Punitive damages are an extraordinary award, granted on top of compensatory damages, which are intended to restore the plaintiff to the position he or she would have been in but for the breach of a legal obligation on the part of the defendant.
Punitive damages are intended to go further than just restoring the status quo ante of one particular plaintiff. They are intended to operate as a deterrent for the defendant, sending a clear message, through larger fines, that corporations will not get away with socially unacceptable behaviour.
They are further intended to discourage corporations from doing a simple cost benefit calculation in their business practices, factoring in that, if they breach their obligations, they will have predictable losses in legal suits that can be off set against the profits to be gained from breaking the law.
Punitive damages are intended to sting. An award of punitive damages is meant to convey that paying legal awards is not a mere license fee or a cost of doing business.
The criteria for whether a defendant warrants a punitive damages judgement are laid out in the case law. The plaintiff needs to establish that the defendant’s conduct reached and crossed a threshold of misconduct. The nexus of behaviours that attract an award of punitive damages include the following:
- Punitive damages are warranted when the behavior of the defendant is designed to force vulnerable parties to make an unfair settlement;
- when the defendant’s conduct was planned and deliberate;
- when the defendant was cavalier with or hostile towards an obligation to deal with the plaintiff in good faith;
- when a pattern of conduct can be established;
- when the actionable wrong is a breach of a contractual duty of good faith;
- when the defendant’s conduct is high-handed, arbitrary, or highly reprehensible;
- when the defendant stands poised to profit by its high-handed behavior;
- when other fines or penalties that the defendant might face are insufficient to deter high-handed behavior;
- when misconduct would otherwise go unpunished;
- and when other penalties are inadequate to achieve deterrence.
According to the leading Canadian case on punitive damages, the theory that drives punitive damages is that “it takes a large whack to wake up a wealthy and powerful defendant to its responsibilities”.