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You are here: BAILII >> Databases >> The Law Commission >> AGGRAVATED, EXEMPLARY AND RESTITUTIONARY DAMAGES [1997] EWLC 247(1) (16 December 1997)
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Cite as: [1997] EWLC 247(1)
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PART I
INTRODUCTION
1. THE SCOPE OF THIS REPORT
1.1 Damages are normally concerned to compensate the victim of a wrong. They are designed to make good, so far as possible, the pecuniary or non-pecuniary loss suffered by the victim by putting him or her into as good a position as if no wrong had occurred. In this paper we are, in contrast, primarily concerned with exemplary damages, which aim to punish the wrongdoer. We shall be confronting some major questions of policy for our civil law system. Should we continue to recognise punishment, as well as compensation, as a legitimate aim of awards for civil wrongs? If exemplary damages are to continue, in what circumstances should they be available and how should they be assessed? We have had the opportunity to face these difficult issues of policy afresh, with the considerable benefit of the views of consultees, and unconstrained, as the courts have been, by precedent.
1.2 The modern boundaries of the remedy of exemplary damages were fashioned by the courts on the assumption that they are an anomalous civil remedy, and must be limited as far as precedents permit. (1) Few, whether opposing or in favour of exemplary damages, would argue that the boundaries so set are consistent with either sound principle or sound policy. Later in this Introduction (2) we give some examples of cases in which, we, in agreement with many consultees, consider that there is a practical need for exemplary damages to be available, but for which they are, at present, denied. These include, in particular, cases in which a victims claim will fail, however outrageous the defendants wrongdoing, and however inadequate the available alternative sanctions, simply because:
(1) it does not fall within one or other of two limited categories of case (abuse of power by public servants and wrongdoing which is calculatedly profit-seeking); (3)
(2) it is for a wrong, such as unlawful sex discrimination, for which no pre-1964 authorities can be discovered in which exemplary damages were awarded for the wrong in question; (4) or
(3) the wrongdoers conduct has affected a large number of people, and so caused a large number of claims to be made in respect of it. (5)
1.3 Even if the law were not open to objection on the above ground, reform would still be required, we suggest, due to the unsatisfactory manner in which exemplary damages are assessed. (6) Although reasoned, consistent and proportionate awards are vital, there are few clear principles to guide courts towards this result. And, indeed, such awards are almost impossible to achieve if, as at present, juries may have the task of deciding the quantum of exemplary damages.
1.4 We shall also be considering the two other major types of exceptional damages recognised in English law: aggravated damages, which have often been confused with exemplary damages; and restitutionary damages, which are damages which aim to strip away some or all of the gains made by a defendant from a civil wrong.
1.5 Although we call these three types of damages (exemplary, aggravated and restitutionary) exceptional, we do not thereby seek to minimise the importance of this topic. Very few would seek to defend the present law. Reform, especially of the law on exemplary damages, is widely agreed to be essential. (7) As Lord Justice Stephenson stated in Riches v News Group Newspapers, (8) the present state of the law "... cries aloud for Parliamentary intervention". (9) Publication of this report provides a unique opportunity to rationalise and clarify the aims and purposes of the English law of damages.
2. THE CONSULTATION PROCESS
1.6 Our consultation paper on these damages, Aggravated, Exemplary and Restitutionary Damages, (10) was published in Autumn 1993. The topic of exemplary damages, in particular, provoked a wide range of strongly-held views from consultees. Although it appeared that a clear majority favoured the retention of exemplary damages, the diversity of views left us in some doubt as to where the consensus of opinion lay as regards the future of exemplary damages. We therefore took the unusual step of issuing a supplementary consultation paper in August 1995. That paper outlined three models for reform and asked consultees to express their preference. The process confirmed that a considerable majority of consultees favoured the retention of exemplary damages. We describe the three models and the results of the process in more detail in Part V. (11) A list of those who responded to the two papers appears in Appendices B and C. Although the decision to have two consultation exercises led to a long delay in formulating our final proposals, we should emphasise at the outset that we have derived enormous assistance from the responses of the consultees to the two consultation papers.
3. OVERVIEW OF OUR RECOMMENDATIONS AND REASONING
(1) Aggravated damages
1.7 In Part II of this Report we review the present law on aggravated damages, and in particular, the confusion that has surrounded their aims. Are they a punitive measure of damages, like exemplary damages, or are they compensatory?
