I. Punitive Damages

Author:John D. McCamus
Profession:Professor of Law. Osgoode Hall Law School, York University

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As a matter of general principle, damages for breach of contract or tort are compensatory in nature. Common law courts, however, have also assumed a jurisdiction to award "exemplary" or "punitive" damages in some kinds of civil cases. The imposition of such damages is a rare phenomenon and is typically imposed only in the context of certain types of tort claims. The anomalous nature of punitive or exemplary damage awards in civil cases has often been the subject of comment in the decisions of courts within the British Commonwealth. Thus, in the leading opinion of the decision of the House of Lords in Rookes v. Barnard,218Lord Devlin observed that their recognition, which he favoured to a limited degree, involved "admitting into the civil law a principle which ought logically to belong to the criminal."219The lack of procedural safeguards normally associated with punishment, the enrichment

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of the plaintiff rather than the state by the imposition of a civil fine and the inherent difficulty of quantifying such awards with resulting doctrinal uncertainty have conspired, in the English tradition at least, to justify caution and restraint in the making of such awards. Indeed, in Rookes v. Barnard itself, the English law of punitive damages approached the brink of extinction. Such awards were preserved in that case for application only in tort law and essentially in only two types of cases; first, claims arising from oppressive, arbitrary or unconstitutional acts of public servants or as Lord Devlin described it, "the arbitrary and outrageous use of executive power"220and second, those in which the defendant’s conduct was calculated to make a profit that exceeds the compensation available to the plaintiff. Until quite recently, the rules set forth in Rookes v. Barnard settled the boundaries for punitive damage awards in English law.

At the same time, however, some support for the making of such awards can be found. Lord Devlin himself expressed the view that punitive damage awards played a very useful role in the two categories of cases identified in Rookes v. Barnard. Further, the restriction of English awards to these two categories of cases has attracted criticism over the years. More particularly, the English Law Commission, in its report, Aggravated, Exemplary and Restitutionary Damages,221recom-mended a much broader potential availability of such awards in the context of tort law and in claims arising from equitable wrongdoing. Even for such enthusiasts, however, the extension of damage awards into the context of claims for damages for breach of contract, where no tort has been committed, have typically been considered to be beyond the pale. Thus, the Law Commission itself recommended against extending awards of punitive damages into the contractual context. A number of reasons were offered in support of this recommendation. Thus, "a contract is a private arrangement in which parties negotiate rights and duties, whereas the duties which obtain under the law of tort, are imposed by law; it can accordingly be argued that the notion of state punishment is more readily applicable to the latter than

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to the former."222It was further argued that "the need for certainty" is perceived to be greater in relation to contract than tort, thus rendering the discretionary features of exemplary damage awards unattractive. The commission noted that exemplary damages have never been awarded for breach of contract in the past, that the awarding of exemplary damages would tend to discourage efficient breach of contract223

and that contract, unlike tort law, typically involves pecuniary rather than non-pecuniary losses with respect to which exemplary awards are less appropriate. Other considerations may be thought to weigh against punitive damages in contract. It can be argued that, to the extent that punitive damage awards punish defendants who have inflicted anxiety and other mental suffering on plaintiffs, such injuries can be more directly and appropriately addressed by awards of compensatory damages relating to such injuries.224

It is well-established Canadian law that punitive damages are not narrowly restricted to the two categories of tort claims identified by the House of Lords in Rookes v. Barnard.225Punitive damages are considered to be generally available in the context of tort claims where the conduct is "deserving of punishment because of its harsh, vindictive, reprehensible and malicious nature."226More particularly, punitive damages may be awarded for negligence, provided that the negligence exhibits a degree of callousness that warrants such an award. In the leading case, Robitaille v. Vancouver Hockey Club,227the plaintiff was a professional hockey player who suffered a serious spinal injury that was misdiagnosed by the defendant team’s physician. After an initial injury, Robitaille’s request for medical treatment was ignored, his continuing complaints concerning symptoms were considered to be unfounded and he was pressured by the team’s management to continue playing by threats of suspension. In a subsequent game, Robitaille was further injured and suffered a permanent and disabling spinal cord in-

