Contract Damages, Corrective Justice and Punishment

Publication Date01 Nov 2007
AuthorPey‐Woan Lee
Volume 70 November 2007 No 6
Contract Damages, Corrective Justice and Punishment
Pey-Woan Lee
This article re-examines the established principle that contract damages compensate but do not
punish from the theoretical perspectiveof corrective justice and, in particular, the version advo-
cated by Professor ErnestWeinrib.Weinrib argues that corrective justice a⁄rms the traditional
view that contractdamages should be circumscribed by compensatory functions,a ndthe notion
of punitive damages is inconsistent with the structure of correctivejustice and hence contractual
rights.The correctness of thi s conclusion depends, however, on what is understood by punish-
ment. This article argues that punishment is not necessarily explicable only as a form of state
punishment, but may (adopting the retributiveidea of pu nishment expounded by Jane Hamp-
ton) also be understood as a form of correlatively-structured response that redresses the moral
injury in£icted by one’s conduct on another. If that is the case, punitive damages forbreach of
contract maybe justi¢ed even within the frameworkof corrective justice.
The very idea of punishment is anathema to the law of contract.This hostility is
best observed in the general disallowance of punitive damages for breach of con-
tract across a number of common law jurisdictions. In England, where the antip-
athy towards punitive awards in the civil context is arguably the most
pronounced, the unavailability of punitive damages for breach of contract has
long been taken as settled by theHouse of Lords’decision in Addis vGramophone.
Even in the context of tort, punitive damages are only tolerated as an‘anomaly’
for speci¢c‘categories’ of torts.
While a less restrictive approach maygenerally be
observed as regards torts in Australia and New Zealand, these jurisdictions are
Assistant Professor, School of Law, Singapore Management University. I am indebted to Professor
Howard Hunter, Associate Professor Tham Chee Ho and the MLR referees for their insightful com-
ments. All errors are myresponsibil ity.
1 [1909]AC 488, but see text to n 38 below.
2Rookes vBarnard [1964] AC 1129,1221 (Lord Devlin).
3 These are, as identi¢ed by Lord Devlin in Rooke s vBarnard ibid,1226^7,cases i nvolving(i) oppres-
sive, arbitrary or unconstitutional action by civil servants; (ii) opportunistic conduct by the
defendant calculated to make a pro¢t for himself which exceeds the loss to the plainti¡; and (iii)
statutorily authorized punitive awards.The additional ‘cause of action’restriction laid down in
Cassell vBroome [1972] AC1027 was (rightly, it is submitted) rejected by the House of Lords in
Kuddus vChiefConstableof Leicestershire Constabulary [2001]UKHL 29; [2002] 2 AC122.
r2007 The Author.Journal Compilation r2007 The Modern Law ReviewLimited.
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2007) 70(6) 8 87^907
similarly ill-disposed towards punitive awards in contract law.
The position in
the United States is less clear-cut due, in part, to the uneven treatment across the
di¡erent States. On the whole, however, the dominant approach is to exclude
punitive awards in contracts.
Against this formidable body of authorities, the
morel iberal attitudeemerging from Canada is exceptional. InWhiten vPilot Insur-
ance Co
the Canadian Supreme Court held that punitive damages may be
awarded to punish, deter and denounce the conduct of a contract breaker, where
the breachwas accompanied by an independent actionable wrong. It su⁄ced, for
this purpose, that the defendant had breached the contractual duty of good faith
in addition to the contractual duty to pay loss.
The arguments against the award of punitive damages in contracts are well-
rehearsed. Most fundamental is the concern that the introduction of punishment
into civil law confuses the civiland criminal functions of the law^ a judicial usur-
pationof legislative function that exposes civil litigants to criminal liability with-
out the attendant constitutional and procedural safeguards. In addition, those
who support the use of pun itive damages in tort but not contract law justify the
di¡erential treatment by reference to their distinctive nature and purposes.These
include,for instance, the historical proximity between torts and crimes, theman-
datoryand involuntary nature of tortious obligations, the greater need for reme-
dial certainty in the context of contract than in tort, and the di¡erent moral
qualities of tortious and contractual breaches. The last-mentioned argument is
now popularly encapsulatedby the theory of e⁄cient breach,which regards con-
tractual breach as a morally neutral option for attaining e⁄cient allocation of
resources. Interestingly, however, there has been no s hortage of attempts to chal-
lenge this orthodox positiondespite this host of forceful arguments.
4 For Australia, see Gray vMotorAccident Commission[1998] HCA70; (1998) 196 CLR1, 6^7,citi ng
Gri⁄th CJ in Butler vFaircl ough (1917) 23 CLR 78,89.In New Zealand, notwithstanding a num-
ber of High Court dec isions that favoured the availability of punitive damages in co ntract(s eeTa k
and CoInc vAEL Corporation Ltd (1995)5 NZBLC 103 andTabley EstatesLtd vHamilton CityCouncil
[1996] 1 NZLR 159), the New Zealand Court of Appealhas recently foreclosed such development
in no uncertain terms: see Paper ReclaimLtd vAotearoaInternationalLtd [2006] NZCA27; [2006] 3
5 Restatement (Second) of Contracts, Section 355. This general rule is, of course, subject to the
well-established carve-out involving bad-faith breach of contract torts in insurance cases, which
has in turn given rise to pressure for expansionof the punitive awardi ncontracts generally.The
Californian courts havesi nceretreated from such expansions: see eg Freema n & Mills, In c vBelcher
OilCo (1995)11Cal 4th 85,4 4 Cal Rptr 2d 420, 900 P 2d699. Further, it s hould be noted that even
in the context of insurance cases, some states have adopted the stricter requirement that the
insurer’s breach of the contract be accompanied by a n ‘independent tort’ to justify punitive
damages: see egTransportation InsuranceCo vJuan Carlos Moreil (1994) 879 SW 2d10 (Texas). For a
helpful synthesis of the complex position in the US, see H. Hunter, Modern Law of Contracts
(Westgroup: St Paul,2nd rev ed,1999) ch 18.
6 (2002) 209 DLR (4th) 257.
7 See eg,D.Venour,‘Punitive Damages in Contract’(1988)1 CanadianJournalof Law andJurisprudence
87; N. McBride,‘A Case forAwarding Punitive Damages in Response to Deliberate Breaches of
Contract’ (1995) 24Anglo-American Law Review 369; S.Smith, ‘Performance, Punishment and the
Nature of Contractual Obligation’ (1997) 60 MLR 360; J. Mallor and B. Roberts, ‘Punitive
Damages:Toward a Principled Approach’ (1999)50 HastingsLaw Journal 969;W.Dodge,‘The Case
for Punitive Damagesi n Contracts’ (1999)48 DukeLaw Journal 629; A. Phang and P.W. Lee,‘Res-
titutionary and Exemplary DamagesRevisited’ (2003) 19 JCL 1; R. Cunnington,‘Should Puni-
tive Damagesbe Part of the Judicial Arsenal in Contract Cases?’ (2006) 26 LegalStudies 369.
Contract Damages
888 r2007 The Author.Journal Compilation r2007 The Modern Law ReviewLimited.
(2007) 70(6) 887^907

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