1.8 Our conclusion is that aggravated damages compensate the victim of a wrong for mental distress (or injury to feelings) in circumstances in which that injury has been caused or increased by the manner in which the defendant committed the wrong, or by the defendants conduct subsequent to the wrong. (12) There is no justification for the law recognising a punitive civil remedy that is both additional to exemplary damages, and unconstrained by the severe constraints which the law imposes on the availability of the latter. (13) The difficulties which uncertainty in this area has caused in practice were recently highlighted in the Court of Appeals decision in Thompson v MPC. (14) We discuss that decision in detail in Part II.
1.9 We think it vital to dispel such confusion once and for all. Our recommendations aim to do so. We recommend that statute should clarify that aggravated damages are concerned to compensate and not to punish the wrongdoer, (15) and further that, wherever possible, the label damages for mental distress should be used instead of the misleading phrase aggravated damages. (16) Once it is appreciated that aggravated damages are concerned with circumstances in which the victim of a civil wrong may obtain compensation for mental distress which he or she has suffered, a more coherent perception, and so development of, the law on damages for mental distress should be possible. (17)
(2) Restitutionary damages
1.10 In Part III of this Report we review the present law relating to the availability of restitution for a wrong. We shall see that restitution is well-recognised for some types of wrong, (18) but that its availability is disputed in relation to several others. (19) We shall also see that, where recognised, restitution will currently be effected by means of one or more of several different remedies: an action for money had and received; an account of profits; and (restitutionary) damages.
1.11 Our conclusion is that development of the law on restitution for wrongs is, in general, most appropriately left to the courts. (20) No attempt should be made to state comprehensively in legislation which civil wrongs can trigger restitution, or when they should do so. (21) This position had the support of a large majority of consultees.
1.12 Nevertheless, it would be desirable if the law were to develop towards having a single, restitutionary remedy for wrongs, rather than the range of remedies which currently fulfil that role. (22) More importantly, we recommend that a limited measure of legislative reform is required as a result of our recommendations relating to exemplary damages. Restitutionary damages are a less extreme remedy than exemplary damages. We recommend that they should be available (at least) where exemplary damages could be awarded. (23)
(3) Exemplary damages
1.13 It is in relation to the remedy of exemplary damages that reform of the law is most needed. It is also in relation to this remedy that we make our most far-reaching recommendations. We shall see in Part IV that the availability of exemplary damages under English law is, at present, artificially restricted. (24) In broad terms, an award can only be made for a limited set of civil wrongs (the cause of action test) (25) and in only a limited set of circumstances in which those wrongs are committed (the categories test). (26)
(a) What direction should reform of exemplary damages take?
1.14 Almost without exception, consultees considered that the current legal position could not be justified; the status quo should not be maintained. We agree. But in what direction should the law develop? A number of consultees (including senior judges, practitioners and academics) considered that rationalisation entailed abolition. (27) But a significantly higher number (also including senior judges, practitioners and academics) considered that rationalisation entailed a principled, statutory expansion of the availability of exemplary damages. (28)
1.15 In favouring retention and expansion, rather than abolition, we have been most influenced by two considerations. First, there is a practical need for exemplary damages. Our attention was drawn by large numbers of consultees to what are, or would be, gaps in the law - areas in which other remedies or sanctions are inadequate, in practice, to punish and to deter seriously wrongful behaviour. These ranged from providing sanctions against abuses of power by the police, to deterring unlawfully discriminatory conduct by employers or persons generally, to discouraging deliberate violations of health and safety legislation. In general terms, one can regard the gaps as flowing from the fact that the criminal law and criminal process do not work perfectly (and inevitably so). Substantial numbers of consultees considered that exemplary damages do or could have a useful role to play in filling these gaps. They fulfil a practical need. We agree.
1.16 Secondly, we believe that, provided exemplary damages are a last resort remedy which are subject to significant limitations, and provided that the availability and assessment of exemplary damages are determined by judges and not juries, exemplary damages are a legitimate way of meeting that practical need.
1.17 In formulating our recommendations, our guiding aims have been five-fold. First, exemplary damages should be an exceptional remedy, rarely-awarded and reserved for the most reprehensible examples of civil wrongdoing which would otherwise go unpunished by the law. Secondly, their availability (and assessment) must be placed on a clear, principled basis. Thirdly, although flexibility is necessary, unnecessary uncertainty as to the availability and assessment of the remedy must be avoided. Fourthly, defendants must not be unfairly prejudiced. Fifthly, the impact on the administration and funding of civil justice should not be adverse.
1.18 We believe that, if legislative reform is guided by those aims, the remedy of exemplary damages can emerge as a useful and legitimate, rather than anomalous, civil remedy, which may be expected to command support from all but the strongest proponents of abolition.
