What Are Punitive Damages?

A Punitive Damage May Be Awarded Within a Case Where the Court Deems That the Misconduct By the Defendant Was So Outrageous That a Monetary Penalty Is An Appropriate Means to Denounce the Behaviour and Where the Compensation Awarded Is Insufficient As a Deterrent.

Understanding When Punitive Damages Claims Are Appropriate As a Means to Deter Egregious Misconduct

Lawsuit Document Involving Conspiracy Issues Generally, It is rare for a court in Canada to award punitive damages; but, for legal cases that involve malicious and egregious behaviour, whereas a court wishes to sternly denounce the behaviour, a punitive damage award may be granted.

The Law

Where the amount of money awarded as compensation to a victim of wrongdoing may be relatively minor and therefore insufficient to discourage further similar wrongdoing, punitive damages may also be awarded as a means for the court to show displeasure in the conduct and to deter recurrence of the conduct. These reasons for a punitive award were explained within the cases of Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130 as well as Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595 whereas the Supreme Court stated:

196  Punitive damages may be awarded in situations where the defendant's misconduct is so malicious, oppressive and high‑handed that it offends the court's sense of decency.  Punitive damages bear no relation to what the plaintiff should receive by way of compensation.  Their aim is not to compensate the plaintiff, but rather to punish the defendant.  It is the means by which the jury or judge expresses its outrage at the egregious conduct of the defendant.  They are in the nature of a fine which is meant to act as a deterrent to the defendant and to others from acting in this manner.  It is important to emphasize that punitive damages should only be awarded in those circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence.

36  Punitive damages are awarded against a defendant in exceptional cases for “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency”: Hill v. Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130, at  para. 196.  The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour.  Because their objective is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed), punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment).

As the Supreme Court explained within the Hill and Whiten cases above, punitive damages may be awarded as means of ensuring a punishment upon the Defendant rather than as a means of compensating the Plaintiff; and accordingly, an award of punitive damages should be considered only after the deserved amount of compensation due to the Plaintiff is determined whereas a key question will be whether the compensation is enough to deter further similar conduct or whether punitive damages are necessary as the means for the court to send the proper message.

Availability

An award for punitive damages may be provided regardless of the cause of action (in law, a cause of action means the reason for suing); and accordingly, where the circumstances warrant, punitive damages may arise within legal cases for breach of contract, tortious conduct, or other issues.  Indeed, per the cases provided above, the Hill case involved the tort of defamation and the Whiten case involved a breach of contract.  In Whiten, while addressing the concern that punitive damages require some form of independently wrongful conduct separate from a breach of contract, as per the previous precedent law of Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085, the Supreme Court said:

78  This, as noted, is a breach of contract case.  In Vorvis, supra, this Court held that punitive damages are recoverable in such cases provided the defendant’s conduct said to give rise to the claim is itself “an actionable wrong” (p. 1106).  The scope to be given this expression is the threshold question in this case, i.e., is a breach of an insurer’s duty to act in good faith an actionable wrong independent of the loss claim under the fire insurance policy?   Vorvis itself was a case about the employer’s breach of an employment contract.  This is how McIntyre J. framed the rule at pp. 1105-6:

When then can punitive damages be awarded?   It must never be forgotten that when awarded by a judge or jury, a punishment is imposed upon a person by a Court by the operation of the judicial process.  What is it that is punished?   It surely cannot be merely conduct of which the Court disapproves, however strongly the judge may feel.  Punishment may not be imposed in a civilized community without a justification in law.  The only basis for the imposition of such punishment must be a finding of the commission of an actionable wrong which caused the injury complained of by the plaintiff.  [Emphasis added.]

This view, McIntyre J. said (at p. 1106), “has found approval in the Restatement on the Law of Contracts 2d in the United States”, which reads as follows:

Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.  [Emphasis added.]

Applying these principles in Vorvis, McIntyre J. stated, at p. 1109:

Each party had the right to terminate the contract without the consent of the other, and where the employment contract was terminated by the employer, the appellant was entitled to reasonable notice of such termination or payment of salary and benefits for the period of reasonable notice.  The termination of the contract on this basis by the employer is not a wrong in law and, where the reasonable notice is given or payment in lieu thereof is made, the plaintiff — subject to a consideration of aggravated damages which have been allowed in some cases but which were denied in this case — is entitled to no further remedy . . . .  [Emphasis added.]

