It's time exemplary damages were part of the judicial armory in contract

• Author: Lauree Coci
• Position: Senior Associate, Clayton Utz, Perth
• Pages: 1-38

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IT'S TIME EXEMPLARY DAMAGES WERE PART OFTHE

JUDICIAL ARMORY IN CONTRACT

LAUREE COCI*

This article challenges the traditional approach that exemplary

damages 1are unavailable for breach of contract. Given the

exceptional nature and infrequent use of the remedy, the principles

relating to exemplary damages are often misunderstood. A survey of

key arguments in support of the traditional approach reveals that

such arguments are, in fact, weak and unpersuasive. This article

briefly examines other jurisdictions' positions on awarding exemplary

damages in contract, placing particular emphasis on Supreme Court

of Canada jurisprudence, which has employed exemplary damages in

this context. Ultimately, this article recommends that exemplary

damages be available for, at least, intentional and deliberate breaches

of contract in Australia.2

*SeniorAssociate, Clayton Utz, Perth.

1Exemplary damages are sometimes referred to as punitive, penal, retributive and vindictive

damages. However, the term 'exemplary damages' has found judicial favour in Australia: see

Uren v John Fairfax & Sons Ltd(1966) 117 CLR 118; Lamb v Cotogno(1987) 164 CLR 1; XL

Petroleum (NSW) Pty Ltd v Caltex Oil (Aust) Pty Ltd(1985) 155 CLR 448; Trend Management

Ltd v Borg (1996) 40 NSWLR 500; Blackwell v AAA[1997] 1 VR 182; Gray v Motor Accident

Commission(1998) 196 CLR 1; Gardiner v Ray[1999] WASC 140; Digital Pulse Pty Ltd v Harris

(2002) 166 FLR 421; Chen v Karandonis[2002] NSWCA 412; Harris v Digital Pulse Pty Ltd

(2003) 56 NSWLR 298; Amalgamated Television Services PtyLtd v Marsden (No 2)(2004) 57

NSWLR 338; Fatimi Pty Ltd v Bryant(2004) 59 NSWLR 678; Knight v State of New South Wales

[2004] NSWCA 791. Accordingly, for the purposes of consistency in this article, reference will

solely be made to 'exemplary damages'. However, it is acknowledged that there is some support

for p referring the use of punitive damages to ex emplary damages. Those commentators who

prefer punitive damages to exemplary damages base their preference on the purpose of those

kinds of damages being to punish the defendant as opposed to making an example out of the

defendant: see N McBride, 'A Case for Awarding Punitive Damages in Response to Deliberate

Breaches of Contract' (1995) 214 Anglo-American Law Review369; Feldthusen, 'Recent

Developmentsin the Canadian Law of Punitive Damages' (199 0) 16 Canadian Business LJ241 at

250-251; Ontario Law Reform Commission, Report on Exemplary Damages(1991) at 31-39; and

Tilbury Factors Inflating Damages Awards in Finn(ed), Essays on Damages(Lawbook Company,

Sydney, 1992) 101-102. The writer respectfully disagrees with that approach and advocates that

there are three aims of exemplary damages- punishment, deterrence and vindication- not simply

one aim.

2The scope of this article does not extend to the computation of exemplary damages.

The Universityof Western Australia Law Review Volume 40

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I INTRODUCTION:ABRIEF HISTORY OF EXEMPLARY DAMAGES

To contextualise the present discussion, a brief overview of the legal history of

exemplary damages in Australia is appropriate. Australia derives its use of

exemplary damages from England.3Until 1964 in England, although exemplary

damages were never available in contract, in tort, there were no particular

limitations on their award.4At the time of introduction of such damages, the

English courts were unclear about their purpose. Some judges and

commentators began to explain large jury verdicts as awards of exemplary

damages.5Another explanation was that the awards serve the purpose of

punishing the defendant for his or her misconduct.6

In 1964, the landscape of exemplary damages in England changed

following the decision of the House of Lords in Rookes v Barnard7. Lord Devlin,

who delivered the leading speech in that case, showed that he was not in favour

of the use of exemplary damages. As such, Lord Devlin restricted the use of

exemplary damages by, first, distinguishing between exemplary and aggravated

damages. His Lordship enunciated that aggravated damages compensate the

claimant for the mental distress caused by the defendant's wrongdoing, whereas

exemplary damages are punitive and intended to punish the defendant.