(b) Our recommendations for reform of exemplary damages
1.19 Our central recommendations are that the cause of action and categories tests should be replaced with a general principled test of availability, but that that expansion of liability should be subject to major limitations.
1.20 A judge (and never a jury) (29) should award exemplary damages (or as we prefer to call them, punitive damages) (30) for any tort or equitable wrong, as well as for statutory wrongs if an award would be consistent with the policy of the statute under which the wrong arises. (31) However, an award should be made only if the defendants conduct showed a deliberate and outrageous disregard of the plaintiffs rights (32) and the other remedies awarded would be inadequate to punish the defendant for his conduct. (33) 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. (34) 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, and therefore available. (35) The court will retain a safety-valve discretion to refuse punitive damages, where an award would otherwise be available under the above tests, if some exceptional factor exists which makes it proper in the circumstances to refuse an award. (36)
1.21 The decision about how much to award as punitive damages, where they have been held to be available, should also always be for a judge, never a jury. (37) An award should not exceed the minimum necessary to punish the defendant for his conduct, and should be proportionate to the gravity of his wrongdoing. (38) The judge should also be guided by a non-exhaustive statutory list of relevant factors. (39) We anticipate that a body of precedent, judicial tariffs and/or guideline judgments would offer further guidance, in time. (40) If a defendant would not be able to pay an award which is assessed in this way without undue hardship, then the court should select a lower, appropriate sum. (41)
1.22 Apart from these central recommendations, we make a number of additional ones. A claim to punitive damages should be specifically pleaded. (42) The standard of proof should remain the civil standard of proof on the balance of probabilities. (43) Liability to punitive damages should, in general, be several only. (44) However, vicarious liability should apply (45) and insurance should be permitted. (46) A claim for punitive damages should survive for the benefit of the estate of the victim, (47) but not against the estate of the wrongdoer. (48) Where a defendants conduct constitutes wrongs against two or more persons (a multiple plaintiff case) punitive damages should only be awarded to the first of those persons to claim them successfully, (49) and where they are so awarded, the court should ensure that the aggregate award does not constitute excessive punishment. (50)
1.23 We should emphasise that, in our view, if the above package of reforms were accepted, the impact on the administration and funding of civil justice would not be significantly adverse. Successful claims should be rare if, as we propose, punitive damages are reserved for cases of seriously wrongful conduct which has not been dealt with adequately (or at all) by another means. The legislative scheme which we propose, coupled with case law interpretation, should provide a set of clear, and restrictive, principles governing when awards may be made. And the prospects of a substantial increase in litigation to obtain a new financial windfall should be further reduced, if, as we would expect, judicial assessment of punitive damages would lead to moderate, as well as consistent and reasonably predictable, awards in the rare cases in which they were made.
4. SOME PRACTICAL EXAMPLES
1.24 It may prove helpful at this stage to provide some practical examples of situations in which, applying our proposals, punitive damages would be an available remedy (subject to there being no criminal conviction or adequate other remedy). These are, in other words, situations which illustrate the practical need for the last resort remedy of punitive damages. Examples (1)-(4) are all cases in which exemplary damages are probably currently available. Examples (5)-(10) are all cases in which exemplary damages could not be claimed under the present law. (51)
(1) Police officers arrest and detain a man without grounds for suspecting that he has committed any offence. In the course of his arrest and detention, manifestly unnecessary and excessive force is used against him. The officers involved then fabricate evidence against the man. A prosecution is brought, but fails. The man claims damages for false imprisonment, assault and malicious prosecution.
(2) A local newspaper publishes a sensationalist story, knowing it to be false, about a local school-teacher who had a sexual relationship with and caused to become pregnant a pupil under the age of consent. The newspaper does so in the expectation that the teacher will be unlikely to wish to sue for defamation, and that even if he does so, the general boost to the papers circulation figures will earn the paper a profit significantly in excess of the damages likely to be payable. The school-teacher claims damages for defamation, but is unable to prove that his story led to any measurable increase in the newspapers profits.
(3) A medical practitioner carries out large-scale, intrusive and unnecessary surgery on a private patient. He deliberately withheld the information from the patient, who he was aware placed complete trust in him, because he knew that the patient would not have consented, had the patient known of the true position, and because he would obtain a sizeable sum as payment for the surgery. The patient claims damages for trespass to the person.
(4) A photographer takes photographs at a wedding. Some time later, the father of the groom is murdered in horrific circumstances which attract a large amount of publicity. The photographer sells copies of the wedding photographs to the national press. The photographs feature prominently on the pages of several national newspapers. The groom-son of the murder victim seeks damages from the photographer for infringement of copyright.