Wilson J., with whom L’Heureux-Dubé J. concurred, dissented.  She did not agree “that punitive damages can only be awarded when the misconduct is in itself an ‘actionable wrong’”.  She stated, at p. 1130:

In my view, the correct approach is to assess the conduct in the context of all the circumstances and determine whether it is deserving of punishment because of its shockingly harsh, vindictive, reprehensible or malicious nature.  Undoubtedly some conduct found to be deserving of punishment will constitute an actionable wrong but other conduct might not.

Additionally, per the case of Utilebill Credit Corp. v. Apex Home Services Inc., 2021 ONSC 4633, punitive damages may be awarded despite the lack of a compensatory damages award:

[109]  Utilebill relies on Pinks v. Bhatia, 2017 ONSC 3742 at para. 31 for the proposition that a defendant cannot be ordered to pay punitive damages in the absence of being found liable to pay general or special damages based on a primary cause of action. Pinks arose from a mortgagee’s unreasonable actions in sale proceedings. Among other concerns, there were excessive and erroneous charges in the mortgage discharge statement. The mortgagee, Bhatia, and the mortgagee’s lawyer, Silver, were found jointly liable for punitive damages by the small claims court trial judge.

[110]  Justice Kiteley said at para. 34:

In the absence of a contractual relationship or other relationship that gave rise to a duty of care, there is no basis for finding Silver liable for any damages, and in the absence of a finding of primary liability, he cannot be found liable for an independent actionable wrong.

[111]  Here, Ms. Stevenson’s position regarding the contract was vindicated. Utilebill’s effort to rely on the contract as an assignee to a rental agreement completely failed. Further, as I stated in paragraph [13] above, Utilebill was a party to the contract. Silver was neither an assignee nor a party to the contract. The circumstance is not equivalent to Pinks.

[112]  Also, Waddams on Damages, supra, at 11.370 contains this passage on this issue:

The amount of punitive damages is unrelated to the actual loss suffered by the plaintiff, and it has, indeed, been held that exemplary damages may be awarded where the plaintiff has suffered no loss at all. It is, however, essential that the plaintiff has an independent cause of action against the defendant, or else a person entirely unaffected by the defendant’s conduct could sue for exemplary damages. Lord Devlin said on this point: “the plaintiff cannot recover exemplary damages unless he is the victim of the punishable behaviour. The anomaly inherent in exemplary damages would become an absurdity if a plaintiff totally unaffected by some oppressive conduct which the jury wished to punish obtained a windfall in consequence.” [Emphasis added, footnotes omitted.]

Assessment

As for determining what is an appropriate sum for a punitive damage award, the case of Midwest Amusement Park, LLC v. Cameron Motorsports Inc., 2018 ONSC 4549 well summarized the rationality established within the Whiten case for both awarding punitive damages as well as assessing the sum of the punitive damages award.  In Midwest, while referring to Whiten, it was specifically stated:

[101]  Punitive damages are only awarded in extraordinary situations. In general, punitive damages are considered in situations where the defendant's misconduct is so malicious, oppressive, and high-handed that it would offend the court's sense of decency. Punitive damages do not bear any relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate a party, but rather to punish someone. It is the means by which a court expresses its outrage at what it considers egregious conduct of a party.

[102]  In the leading case of Whiten v. Pilot Insurance Co., the Supreme Court of Canada restored a punitive damages award of $1 million made by a jury in an action against an insurer who had breached its duty of good faith and fair dealing to its insured. At para. 94 of his judgment, Justice Binnie described how to instruct a jury about punitive damages; he stated:

94. [I]t would be helpful if the trial judge's charge to the jury included words to convey an understanding of the following points, even at the risk of some repetition for emphasis. (1) Punitive damages are very much the exception rather than the rule, (2) imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour. (3) Where they are awarded, punitive damages should be assessed in an amount reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant, (4) having regard to any other fines or penalties suffered by the defendant for the misconduct in question. (5) Punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate to achieve the objectives of retribution, deterrence and denunciation. (6) Their purpose is not to compensate the plaintiff, but (7) to give a defendant his or her just desert (retribution), to deter the defendant and others from similar misconduct in the future (deterrence), and to mark the community's collective condemnation (denunciation) of what has happened. (8) Punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish these objectives, and (9) they are given in an amount that is no greater than necessary to rationally accomplish their purpose. (10) While normally the state would be the recipient of any fine or penalty for misconduct, the plaintiff will keep punitive damages as a "windfall" in addition to compensatory damages. (11) Judges and juries in our system have usually found that moderate awards of punitive damages, which inevitably carry a stigma in the broader community, are generally sufficient.