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jury. The British Columbia Court of Appeal upheld an award of punitive damages at trial on the basis that the negligence of the defendants was "such as to merit condemnation."228Although the test for the availability of punitive damages in a tort context has been variously stated, the Supreme Court emphasized in Norberg v. Wynrib229that it is not necessary to meet the threshold of "harsh, vindictive or malicious" conduct suggested in Vorvis230but it was sufficient to establish that the conduct was "reprehensible and it was of a type to offend the ordinary standards of decent conduct in the community."231As Robitaille itself illustrates, punitive damages have been awarded for breach of contract where the breach of contract also constitutes a tort. In recent years, however, the awarding of punitive damages for non-tortious or pure breaches of contract received the blessing of the Supreme Court of Canada. This development was reaffirmed in the decision of the Supreme Court in Whiten v. Pilot Insurance Co.232

The Canadian embrace of punitive damages for pure breach of contract arose in the context of wrongful dismissal cases and, more particularly, in the context of dismissal coupled with with an imputation of wrongdoing. In a contract of employment of indefinite duration, there is an implied term requiring the employer to give reasonable notice to the employee of an impending dismissal. Thus, in the typical wrongful dismissal case, the employee who has not received reasonable notice sues for damages for breach of that implied term. Where the wrongful dismissal is accompanied with false allegations of employee misconduct or other forms of harassment, it may be considered whether additional damages may be awarded to an employee who claims to have been injured by conduct of this kind. The traditional response of English law, followed until recent years in common law Canada, was that no such damages claim was available on a breach of contract theory. In the 1909 decision in Addis v. Gramophone Co. Ltd.,233the House of Lords held that, in a wrongful dismissal claim, no compensation can be awarded for the manner of dismissal. To the extent that the employee

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had suffered injuries as a result of, for example, defamation, the employee should be left to whatever tort remedies might be available.

The novel idea that punitive damages might be awarded in the wrongful dismissal context was taken up by the Supreme Court of Canada in Vorvis v. Insurance Corp. of British Columbia234in 1989. On this occasion, the Court offered the view that although such an award would be inappropriate on the facts of that case, punitive damages could indeed be awarded in the context of a claim for damages for breach of contract. The Supreme Court majority acknowledged the anomalous or "peculiar" nature of punitive damages awarded "in the absence of the procedural protections for the defendant [which are] always present in criminal trials where punishment is ordinarily awarded."235Nonetheless, the Court held that "while it may be very unusual to do so, punitive damages may be awarded in cases of breach of contract."236For such an award to be appropriate, the conduct of the defaulting party must be "of such a nature as to be deserving of punishment because of its harsh, vindictive, reprehensible and malicious nature."237Again, "the conduct must be extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment."238On the facts of the case, the wrongful dismissal had been preceded by a period of aggressive supervision perpetrated by the plaintiff’s supervisor. Although it was true that the supervisor had treated the plaintiff "in a most offensive manner"239the conduct was not of such a nature as to justify an award of punitive damages.

For the majority, MCINTYRE J. indicated an awareness of the problematic aspects of extending awards of punitive damages from their then-existing home of tort actions to cases of breach of contract. In a tort case, the defendant is "under a legal duty to use care not to injure his neighbour, and the neighbour has in law a right not to be so injured and an additional right to compensation where injury occurs."240On the other hand, "[i]n an action based on a breach of contract, the only link between the parties for the purpose of defining their rights and

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obligations is the contract. Where the defendant has breached the contract, the remedies open to the plaintiff must arise from the contractual relationship, that ‘private law,’ which the parties agreed to accept."241In the view of MCINTYRE J., however, the distinction between the nature of tortious liability and liability for breach of contract did...

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