Aggravated, Exemplary and Restitutionary ... - Law Commission

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(41) if it is sought to establish a matter relating to the question whether punitive damages should be awarded, or to the question of their amount, the civil, and not the criminal, standard of proof must be satisfied. (Draft Bill, clause 10) 1.232 One reason for accepting the civil standard of proof is that that standard is, in fact, an inherently flexible standard. 783 Clearer evidence will be required by the courts, in order for such standard to be satisfied, where the allegations, or the consequences of the decision for one or both of the parties, are serious. Both of these conditions will generally be satisfied by claims to punitive damages. The corollary is that defendants to such claims may be adequately protected even without the criminal standard of proof and within the ‘lower’ civil standard. Cross & Tapper on Evidence deals with the analogous case of allegations of criminal conduct in civil actions in the following way: 784 ... the person against whom criminal conduct is alleged is adequately protected by the consideration that the antecedent improbability of his guilt is ‘a part of the whole range of circumstances which have to be weighed in the scale when deciding as to the balance of probabilities’. 1.233 A second reason for accepting the civil standard is that it could be impractical for a higher burden of proof to be adopted for only one part of a civil action: all other aspects of liability (especially, for example, the commission of the wrong which founds a claim to compensatory damages) would be determined according to the ordinary civil standard; whereas just one aspect (that is, ‘deliberate and outrageous disregard of the plaintiff’s rights’) would be determined according to the criminal standard. (8) Insurance against punitive damages 1.234 In this section we mainly deal with the question whether a person should be permitted to insure against any liability to punitive damages which they may incur (personal or vicarious). In the final subsection, 785 we also deal with the rather different question of whether statutes which currently make insurance compulsory in certain circumstances require, or should be construed to require, insurance against a liability to pay punitive damages (and not just compensation) for a wrong. (a) The options for reform 1.235 We have found the issue of whether a person should be permitted to insure against a liability to punitive damages difficult to resolve, not least because consultees put forward a very wide range of opinions. A survey of the approach of other common law jurisdictions to this issue similarly reveals a considerable range of 783 See the discussion at paras 4.99-4.100 above. 784 Cross & Tapper on Evidence (8th ed, 1995) p 171. 785 See paras 5.270-5.273 below. 166
approaches. 786 132, 787 Although it was not expressed in this way in Consultation Paper No we regard the choice as one between three main options: (1) insurance against punitive damages awards is in all cases permitted by legislation; (2) there is no general legislative public policy bar on insurance, but insurance is barred in cases involving especially outrageous conduct; (3) insurance against punitive awards is in all cases barred by legislation. 1.236 On the balance of arguments of principle, policy and practicality, we reject a bar of any sort on insurance against punitive damages: that is, we favour option 1. We give the decisive reasons for our choice below. (b) The decisive reasons for preferring option 1: insurance is permitted in all cases (i) The need for plaintiffs to have a financial reason for claiming punitive damages 1.237 There is a clear public interest in punishing and deterring bad conduct of a nature which merits a punitive damages award, as well as in offering appeasement to the victims thereof. Nevertheless, it is futile to discuss the pursuit of these aims through civil litigation if plaintiffs will not claim punitive damages because the defendant cannot pay them. Plaintiffs are unlikely to claim punitive damages where defendants do not have the financial capacity to pay any substantial damages and costs which may be awarded against them. Such capacity may be afforded, however, by liability insurance. (ii) The efficacy of the pursuit of the aims of punitive damages 1.238 We do not believe that the aims of punitive damages will be either wholly or substantially frustrated by generally permitting insurance against awards. Although we recognise that any retributive and deterrent purposes of this category of damages may be diluted by our proposed approach to insurance, we do not anticipate that they will be wholly frustrated: in particular, the insurance industry, in controlling the availability and cost of such insurance, is in a position to exert significant pressure on present or potential insured parties. 1.239 Our views on this matter are supported by strong recent judicial statements. In Lamb v Cotogno 788 the High Court of Australia recognised that the purposes of punitive damages are not wholly frustrated by the availability of insurance: 786 See the discussion in Aggravated, Exemplary and Restitutionary Damages (1993) Consultation Paper No 132, para 6.39-6.41; see also, on the approach of United States jurisdictions, inter alia, L Schlueter and K Redden, Punitive Damages (3rd ed, 1995) vol 2, § 17.0-17.2; D B Dobbs, Law of Remedies (2nd ed, 1993) § 3.11(7). 787 Aggravated, Exemplary and Restitutionary Damages (1993) Consultation Paper No 132, paras 6.39-6.41. 788 (1987) 164 CLR 1. 167
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THE LAW COMMISSION Item 2 of the Si
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should emphasise at the outset that
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practitioners and academics) consid
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punitive damages should survive for
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and sued, he will, at worst, be mad
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‘exceptional’ 62 conduct or mot
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defendant or his legal advisers per
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an undertaking in damages which was
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likely adversely to affect him or h
