THE LAW COMMISSION Item 2 of the Sixth Programme of Law Reform: Damages AGGRAVATED, EXEMPLARY AND RESTITUTIONARY DAMAGES To the Right Honourable the Lord Irvine of Lairg, Lord High Chancellor of Great Britain PART I INTRODUCTION 1. THE SCOPE OF THIS REPORT 1.1 Damages are normally concerned to compensate the victim of a wrong. They are designed to make good, so far as possible, the pecuniary or non-pecuniary loss suffered by the victim by putting him or her into as good a position as if no wrong had occurred. In this paper we are, in contrast, primarily concerned with exemplary damages, which aim to punish the wrongdoer. We shall be confronting some major questions of policy for our civil law system. Should we continue to recognise punishment, as well as compensation, as a legitimate aim of awards for civil wrongs? If exemplary damages are to continue, in what circumstances should they be available and how should they be assessed? We have had the opportunity to face these difficult issues of policy afresh, with the considerable benefit of the views of consultees, and unconstrained, as the courts have been, by precedent. 1.2 The modern boundaries of the remedy of exemplary damages were fashioned by the courts on the assumption that they are an ‘anomalous’ civil remedy, and must be limited as far as precedents permit.1 Few, whether opposing or in favour of exemplary damages, would argue that the boundaries so set are consistent with either sound principle or sound policy. Later in this Introduction2 we give some examples of cases in which, we, in agreement with many consultees, consider that there is a practical need for exemplary damages to be available, but for which they are, at present, denied. These include, in particular, cases in which a victim’s claim will fail, however outrageous the defendant’s wrongdoing, and however inadequate the available alternative sanctions, simply because: (1) it does not fall within one or other of two limited categories of case (abuse of power by public servants and wrongdoing which is calculatedly profit- seeking);3 (2) it is for a wrong, such as unlawful sex discrimination, for which no pre- 1964 authorities can be discovered in which exemplary damages were awarded for the wrong in question;4 or 1 See, in particular, the discussion of Rookes v Barnard [1964] AC 1129 and AB v South West Water Services Ltd [1993] QB 507 at paras 4.2-4.4 below. 2 See para 1.24 below, examples (5)-(10). 3 See para 1.24 below, examples (5), (6) and (9). 1 (3) the wrongdoer’s conduct has affected a large number of people, and so caused a large number of claims to be made in respect of it.5 1.3 Even if the law were not open to objection on the above ground, reform would still be required, we suggest, due to the unsatisfactory manner in which exemplary damages are assessed.6 Although reasoned, consistent and proportionate awards are vital, there are few clear principles to guide courts towards this result. And, indeed, such awards are almost impossible to achieve if, as at present, juries may have the task of deciding the quantum of exemplary damages. 1.4 We shall also be considering the two other major types of ‘exceptional’ damages recognised in English law: aggravated damages, which have often been confused with exemplary damages; and restitutionary damages, which are damages which aim to strip away some or all of the gains made by a defendant from a civil wrong. 1.5 Although we call these three types of damages (exemplary, aggravated and restitutionary) ‘exceptional’, we do not thereby seek to minimise the importance of this topic. Very few would seek to defend the present law. Reform, especially of the law on exemplary damages, is widely agreed to be essential.7 As Lord Justice Stephenson stated in Riches v News Group Newspapers,8 the present state of the law “... cries aloud for Parliamentary intervention”.9 Publication of this report provides a unique opportunity to rationalise and clarify the aims and purposes of the English law of damages. 2. THE CONSULTATION PROCESS 1.6 Our consultation paper on these damages, Aggravated, Exemplary and Restitutionary Damages,10 was published in Autumn 1993. The topic of exemplary damages, in particular, provoked a wide range of strongly-held views from consultees. Although it appeared that a clear majority favoured the retention of exemplary damages, the diversity of views left us in some doubt as to where the consensus of opinion lay as regards the future of exemplary damages. We therefore took the unusual step of issuing a supplementary consultation paper in August 1995. That paper outlined three models for reform and asked consultees to express their preference. The process confirmed that a considerable majority of consultees favoured the retention of exemplary damages. We describe the three models and the results of the process in more detail in Part V.11 A list of those who responded to the two papers appears in Appendices B and C. Although the decision to have two consultation exercises led to a long delay in formulating our final proposals, we 4 See para 1.24 below, examples (5), (7), (8), (9) and (10). 