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Punitive damages (termed exemplary damages in the United Kingdommarker) are damages intended to reform or deter the defendant 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, 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 torts 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 usually compensate the plaintiff in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, usually under tort law, where the defendant's conduct was egregiously insidious. Punitive damages cannot generally be awarded in contract disputes. The main exception is in insurance bad faith 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).

In the U.S., there is no maximum dollar amount of punitive damages that a defendant can be ordered to pay. Instead, appellate courts often look at the ratio of punitive damages to compensatory damages. Only in rare cases is a punitive damages award of more than 4 times the compensatory damages justifiable.

National applications

United Kingdom and Commonwealth

In Englandmarker and Walesmarker, exemplary damages are limited to the circumstances set out by Lord Patrick Devlin in the leading case of Rookes v. Barnard. They are:

  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 Canadamarker or Australia or by the Privy Council.

Another case, that could arguably be seen as an example of punitive damages, was that of Attorney-General v Blake in which the defendant profited from publishing a book detailing his work for MI5marker. The details were very old and therefore did not cause loss to the state. The publishing was however in breach of the contract of employment (and incidentally criminally in breach of the Official Secrets Act 1911). He was required to give an account of his profits gained from writing the book.

The courts have been very reluctant to follow this approach, emphasising the materiality of the criminal element required for these damages to be considered.

In New Zealandmarker it was held in Donselaar v. Donselaar and confirmed in Auckland City Council v. Blundell that the existence of the Accident Compensation Corporationmarker did not bar the available 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.

The Liebeck v. McDonald's also used punitive damages.

United States

Punitive damages are a settled principle of common law in the United Statesmarker. They are a matter of state law, and thus differ in application from state to state. In many states, including Californiamarker and Texasmarker, punitive damages are determined based on statute; elsewhere, they may be determined solely based on case law. Many state statutes are the result of insurance industry lobbying to impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional.

Punitive damages are a focal point of the "tort reform" 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.

In response to judges and juries which award high punitive damages verdicts, the Supreme Court of the United Statesmarker 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. In a number of cases, the Court has indicated that a 4:1 ratio between punitive and compensatory damages is broad enough to lead to a finding of constitutional impropriety, and that any ratio of 10:1 or higher is almost certainly unconstitutional.

In BMW of North America, Inc. v. Gore (1996), the Court ruled that punitive damages must be reasonable, as determined based on the degree of reprehensibility of the conduct, the ratio of punitive damages to compensatory damages, and any 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.

Most recently, in Philip Morris USA v. Williams (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. Dissenting in the Williams case, Justice John Paul Stevens found that the "nuance eludes me," suggesting that the majority had resolved the case on a distinction that makes no difference.

Japan

Japanesemarker courts do not award punitive damages as a matter of public policy, 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.

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