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noting the concession by the respon
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Kralj, which was an “excruciating
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two of their lordships who gave jud
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such a restriction, unless one take
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(1) legislation should provide that
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1.3 Historically, a number of diffe
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nuisance 195 has also been recognis
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day market). At first instance, Pet
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equired to trigger an account of pr
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disgorgement to principals of bribe
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disgorge what he has saved by commi
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there is no consensus among comment
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(a) Restitutionary damages should b
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the purposes of the claim to restit
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account of profits and damages but
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area. The problem of ‘election of
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there is no such in-built limitatio
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PART IV EXEMPLARY DAMAGES: PRESENT
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that exemplary damages were not awa
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1.96 These questions were recently
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to be irrelevant to, and even incon
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1.107 Consistently with the apparen
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manner. As shall be seen below, it
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1.117 Major Commonwealth jurisdicti
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In the present case there is the fu
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an aspect of the case which made ex
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1.137 The ‘non-discrimination’
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We have ... been referred to a numb
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Thus it has been suggested that the
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underlying such damages, that of pu
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easons of fairness to defendants: i
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(6) Multiple plaintiffs 1.165 Very
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Legal Services Act 1990 and Rules o
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MR himself suggested figures to ass
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Thompson v MPC achieves its aims, t
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proceeded on the basis that the doc
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would be that to allow insurance wo
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PART V EXEMPLARY DAMAGES: REFORM 1.
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1.8 As regards the divide between t
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3. THE CASE FOR AND AGAINST EXEMPLA
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(5) The criminal approach to vicari
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particularly unsatisfactory to rely
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1.34 On the first interpretation an
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4. OUR CENTRAL REFORM PROPOSALS (1)
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when applying this principle a cour
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indefensible position which the com
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... the availability of exemplary d
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But these concepts are inadequate,
Page 115 and 116: for a wrong which arises under an A
Page 117 and 118: view that such an award would be co
Page 119 and 120: the promise. To award exemplary dam
Page 121 and 122: else should, actually constitute in
Page 123 and 124: awarded as damages (including exemp
Page 125 and 126: 1.88 The first argument is that it
Page 127 and 128: (2) the relationship between (on th
Page 129 and 130: was determined, the court could mak
Page 131 and 132: (iii) A ‘last resort’ remedy (2
Page 133 and 134: A discretionary or an absolute bar
Page 135 and 136: 1.117 We have therefore recommended
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Page 139 and 140: (24) our draft Bill should lay down
Page 141 and 142: 1.141 In our view, this is necessar
Page 143 and 144: the punitive damages award on the A
Page 145 and 146: to that remedy. 720 Yet this means
Page 147 and 148: (31) once punitive damages have bee
Page 149 and 150: e so where the defendant consents t
Page 151 and 152: 1.183 We also think that any ‘adv
Page 153 and 154: liability’) which applies to any
Page 155 and 156: (c) Implications of the adoption of
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Page 159 and 160: conduct. 756 Although it has consis
Page 161 and 162: liable to pay a sum of money which
Page 163 and 164: 1.224 The second difference is that
Page 165: award if they succeed in persuading
Page 169 and 170: ... [c]ontracts should only be held
Page 171 and 172: (ii) The problems of defining with
Page 173 and 174: the insured wrongdoer’s inability
Page 175 and 176: award to be covered by insurance, t
Page 177 and 178: punitive damages, no enactment shal
Page 179 and 180: one case, 831 and arguably done so
Page 181 and 182: common law to hold, if necessary, t
Page 183 and 184: PART VI SUMMARY OF RECOMMENDATIONS
Page 185 and 186: (19) the ‘cause of action’ test
Page 187 and 188: damages shall be permitted for that
Page 189 and 190: MICHAEL SAYERS, Secretary 11 Septem
Page 191 and 192: Nigel Ley Harvey McGregor QC Tim Ow
Page 193 and 194: APPENDIX C Persons and organisation
Page 195 and 196: Steve Hedley John Hodgson L Hoyano
Page 197: 197
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