(5) An employee is subjected to a campaign of racial harassment by a group of fellow employees over a long period, ranging from taunting, ostracism, and false accusations of misconduct, to violent physical abuse. Though she makes a formal complaint to her employer, no proper investigation is conducted and no further action is taken. The harassment continues. The employee claims damages for unlawful discrimination contrary to the Race Relations Act 1976 against the fellow employees.
(6) A private store detective accuses a shopper of shoplifting, without basis for the accusation and purely vindictively. He detains the shopper, forces her to undergo an intrusive bodily search and then proceeds to fabricate evidence against her. As a result, the shop initiates a private prosecution against the shopper, which fails. The shopper claims damages from the store detective and his employers for assault and false imprisonment.
(7) An employer carries out a manufacturing process which produces a large amount of dust in the workplace. Regular complaints have been made to the employer by employees who have started to develop respiratory problems as a result of persistent exposure to the dust. Although the employer is aware of the substantial risk of serious injury to which its employees are being exposed, it decides not to install an effective extraction system, and takes no other steps, at any time, to address the problem. Instead, in blatant and knowing disregard of the health and welfare of its workforce, it chooses to use its capital expenditure on profit-increasing capital items. An employee who has developed particularly severe respiratory problems, and has been forced to leave work, claims damages for negligence and for breach of statutory duty.
(8) An ex-employee of a company designing computer software sets up a rival business. Using information which he obtained in confidence during his employment with the company, the ex-employees business thrives. Whilst the ex-employee knows that his use of the information is wrongful, he considers that it is worth committing the wrong because, even if found out and sued, he will, at worst, be made to give up his net profits. His former company sues him, the ex-employee, for breach of confidence.
(9) A source of drinking water is contaminated by substantial quantities of a pollutant which is harmful to humans. Many customers complain to the water authority which has responsibility for the contaminated source. The authority knowingly misleads them as to the true state of affairs, informing them that the water is safe to drink. No tests have in fact been carried out. Many customers continue to drink the water as a result. Even once the authority has carried out its own investigation, accurate information is still withheld by it as to what happened and as to the state of the water. No proper information is given to the local public health authorities, hospitals, doctors, pharmacists or customers as to what precautions should be taken to minimise the ill effects. No steps are taken by the authority to provide an alternative, safe water source. Many customers suffer ill-effects as a result of drinking the contaminated water. A group of them claims damages for negligence and public nuisance.
(10) A solicitor dishonestly assists a company director in laundering company funds in a way which would make it impossible in practice to establish that any criminal offence had been committed. The company sues the solicitor for dishonestly assisting in a breach of fiduciary duty.
5. THE STRUCTURE OF THIS REPORT
1.25 This Report is arranged as follows. Part II deals with aggravated damages. Part III deals with restitution for wrongs. Part IV looks at the present law relating to exemplary damages and Part V at reform of exemplary damages.
6. ACKNOWLEDGMENTS
1.26 We would like to thank the participants at the Society of Public Teachers of Law Seminar on Exceptional Measures of Damages held at All Souls College, Oxford, on 1 July 1995, and chaired by the then Chairman of the Law Commission, Mr Justice (now Lord Justice) Brooke. That seminar was extremely helpful and informative. We would also like to thank Lord Justice Brooke, the Lord Chancellors Department, the Department of Trade and Industry, the Home Office, Professor Jack Beatson, and Professor Peter Birks, who each commented on drafts of this paper; Sir Brian Neill, Desmond Browne QC, Jeremy Gompertz QC, and Charles Gray QC, whom we consulted on the role of juries in deciding claims to exemplary damages; Mr Justice Jacob, Mr Justice Laddie, Geoffrey Hobbs QC, and Aidan Robertson, whom we consulted on intellectual property issues.
(1) See, in particular, the discussion of Rookes v Barnard [1964] AC 1129 and AB v South West Water Services Ltd [1993] QB 507 at paras 4.2-4.4 below.
(2) See para 1.24 below, examples (5)-(10).
(3) See para 1.24 below, examples (5), (6) and (9).
(4) See para 1.24 below, examples (5), (7), (8), (9) and (10).
(5) See para 1.24 below, example (9). See also the discussion of multiple plaintiff claims and AB v South West Water Services Ltd [1993] QB 507 at para 4.47 below.
(6) See, in particular, the discussion at paras 4.56-4.60, 4.86-4.98 and 5.81-5.98 below.
(7) See para 1.14 below.
(9) [1986] QB 256, 269C.
(10) (1993) Consultation Paper No 132.
