Exemplary damages

The basic principles of contract →Go uptown A candidate for exemplary damages, yesterday. Quick reminder: in the law of contract “losses” and “damages are” different, though related things. Losses are pecuniary misfortunes that you might suffer as a result of a breach of contract. They can be divided into: “Direct” losses, that are the natural and foreseeable consequence of breach of contract. “Indirect” or “consequential” losses, which are a more speculative nature. Note that “loss of profit” and “loss of opportunity” are not judicially recognised categories of loss: they can be either direct — for example, foregone interest on a defaulted payment — or indirect — the winnings you would have got from putting that defaulted payment on a rank outsider who came good in the 2:35 at Kempton — but if in doubt (i.e., not a natural consequence of the breach) assume they will be indirect Damages are the amounts a court orders a naughty counterparty to pay to an innocent to compensate for its loss of bargain (in a contract) or atone for its wrongdoing (in a tort or breach of trust). They may, or may not, be the same amount as the actual losses suffered: “General” damages compensate for direct losses. “Special” damages relate to indirect losses. They are rare in contracts, even when not specifically excluded which, in finance contracts, they usually will be. “Punitive” or “exemplary” damages do not compenstate for loss at all, but rather punish a wrongdoer for outrageous behaviour. These are not available under English contract law but may be awarded — extremely rarely — in tort or for breach of trust. There is also an “Account for profit”: an order to hand over profits made through the misuse of someone else’s physical or intellectual property. This remedy is not available for a simple breach of contract. Grievances and remedies, charted Grievance Remedy Contract Tort Fiduciary Direct loss General damages Yes Yes Yes Indirect/consequential loss Special damages Usually No Usually No Usually No Egregious wrongdoing Exemplary/punitive damages No Yes Possibly Profiting at owner’s expense Account for profit No Yes Yes Formation: capacity and authority · representation · misrepresentation · offer · acceptance · consideration · intention to create legal relations · agreement to agree · privity of contract oral vs written contract · principal · agent Interpretation and change: governing law · mistake · implied term · amendment · assignment · novation Performance: force majeure · promise · waiver · warranty · covenant · sovereign immunity · illegality · severability · good faith · commercially reasonable manner · commercial imperative · indemnity · guarantee Breach: breach · repudiation · causation · remoteness of damage · direct loss · consequential loss · foreseeability · damages · contractual negligence · process agent Remedies: damages · adequacy of damages ·equitable remedies · injunction · specific performance · limited recourse · rescission · estoppel · concurrent liability Not contracts: Restitution — quasi-contract — quasi-agency Index: Click ᐅ to expand: Contract Tort Restitution Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Exemplary damages
/ɪgˈzɛmpləri ˈdæmɪʤɪz/ (n.)
[Only for civil wrongs not governed by a contract]

In which a court becomes unusually censorious, and departs from its usual role of merely compensating victims of civil wrongdoing, and proactively punishes a wrongdoer for its naughtiness, independently of any compensable loss it has caused, or ill-gotten gain it must disgorge.

Not, generally, available as a remedy for breach of contract, even in the US, though should one simultaneously commit a tort while performing a contract, one may still be liable for exemplary damages to the victim of the tort.

For example say, in the service of your employer, you navigate your punt so outrageously and to the detriment of a third party not being your employer or one of its customers, that the court feels you should be punished, look out.

Not to be confused with aggravated damages, which address unusual distress that he may have caused the victim, and therefore are still compensatory in nature, or consequential loss, that speculative “oh-yeah-Jimmy-Hill” style damages for profits you might have made elsewhere had you not been busy being breached at under this contract.

“Exemplary”, or “punitive” damages — punishing a defendant for the contumelious or high-handed way it wronged a plaintiff — isn’t “contumelious” a great word? — goes beyond the philosophical aims of a contractual remedy — to give a fellow what he bargained for — and so are not available as damages for breach of contract. As Lord Atkinson put it, in the great case of Addis v Gramophone:

“In many other cases of breach of contract there may be circumstances of malice, fraud, defamation, or violence, which would sustain an action of tort as an alternative remedy to an action for breach of contract. If one should select the former mode of redress, he may, no doubt, recover exemplary damages, or what is sometimes styled vindictive damages; but if he should choose to seek redress in the form of an action for breach of contract, he lets in all the consequences of that form of action: Thorpe v Thorpe (1832) 3B.&Ad. 580. One of these consequences is, I think, this: that he is to be paid adequate compensation in money for the loss of that which he would have received had his contract been kept, and no more.”

“Vindictive damages”. I mean did you ever hear such a super phrase? How did it not catch on?

The Law Commission, considering the topic some ninety-odd years later, felt the same way: “we recommend that punitive damages should not be available unless the defendant has committed a tort, an equitable wrong, or a civil wrong that arises under a statute, and his conduct showed a ‘deliberate and outrageous disregard of the plaintiff’s rights’. We also recommend that punitive damages should never be available for breach of contract.”

Exclusion of liability for

You will see contracts excluding liability for consequential loss — fair enough, if a bit pedantic, seeing as typically one couldn’t claim it anyway — but also wrapping into that a carve out for liability for exemplary damages, too. We query that: firstly, under a simple contract, there are no exemplary damages, as per above; secondly, even if there were — and there might be if the contract conferred some kind of fiduciary relationship, and therefore sounded in equity — we would ask what justification there would be for a party being exonerated from punishment from its egregious wrongdoing. You only are even vaguely in the frame for exemplary damages if your behaviour is so out of order, so contumelious in its high-handedness or outrage — that it would be unconscionable to let you get away with it unsanctioned.

We wonder, too, whether a contractual term purporting to bar a non-contractual remedy would be enforceable in any case, especially where the person seeking to rely on it has, by definition, acted in bad faith.

See also

• Consequential loss