TORT 155 Compensatory and Exemplary Damages — Law of Torts Notes for Judiciary

Compensatory and Exemplary Damages: Repairing a Loss and Punishing a Wrong

The ordinary object of an award of damages is restitutio in integrum: to put the plaintiff, so far as money can, in the position he would have occupied if the wrong had not been done. That is compensatory and it looks only at the plaintiff. Exemplary or punitive damages look at the defendant: they are awarded in addition to compensation, to punish him and to deter others, and they may therefore exceed the plaintiff's loss altogether, giving him a windfall. Because that sits awkwardly with the compensatory principle and with the idea that punishment belongs to the criminal law, they are confined to a closed list of categories.

1. The Comparison

	Compensatory damages	Exemplary damages
The object	To repair the plaintiff's loss	To punish the defendant and deter others
What is looked at	The plaintiff and what he has lost	The defendant and how he behaved
The measure	The loss, assessed under the recognised heads	Whatever is needed to mark the court's disapproval, within reason
May it exceed the loss	No, by definition	Yes. That is the point
Availability	In every tort, on proof of damage	Only within the recognised categories
Relationship to the criminal law	None	Uneasy. It punishes without the safeguards of a criminal trial
Effect of a prior punishment	None	A defendant already punished criminally should not ordinarily be punished again
Multiple plaintiffs	Each recovers his own loss	The total should be assessed once, not multiplied by the number of claimants
The defendant's means	Irrelevant	Relevant, since the sum must be felt

2. The Three Categories

📖 Rookes v. Barnard, [1964] AC 1129

Facts The plaintiff, a draughtsman, resigned from his trade union. Union officials threatened his employer with a strike in breach of an agreement unless he was dismissed. He was dismissed, and sued the officials for intimidation.

Held The tort of intimidation was established. On damages, Lord Devlin confined exemplary awards to three categories.

Ratio Exemplary damages may be awarded only where there is oppressive, arbitrary or unconstitutional action by servants of the government; where the defendant's conduct was calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff; and where they are expressly authorised by statute. Outside those categories the function of damages is compensation, and the plaintiff must have suffered as a result of the punishable behaviour before he may recover at all.

The category	What it covers, and why
Oppressive, arbitrary or unconstitutional action by servants of the government	The State has power the citizen does not, and an award marks the abuse of it. In India this is largely absorbed into the constitutional tort, where compensation is awarded for the violation of a fundamental right and carries an element of vindication: TORT 137
Conduct calculated to make a profit exceeding the compensation payable	The commercial category. A defendant who has worked out that the wrong pays should not be allowed to keep the difference, and compensatory damages alone would leave him with the profit
Where a statute expressly authorises it	A question of construction. The legislature having provided for it, no further justification is needed

Cassell and Co. Ltd. v. Broome, [1972] AC 1027 affirmed the categories after a sustained attack on them, and added that the plaintiff must be the victim of the punishable behaviour, that the means of the parties are material, and that everything aggravating or mitigating must be taken into account.
The second category is not confined to money precisely calculated. It is enough that the defendant acted with a cynical disregard for the plaintiff's rights, with an eye to the material advantage, having decided that the game was worth the candle.

3. The Indian Position

Bhim Singh v. State of Jammu and Kashmir, (1985) 4 SCC 677 is the clearest instance of the first category. A sitting legislator was detained mala fide and prevented from attending the Assembly; the Court awarded Rs 50,000 as exemplary damages, the release of the detenu not rendering the petition infructuous where constitutional rights had been invaded: TORT 112.
M.C. Mehta v. Union of India, (1987) 1 SCC 395 built the deterrent idea into the measure itself for hazardous enterprise, compensation being correlated to the magnitude and capacity of the enterprise so that it has a deterrent effect: TORT 115.
M.C. Mehta v. Kamal Nath, decided 15 March 2002, drew an important line. A pollution fine cannot be imposed in the exercise of the writ jurisdiction without following the procedure prescribed by the statute, since that is a criminal punishment. But a person guilty of causing pollution can be held liable to pay exemplary damages, so that it may act as a deterrent to others. The Court withdrew the notice for a fine and issued a fresh notice for exemplary damages.
Common Cause v. Union of India, (1999) 6 SCC 667 is the standing warning. On review the Court recalled an award of Rs 50 lakh in exemplary damages made against a Minister whose allotment of petrol outlets it had found arbitrary, holding that arbitrariness alone is not the tort of misfeasance in public office and that exemplary damages must rest on a clear and rational basis: TORT 107.