5 See para 1.24 below, example (9). See also the discussion of multiple plaintiff claims and AB v South West Water Services Ltd [1993] QB 507 at para 4.47 below. 6 See, in particular, the discussion at paras 4.56-4.60, 4.86-4.98 and 5.81-5.98 below. 7 See para 1.14 below. 8 [1986] QB 256. 9 [1986] QB 256, 269C. 10 (1993) Consultation Paper No 132. 11 See paras 5.13-5.15 below. 2 should emphasise at the outset that we have derived enormous assistance from the responses of the consultees to the two consultation papers. 3. OVERVIEW OF OUR RECOMMENDATIONS AND REASONING (1) Aggravated damages 1.7 In Part II of this Report we review the present law on aggravated damages, and in particular, the confusion that has surrounded their aims. Are they a punitive measure of damages, like exemplary damages, or are they compensatory? 1.8 Our conclusion is that aggravated damages compensate the victim of a wrong for mental distress (or ‘injury to feelings’) in circumstances in which that injury has been caused or increased by the manner in which the defendant committed the wrong, or by the defendant’s conduct subsequent to the wrong.12 There is no justification for the law recognising a punitive civil remedy that is both additional to exemplary damages, and unconstrained by the severe constraints which the law imposes on the availability of the latter.13 The difficulties which uncertainty in this area has caused in practice were recently highlighted in the Court of Appeal’s decision in Thompson v MPC.14 We discuss that decision in detail in Part II. 1.9 We think it vital to dispel such confusion once and for all. Our recommendations aim to do so. We recommend that statute should clarify that aggravated damages are concerned to compensate and not to punish the wrongdoer,15 and further that, wherever possible, the label ‘damages for mental distress’ should be used instead of the misleading phrase ‘aggravated damages’.16 Once it is appreciated that aggravated damages are concerned with circumstances in which the victim of a civil wrong may obtain compensation for mental distress which he or she has suffered, a more coherent perception, and so development of, the law on damages for mental distress should be possible.17 (2) Restitutionary damages 1.10 In Part III of this Report we review the present law relating to the availability of restitution for a wrong. We shall see that restitution is well-recognised for some types of wrong,18 but that its availability is disputed in relation to several others.19 We shall also see that, where recognised, restitution will currently be effected by 12 See paras 2.1-2.2 and 2.40 below. 13 See para 2.40 below. 14 [1997] 3 WLR 403. 15 See paras 2.41-2.42, recommendation (1), and draft Bill, clause 13, below. 16 See paras 2.41-2.42, recommendation (2), and draft Bill, clause 13, below 17 See, in particular, para 2.43 below. 18 See Part III: section 2(1)(a) (proprietary torts, excluding intellectual property torts), at paras 3.10-3.18 below; section 2(1)(b) (intellectual property torts), at paras 3.19-3.22 below; and section 2(2) (equitable wrongs), at paras 3.28-3.32 below. 19 See Part III: section 2(1)(c) (non-proprietary torts), at paras 3.23-3.27 below; and section 2(3) (breach of contract), at paras 3.33-3.37 below. 3 means of one or more of several different remedies: an action for ‘money had and received’; an ‘account of profits’; and (restitutionary) ‘damages’. 1.11 Our conclusion is that development of the law on restitution for wrongs is, in general, most appropriately left to the courts.20 No attempt should be made to state comprehensively in legislation which civil wrongs can trigger restitution, or when they should do so.21 This position had the support of a large majority of consultees. 1.12 Nevertheless, it would be desirable if the law were to develop towards having a single, restitutionary remedy for wrongs, rather than the range of remedies which currently fulfil that role.22 More importantly, we recommend that a limited measure of legislative reform is required as a result of our recommendations relating to exemplary damages.