10 Dec 2007

"The reports of my death are greatly exaggerated": Exemplary damages in Australia

by Andrew Morrison, Mary Sheargold

Notwithstanding the civil liability reforms, exemplary damages may be awarded for intentional torts causing personal injury. Exemplary damages may also be awarded in property damage claims.

Exemplary damages are one of the spectres of product liability claims. All too often we see headlines from the United States referring to a massive punitive damages award. Sometimes we read about the attempts to reduce those awards on appeal.

Since the civil liability reforms, many companies distributing products in Australia have thought that an exemplary damages award was no longer possible in Australia. With apologies to Mark Twain, who sent a cable stating "The reports of my death are greatly exaggerated" after his obituary was mistakenly published in newspapers, reports of the demise of exemplary damages in Australia are similarly overstated.

What are exemplary damages?

Exemplary damages are awarded in order to punish a defendant. They are rarely awarded in Australia. A common thread in Australian law is an emphasis on compensation and a philosophical and jurisprudential preference for restitution, not punishment.

Exemplary damages will only be awarded in circumstances where there is an intentional element to the harm. Australian courts view the purpose of exemplary damages as being to punish the defendant for "conduct showing a conscious and contumelious disregard for the plaintiff's rights and to deter him from committing like conduct again"(XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448).

In Lamb v Cotogno (1987) 164 CLR 1, the High Court of Australia determined that malice on the defendant's part was not necessary for an award of exemplary damages to be made, however they may be awarded where the defendant's conduct is contumelious, malicious, or insolent.

To make a successful claim for exemplary damages in Australia, a plaintiff or claimant needs to show that a defendant engaged in "conscious wrongdoing" or had "contumelious disregard of another's rights": (Gray v Motor Accident Commission (1998) 196 CLR 1).

If such an award is made, they are generally quite small. The largest award made in Australia (that is not currently the subject of an appeal) was for $300,000. This was in a case involving the tort of conspiracy: (Chen v Karandonis [2002] NSWCA 412). This fact in itself demonstrates the very minor role that exemplary damages play in Australia.

Civil liability reforms

As part of the civil liability reforms, Australian jurisdictions have legislated to preclude awards of exemplary damages in many personal injury claims. For example, exemplary damages cannot be recovered for personal injury claims in negligence in New South Wales (under section 21 of the Civil Liability Act 2002 (NSW)), the Northern Territory (under section 19 of the Personal Injuries (Liabilities and Damages) Act 2003 (NT)), in Queensland (under section 52(1) of the Civil Liability Act 2003 (Qld)), unless the harm was intentional - see section 52(2))or under the Trade Practices Act 1974 (Cth) ("TPA").

Exemplary damages have also been abolished in respect of motor accidents (in NSW through section 81A of the Motor Accidents Act 1988 (NSW) and section 144 of the Motor Accidents Compensation Act 1999, and in Victoria through section 93(7) of the Transport Accident Act 1986 (Vic), and in actions which survive for the benefit of a deceased plaintiff's estate (through the various administration and probate laws in each State/Territory).

Exemplary damages have also historically not been available for misleading and deceptive conduct under the TPA because the aim of the relevant sections is to compensate the plaintiff, rather than punish the defendant (Musca v Astle Corp Pty Ltd (1988) 80 ALR 251 and Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494).

The exceptions: property damage and intentional torts

Notwithstanding the civil liability reforms, an award of exemplary damages may still be made in property damage claims and for personal injuries resulting from an intentional tort.

For example, in Crump and Ors v Equine Nutrition Systems t/as Horsepower [2006] NSWSC 512, the Supreme Court of New South Wales concluded that such a claim might be made for injuries sustained by horses as a result of consumption of defective horse feed. However, the Court was not prepared to make such an award as it viewed the actions of the manufacturer a having been "careless" rather than "deliberate".

In terms of personal injury claims, New South Wales, Queensland, Victoria, Western Australia and South Australia, have each specifically excluded intentional torts from their civil liability reforms and therefore allow exemplary damages to be claimed for acts of intentional wrongdoing.

An intentional tort is a deliberate action performed with the intent to cause death or injury to another person. For example, in Zorom Enterprises Pty Ltd v Zabow [2007] NSWCA 106, the New South Wales Court of Appeal held that an employer was vicariously liable for an international assault committed by its employee and awarded exemplary damages for the purposes of punishment and deterrence, both for the defendant and the community at large.

Intentional torts and product liability claims

In the area of product liability, an intentional tort could occur as a result of a manufacturer deliberately and knowingly placing a dangerous product on the market (or not taking remedial action after become where of a defect), which during use physically harms or kills a consumer.

One of the most famous examples of such a case is the US Ford Pinto case of Grimshaw v. Ford Motor Co., 119 Cal.App.3d 757, 174 Cal. Rptr. 348 (1981). The driver of a Ford Pinto was killed in a collision when the car exploded after a rear-end collision, and the passenger was badly burned and scarred for life. The jury's original punitive damages verdict was $125 million. This award was reduced upon appeal to $3.5 million. The plaintiffs alleged that the car's design allowed its fuel tank to be easily damaged in the event of a rear-end collision leading to an explosing. Ford was aware of this design flaw and risk but failed to undertake a $11 repair because it was argued, Ford decided it would be cheaper to pay off possible lawsuits for resulting deaths.

Conclusion

Awards for exemplary damages will undoubtedly continue to be rare in Australia. Such claims however can still be made, although only in exceptional circumstances. What is needed is more than simple negligence or a breach of statute.

Clearly, any claim that alleges that a company's conduct was malicious and intention and harmed consumers will raise concerns including from a corporate governance perspective.

Further, while such Australian awards in the past have been small compared to US punitive damages awards, there is insufficient Australian experience to make meaningful comments about the amount of such verdicts in the future. In addition, the amount of any such award would depend upon the flagrancy of the conduct, any financial benefit accruing to the manufacturer, a desire to mark the court's disapproval of the conduct, the need to deter similar conduct on the part of other manufacturers in the future, and any other relevant circumstances.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.