4. Why the Categories Exist

Punishment without a criminal trial is constitutionally awkward. A defendant condemned to pay exemplary damages has been punished on the balance of probabilities, without the presumption of innocence, without the protection against self incrimination, and without the sentencing safeguards a criminal court applies.
The plaintiff receives a windfall. He is compensated in full by the compensatory award, and the exemplary sum is money he has not lost. There is no principled reason why it should go to him rather than to the State.
The award is unpredictable. Unlike a sentence, it is fixed by reference to no tariff, and unlike compensation it is tied to no measurable quantity.
And it may be duplicated. A defendant may be prosecuted for the same conduct, which is why a prior punishment tells against an exemplary award.
The categories confine the damage. They limit the jurisdiction to the two situations where compensation alone plainly fails: where the wrongdoer is the State and has abused power the plaintiff never had, and where the wrongdoer has calculated that the wrong is profitable.

5. How an Exemplary Claim Is Pleaded

The category must be identified and the facts pleaded to bring the case within it. A bare prayer for exemplary damages, unsupported by an averment of oppressive unconstitutional action or of calculated profit, is liable to be struck out.
For the first category, plead that the defendant was a servant of the government, identify the power exercised, and plead the facts showing that the exercise was oppressive, arbitrary or unconstitutional.
For the second, plead the calculation: what the defendant stood to gain, that he knew or was reckless whether he was acting unlawfully, and that he proceeded because the gain exceeded the likely compensation.
Plead the defendant's means, since the sum must be one that he will feel.
Plead the compensatory claim fully and separately, since the exemplary sum is additional and the court must first be satisfied that compensation alone is inadequate.
Consider the constitutional route instead, which in India is where most of the first category now lives, and where the award is made without the pleading difficulties of a suit: TORT 135 and TORT 137.

⚠ Why the windfall objection has never actually settled the question

The standard objection to exemplary damages is that they punish in a civil court and hand the proceeds of the punishment to a plaintiff who has already been made whole. The objection is sound as far as it goes, and it has been made forcefully for two centuries without the jurisdiction being abolished anywhere. The reason is that the alternative leaves a real gap. Take the second Rookes category at its plainest: a publisher works out that a defamatory story will sell a hundred thousand extra copies, that the plaintiff can prove perhaps a lakh of actual damage, and that the profit will be several times that. On a purely compensatory rule he should publish, and a rational profit maximiser will. The criminal law is no answer, because the conduct is not an offence and prosecuting it would be worse than the disease. Restitution is the theoretically correct answer, stripping the gain rather than punishing the actor, but the law of restitution does not reach a defendant who made his profit from third parties rather than at the plaintiff's expense. So exemplary damages survive as the only available instrument, and the windfall to the plaintiff is tolerated as the price of having one. What the categories do is keep the price small by confining the jurisdiction to the cases where nothing else will work, and Common Cause is the reminder that even inside a category the award must rest on a clear and rational basis rather than on judicial indignation.

6. The Position Stated Shortly

1. Compensatory damages repair the plaintiff's loss; exemplary damages punish the defendant and deter others.

2. Exemplary damages may exceed the loss and give the plaintiff a windfall, which is why they are confined to closed categories.

3. Rookes v. Barnard establishes three: oppressive, arbitrary or unconstitutional action by servants of the government; conduct calculated to profit beyond the compensation payable; and express statutory authority.

4. Cassell v. Broome affirmed the categories and required the plaintiff to be the victim of the punishable behaviour.

5. Bhim Singh v. State of Jammu and Kashmir awarded Rs 50,000 exemplary damages for a mala fide detention.

6. M.C. Mehta v. Union of India built deterrence into the measure for hazardous enterprise, correlating compensation to the magnitude and capacity of the enterprise.

7. M.C. Mehta v. Kamal Nath holds that a pollution fine cannot be imposed under Article 32 without the statutory procedure, but exemplary damages may be awarded as a deterrent.

8. Common Cause v. Union of India holds that arbitrariness alone is not misfeasance in public office and that exemplary damages must rest on a clear and rational basis.

9. The defendant's means are relevant, a prior criminal punishment tells against an award, and the total is assessed once rather than multiplied by the number of claimants.

10. The category must be identified and the facts pleaded to bring the case within it, and the compensatory claim must be pleaded fully and separately.