The damages paid can be even more excessive if it involves multiple plaintiffs who have been wronged by the same culprit considering that compensatory damages involved covering each plaintiff’s losses.

Another argument brought forward by people who duly opposes exemplary damages is that they are convinced that since there are no set guidelines about how much financial punishment should be imposed on a defendant and it remains entirely at the discretion of the judge or jury to award the ‘fine’ there exist the possibility of violating defendants’ rights in the process of law by allowing such judges or juries to exercise their discretion out of hatred, dislike or fear of the defendant.

Recommendations:

The ‘cause of action’ test laid down in AB v South West Water Services Ltd should be abolished since it is very restrictive and exemplary damages should be extended to any tort or equitable wrong such as a breach of fiduciary, breach of confidence and the ‘categories test’ supplied by Rooke v Barnard should be replaced by a test which would look for the necessary elements which make exemplary damages available.

It is also suggested that only a judge should award exemplary damages instead of a jury to avoid any disparity of judgement and thus would provide consistency and clarity in assessing any tort, equitable or statutory wrongs committed by a defendant.

Furthermore, no award should usually be made, where the defendant has already been convicted of an offence involving the conduct which founds the claim to punitive damages and the court should be required to take into account any other sanctions which may have been imposed, when deciding whether punitive damages are necessary.

In deciding the amount of punitive damages, the judge must consider, where applicable, the following matters:

(a) The state of mind of the defendant;

(b) The nature of the right or rights infringed by the defendant;

(c) The nature and extent of the harm to the plaintiff that the defendant caused or intended to cause by his conduct;

(d) The nature and extent of the benefit that the defendant derived or intended to derive from his conduct;

(e) Any other matter which the judge in his or her discretion considers to be relevant (other than the means of the defendant).

The award for exemplary should not exceed the minimum necessary to punish the defendant for his conduct, and should be proportionate to the gravity of his wrongdoing. It is widely agreed that some monetary guidelines should be available to ensure consistency in awarding exemplary damages. The judge should also be guided by a non-exhaustive statutory list of relevant factors. It is also anticipated that a body of precedent, judicial tariffs and/or guideline judgments would offer further guidance, in time such as assessing the financial status of the defendant or whether he is insured in some cases.

It is also of opinion whereby there are multiple plaintiffs, that Riches v News Group Newspapers Ltd clearly calls for the court to reach a gross amount to be decided upon and that amount can then be further divided among the number of plaintiffs so as to avoid over punishment of the defendant.

Conclusion

In view of the above discussion, it would be fair to say that exemplary damages do hold their place amongst the various legal remedies available and certainly play a big part in providing justice in a legal context. However, they should be reinforced by proper legislative scheme and supported with proper case law interpretation to give clear and definite boundaries within which exemplary damages can be awarded. Hence the reforms suggested could perhaps allow exemplary damages to be used sensibly in the future.

Bibliography

• McGregor on damages (London Sweet & Maxwell 15th edition 1988 at pg 266-268)
• Texbook on torts, Michael A Jones, 8th edn,Oxford University Press, 2005 Catherine Elliott and Frances Quinn, Tort Law, Pub by Longman Group, 1996
• Essential Tort, Richard Owen,Pub by Cavendish Publishing, 1994
• Law of Torts, Dr David Green, The Cavendish Q & A Series, 1993

Journals

• Law Commission for England and Wales, 1997 Report
• Ontario Law Reform Commission, 1991
• Law Reform Commission of Ireland 1998 Consultation Paper

Cases

• Rookes v Barnard [1964] AC 1129, [1964] 1 All ER 367
• AB v South West Water Services Ltd [1993] QB 507
• Broome v Cassell & Co Ltd [1972] AC 1027
• Riches v News Group Newspapers Limited [1986] QB 256

References

• Lecture notes by Henrietta Abraham at University of Bedfordshire