(11) See paras 5.13-5.15 below.
(12) See paras 2.1-2.2 and 2.40 below.
(13) See para 2.40 below.
(15) See paras 2.41-2.42, recommendation (1), and draft Bill, clause 13, below.
(16) See paras 2.41-2.42, recommendation (2), and draft Bill, clause 13, below
(17) See, in particular, para 2.43 below.
(18) See Part III: section 2(1)(a) (proprietary torts, excluding intellectual property torts), at paras 3.10-3.18 below; section 2(1)(b) (intellectual property torts), at paras 3.19-3.22 below; and section 2(2) (equitable wrongs), at paras 3.28-3.32 below.
(19) See Part III: section 2(1)(c) (non-proprietary torts), at paras 3.23-3.27 below; and section 2(3) (breach of contract), at paras 3.33-3.37 below.
(20) See Part III: section 3(1), paras 3.38-3.47 below.
(21) See Part III: section 3(1), paras 3.38-3.47, and recommendations (4)-(6), below.
(22) See paras 3.82-3.84 and recommendation (14) below.
(23) See paras 3.48-3.53, recommendations (7)-(8), and draft Bill, clauses 12(1)-12(3) (and 12(5)), below.
(24) See generally Part IV, but in particular, paras 4.2-4.4 below.
(25) See AB v South West Water Services Ltd [1993] QB 507, and see, in particular, paras 4.4 and 4.24-4.28 below.
(26) See Rookes v Barnard [1964] AC 1129, per Lord Devlin, and see, in particular, paras 4.3 and 4.6-4.23 below.
(27) Just over one quarter (28%) of those responding to the Supplementary Consultation Paper (1995) favoured total abolition, in preference to the two other alternatives of expansion and partial retention. See paras 5.13-5.15 below.
(28) Just under one half (49%) of those responding to the Supplementary Consultation Paper (1995) favoured a principled expansion, broadly along the lines which we recommend in Part V, in preference to the two other alternatives of total abolition and partial retention. Just under a quarter (23%) supported partial retention; 72% were therefore in favour of retaining exemplary damages in some form. See paras 5.13-5.15 below.
(29) See paras 5.81-5.98, recommendation (17), and draft Bill, clause 2, below.
(30) See para 5.39 and recommendation (15) below.
(31) See paras 5.49-5.65, recommendation (19), and draft Bill, clause 3(3)-3(5), below.
(32) See paras 5.46-5.48, recommendation (18), and draft Bill, clause 3(6), below.
(33) See paras 5.99-5.102, recommendation (20), and draft Bill, clause 3(7), below.
(34) See paras 5.103-5.115, recommendation (21)(a), and draft Bill, clause 4(1), below.
(35) See paras 5.116-5.117, recommendation (21)(b), and draft Bill, clause 4(2), below.
(36) See paras 5.118-5.119 below.
(37) See paras 5.81-5.98, recommendation (17), and draft Bill, clause 2, below.
(38) See paras 5.120-5.122, recommendations (22)(a) and (22)(b), and draft Bill, clause 5(1)(a) and 5(1)(b), below.
(39) See paras 5.123-5.128, recommendation (23), and draft Bill, clause 5(2), below.
(40) See, in particular, our reasoning at paras 5.91-5.98 below; see also paras 4.86-4.98 below.
(41) See paras 5.135-5.141, recommendations (26)-(28), and draft Bill, clause 6, below.
(42) See paras 5.133-5.134, recommendation (25), and draft Bill, clause 3(2), below.
(43) See paras 5.231-5.233, recommendation (41), and draft Bill, clause 10, below.
(44) See paras 5.186-5.203, recommendation (34), and draft Bill, clause 8(1), below. Cf paras 5.204-5.205.
(45) See paras 5.209-5.230, recommendations (37)-(40), and draft Bill, clauses 8(2)(a) and 11 below.
(46) See paras 5.234-5.273, recommendation (42), and draft Bill, clause 9(1), below. Cf also recommendation (43) and draft Bill, clause 9(2), below.
(47) See paras 5.274-5.275, recommendation (44), and draft Bill, clause 14(1)-14(3), below.
(48) See paras 5.276-5.278, recommendation (45), and draft Bill, clause 14(1) and 14(3), below.
(49) See paras 5.159-5.185 (especially paras 5.162-5.167), recommendations (30) and (31), and draft Bill, clause 7(1) and 7(4), below.
(50) See paras 5.168-5.171, recommendation (32), and draft Bill, clause 7(3), below.
(51) See para 1.2 above and in particular paras 4.2-4.28, 4.47, below.