Secondly, Lord Devlin restricted the availability of exemplary damages to three

categories of torts:8

1.oppressive, arbitrary or unconstitutional action by servants of the

government;9

2.wrongful conduct that has been calculated by the defendant to make a

profit for himself, which may well exceed the compensation payable to

the plaintiff;10and

3For a more detailed account of the history of exemplary damages in England, see Harvey

McGregor, McGregor on Damages(London: Sweet & Maxwell, 18thed, 2009) 420-452.

4Andrew Tettenborn, 'Punitive Damages – A View from England' (2004) 41 San Diego Law

Review 1551 at 1552.

5Ralph Cunnington, 'Should punitive damages be part of the judicial arsenal in contract cases?'

(2006) 26(3) Legal Studies369 at 370.

6Merest v Harvey(1815) 5 Taunt 442.

7[1964] AC 1129.

8Rookes v Barnard[1964] AC 1129 at 1226-1227.

9This category is based on the 18th Century cases which introduced the general doctrine of

exemplary damages. Two conditions must be satisfied. Firstly, the conduct of the defendant

must be shown to be, in Lord Devlin's words, oppressive, arbitrary or unconstitutional. Secondly,

the defendant must be a servant, which includes police and local and other officials: Holden v

Chief Constable of Lancashire[1987] QB 380 CA; AB v South West Water Services[1993] QB 507

CA.

10This ca tegory focuses on the intention or motive behind the defendant's conduct. This

category gives rise to difficulties of definition and delineation. See further McGregor, above n 3,

432-438.

2015It's Time Exemplary Damages Were Part of the Judicial Armory

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3.where such an award is expressly authorised by statute.11

Following the decision of the House of Lords in Rookes v Barnard, several

members of the House of Lords suggested that Rookes v Barnard introduced a

second test into the law- the 'cause of action test' - which denies exemplary

damages for any tort where its use was not established by previous authority.12

The cause of action test, however, was heavily criticised as irrational and

unworkable.13The state of the law on exemplary damages caused practical

difficulties for practitioners. It meant that practitioners were required to trawl

through authorities to discover whether exemplary damages were available.14

The task was made more difficult by the fact that, prior to 1964, the distinction

between exemplary and aggravated damages was notso pronounced.15

In 2002, the case of Kuddus v Chief Constable of Leicestershire

Constabulary 16 abolished the 'cause of action test' in accordance with

recommendations by the Law Commission’s Report of 1997, which declared

the state of the law on exemplary damages as "rationally indefeasible".17The

House of Lords in Kuddus, however, regrettably stopped short of overruling

Lord Devlin's 'categories test.'18

The High Court of Australia went further than Kuddus and rejected the

'categories test' in Uren v John Fairfax & Sons Pty Ltd19. Taylor J observed that:

[T]he limitation of [exemplary damages] to the categories specified in

Rookes v Barnard is not, in my view, justified either upon principle or upon

authority, and the adoption of those categories would not remove the suggested

anomaly, but on the contrary, introduce others.20

Windeyer J enunciated a new test which had two requirements:

a)the cause of action must be of a kind for which exemplary damages are

available as a remedy; and

11Where a statute makes no express reference to exemplary damages but is so phrased as to

permit an authorisation to award exemplary damages to be inferred, such an inference is not

likely drawn by the courts. See McGregor, above n 3, 44 0.

12Broome v Cassell & Co[1972] AC 1027 at 1086. T hese comments were applied by the Court of

Appeal in AB v South West Water Services Ltd[1993] QB 57.

13WVH Rogers, Winfield & Jolowicz on Tort(London: Sweet & Maxwell, 15thed, 1998) 746.

14Cunnington, above n 5, 372.

15Cunnington, above n 5, 372.

16[2002] 2 AC 122.

17Law Commission,Aggravated, Exemplary and Restitutionary Damages(Law Commission

Report No. 247, 1997) 1.49.

18Three years after Lord Devlin's speech in Rookes v Barnard, Spencer J in the Supreme Co urt of

Canada declared that the jurisdiction to award exemplary damages in Canada was not limited to

Lord Devlin's three categories: Vorvis v Insurance Corporation of British Columbia(1989) 58

DLR (4th) 193 at 206.

19(1966) 117 CLR 118.

20Uren v John Fairfax & Sons Pty Ltd(1966) 117 CLR 118 at 139.