Commerical litigation & dispute resolutionContracts

Exemplary damages are a form of discretional award driven by public policy grounds, the need for punishment for wrongdoing, and the demand for strict deterrence. Whilst the provision of this kind of damages by the courts remains relatively rare it still bears significance in certain contexts, such as in circumstances involving product liability and intentional torts. In this way, a solid comprehension of the exemplary damages remains useful from the perspective of both businesses and consumers in addition to the ordinary understanding of litigation and contracts.

According to the High Court case of Lamb v Cotogno (1987) 164 CLR 1, exemplary damages or punitive damages apply in situations where the conduct of the wrong-doer is so excessive that it merits punishment. These kinds of damages move beyond ordinary damages, which work on the basis of placing an injured party back into the position occupied as if the wrong had not occurred, to a method that focuses on the wrong-doer’s own conduct. That is, exemplary damages are confined to application in the most serious and severe of circumstances. These are provided by the court in addition to general compensatory damages.

Exemplary damages are limited by the effect of statute, such as the Civil Liability Act 2002 (NSW). This means only certain actions will give rise to the prospect of exemplary damages. Actions which cannot give rise to this remedy include, but are not limited to:

– Actions in defamation;

– Negligence resulting in injury or death;

– Motor accidents;

– Misleading and deceptive conduct;

– Breaches of certain equitable obligations, such as breach of fiduciary duty; and

– Breaches of contractual obligations.

This particular form of damages can, however, be argued in cases involving tortious wrongs that are deliberate and intentional. (see Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118) An example of this would be in the context of a product liability case where a manufacturer has deliberately permitted a product with a major failure to remain available on the market, such as a motor vehicle with a major safety defect. In these cases the courts utilise their role to positively contribute to public policy matters and thereby address issues that are important to the wider community. In the context of commercial litigation and dispute resolution, this serves as a particular reminder to companies in the business of product manufacturer to take care in conducting commercial transactions to ensure all obligations are met.

It must be emphasised that an award for exemplary damages continues to be rare. In Australia, the courts work to deliver measured judgments according to the particular circumstances of each case. This involves giving due consideration to the means of the wrong-doer, the existence of provocation and any punishment already imposed upon the wrong-doer. There is also no strict ratio or standard in measuring the quantum of this additional award – it is generally considered that an exemplary damage award ought to be moderate. (see Xl Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd [1985] HCA 12)

Whether you are a consumer or operating as a business, a wrong-doer or the wronged, an understanding of exemplary damages will help you better understand your options and position when faced with the prospect of a commercial dispute. If you need any further advice, please get in touch today!

This article was authorised by Warwick Heeson.

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