[103]  It follows from Justice Binnie’s remarks that an assessment of punitive damages requires an appreciation of: (a) the degree of misconduct; (b) the amount of harm caused; (c) the availability of other remedies; (d) the quantification of compensatory damages; and (e) the adequacy of compensatory damages to achieve the objectives or retribution, deterrence, and denunciation. These factors must be known to ensure that punitive damages are rational and to ensure that the amount of punitive damages is not greater than necessary to accomplish their purposes.

[104]  Earlier in his judgment, at para. 74, Justice Binnie stated:

[T]he governing rule for quantum is proportionality. The overall award, that is to say compensatory damages plus punitive damages plus any other punishment related to the same misconduct, should be rationally related to the objectives for which the punitive damages are awarded (retribution, deterrence and denunciation).

[105]  Later in his judgment, at para. 100, he stated: “The rationality test applies both to the question of whether an award of punitive damages should be made at all, as well as to the question of quantum.

Pleading Punitive Damages

With all the above stated about when punitive damages may be claimed and how punitive damages claims are reviewed by the courts, it is important that a Plaintiff seeking punitive damages properly state the basis, and the relevant facts, as required when claiming punitive damages.  The Plaintiff is required to ensure that the Defendant appreciates that the issue of punitive damages is an active issue.  Specifically, the Supreme Court has said:

86  There is some case law that says a claim for punitive damages need not be specifically pleaded as it is included conceptually in a claim for general damages:  Edwards v. Harris-Intertype (Canada) Ltd. (1983), 1983 CanLII 1611 (ON SC), 40 O.R. (2d) 558 (H.C.), aff’d (1984), 1984 CanLII 2070 (ON CA), 9 D.L.R. (4th) 319 (Ont. C.A.); Grenn v. Brampton Poultry Co. (1959), 1959 CanLII 394 (ON CA), 18 D.L.R. (2d) 9 (Ont. C.A.), Starkman v. Delhi Court Ltd. (1960), 1960 CanLII 413 (ON SC), 24 D.L.R. (2d) 152 (Ont. H.C.), aff’d (1961), 1961 CanLII 195 (ON CA), 28 D.L.R. (2d) 269 (Ont. C.A.); Gastebled v. Stuyck (1973), 12 C.P.R. (2d) 102 (F.C.T.D.), aff’d (1974), 15 C.P.R. (2d) 137 (F.C.A.); Paragon Properties Ltd. v. Magna Envestments Ltd. (1972), 1972 ALTASCAD 8 (CanLII), 24 D.L.R. (3d) 156 (Alta. S.C., App. Div.).  In my view, the suggestion that no pleading is necessary overlooks the basic proposition in our justice system that before someone is punished they ought to have advance notice of the charge sufficient to allow them to consider the scope of their jeopardy as well as the opportunity to respond to it.  This can only be assured if the claim for punitive damages, as opposed to compensatory damages, is not buried in a general reference to general damages.  This principle, which is really no more than a rule of fairness, is made explicit in the civil rules of some of our trial courts.  For example, in Saskatchewan the Queen’s Bench Rules require that claims for punitive damages be expressly pleaded and specify the misconduct which is claimed to give rise to such damages (Rieger v. Burgess, 1988 CanLII 209 (SK CA), [1988] 4 W.W.R. 577 (Sask. C.A.); Lauscher v. Berryere (1999), 1999 CanLII 12242 (SK CA), 172 D.L.R. (4th) 439 (Sask. C.A.)).  Rule 25.06(9) of the Ontario Rules of Civil Procedure also has the effect of requiring that punitive damages claims be expressly pleaded.  It is quite usual, of course, for the complexion of a case to evolve over time, but a pleading can always be amended on terms during the proceedings, depending on the existence and extent of prejudice not compensable in costs, and the justice of the case.

87  One of the purposes of a statement of claim is to alert the defendant to the case it has to meet, and if at the end of the day the defendant is surprised by an award against it that is a multiple of what it thought was the amount in issue, there is an obvious unfairness.  Moreover, the facts said to justify punitive damages should be pleaded with some particularity.  The time-honoured adjectives describing conduct as “harsh, vindictive, reprehensible and malicious” (per McIntyre J. in Vorvis, supra, p. 1108) or their pejorative equivalent, however apt to capture the essence of the remedy, are conclusory rather than explanatory.

88  Whether or not a defendant has in fact been taken by surprise by a weak or defective pleading will have to be decided in the circumstances of a particular case.

Summary Comment

Cases involving punitive damage awards are rare as punitive damages are applied only when the misconduct giving rise to the litigation was highly egregious and the awards for compensation are insufficient to denounce and deter the relevant misconduct.

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Punitive Damages

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