Charting Developments Concerning Punitive Damages: Is the Tide Changing?

This essay discusses a number of developments outside of the United States concerning punitive damages, which may ultimately signal a change in the way other countries view American awards of such damages. To date, courts in many countries have refused to recognize and enforce American punitive damages awards on the ground that they violate the host country’s public policy. In most civil law countries, such as France and Germany, penal damages can only be ordered in criminal proceedings; a civil award of such damages has been viewed as contrary to ordre public. In common law countries, while punitive damages generally may be awarded in civil suits, there is no agreement on the circumstances warranting punitive damages, and courts differ on the appropriate amount of such an award. While traditionally American awards of punitive damages have been difficult to enforce abroad, this practice may be about to change. Recently developments in France, Germany and the European Union, as well as decisions in Australia, Canada and Spain point toward greater receptivity to punitive damages and enforcement of foreign awards of these damages. In France, proposed revisions to the French Civil Code call for awarding punitive damages in certain cases. In Germany, a study by a prominent scholar finds that German courts are beginning to award penal damages in civil actions. In the European Union, a European Commission Green Paper raises the possibility of allowing the doubling of damages in certain antitrust cases. In Australia, a recent decision by the Supreme Court of South Australia opines that Australian courts would enforce large punitive damages awards ordered by American courts. Moreover, in Canada and Spain, appellate courts affirm decisions to enforce American judgments that included punitive damages. While these developments do not point toward clear sailing for American punitive damages abroad, when viewed together they may foreshadow a change in the wind that may ultimately lead to greater enforcement of these damages

Punitive Damages: A Comparative Analysis

In light of expanding international trade, it is increasingly likely that politicians, courts and tribunals will wrestle with whether punitive damages are appropriate in transnational disputes, and whether countries that traditionally do no allow exemplary relief should recognize and enforce foreign awards of such damages. Furthermore, by seeing how different systems address these problems, we can gain a deeper understanding of the role of punitive damages in our own legal system and be better able to deal with punitive damages issues in the international arena. This Article undertakes a thorough comparative study of punitive damages in common law countries. It examines the laws of England, Canada, Australia, New Zealand and the United States to determine whether there exists a consensus on the availability of punitive damages. The Article finds that, despite the controversy over the appropriateness of punitive damages, they are widely available in these countries and claims for such damages have increased in recent years. It also finds, however, that there is little consensus on the factors that are used to determine the amount of punitive damages that should be awarded. Some jurisdictions provide little or no guidance to the judge or jury who sets the award. Others provide a detailed list of factors, and one country even provides damages brackets to guide the decision maker in fixing the amount of punitive damages. The Article concludes that all countries have taken steps to rein in unreasonably large punitive damages awards. Those steps vary greatly from country to country, as do the standards for determining what constitutes an excessive award

Attorneys\u27 Fees Agonistes: The Implications of Inconsistency in the Awarding of Fees and Costs in International Arbitrations

The awarding of arbitration costs and attorneys’ fees in international arbitrations is often arbitrary and unpredictable. In one recent investment arbitration where the tribunal deciding a case under the auspices of the international Centre for the Settlement of Investment Disputes (ICSID) had broad discretion to award costs and fees, the tribunal allocated arbitration costs evenly amongst the claimant and respondent and required each party to bear its own fees and expenses, even though the claimant prevailed. In another case where the claimant was successful on its substantive claim, the ICSID tribunal ordered the respondent to pay the claimant US$6 million for legal fees, but required the parties to bear the costs of the arbitration equally. And in still another recent investment arbitration the unsuccessful respondent was ordered to pay the costs of the arbitration, but each party was responsible for its own legal fees. These results are not unique to investment arbitrations; they can also be found in international commercial arbitrations. The lack of uniformity in the awarding of costs and fees poses two major problems. First, arbitrary awards undermine the legitimacy of the dispute resolution system. Second, the lack of predictability may hinder parties from being able to settle the dispute and could rob arbitration of its efficiency. These problems are exacerbated in the international context because the costs and fees in transnational disputes can run into the millions of dollars. Indeed, in one recent celebrated arbitration, the costs and fees totaled over US$21 million. This article examines the awarding of costs and fees in international commercial arbitrations and transnational investment disputes. My study finds that awards of costs and fees are arbitrary and unpredictable under both systems. To remedy these problems, I propose two different approaches: one for ICSID tribunals and another for international commercial arbitrations. In the case of ICSID arbitrations, the parties should share equally the costs of the arbitration and bear their own legal expenses. In essence, I propose that ICSID adopt what has become known as the American Rule with respect to the awarding of costs and fees. This approach is needed to bring predictability to the field, provide greater administrative efficiency, and reduce the overall costs. In the case of international commercial arbitrations, I argue that parties should be free to select the method for resolving claims for costs and fees, including authorizing the tribunal to resolve such claims pursuant to the principle of “costs follow the event” or the “loser pays” rule. In this context, the adoption of the American Rule would not achieve the same administrative and economic benefits, and the principle of party autonomy calls for this different approach

Damages in Lieu of Performance because of Breach of Contract

In contract disputes between transnational contracting parties, damages are often awarded to compensate a claimant for loss, injury or detriment resulting from a respondent’s failure to perform the agreement. In fact, damages may be the principal means of substituting for performance or they may complement other remedies, such as recision or specific performance. Damages for breach of contract typically serve to protect one of three interests of a claimant: (1) performance interest (also known as expectation interest); (2) reliance interest; or (3) restitution interest. The primary goal of damages in most jurisdictions is to fulfil a claimant’s performance interest by giving the claimant the substitute remedy of the “benefit of the bargain” monetarily. This typically includes compensation for actual loss incurred as a result of the breach and for net gains, including lost profits, that the claimant was precluded from because of the respondent’s actions. All legal systems place limitations on damage awards. The most common limitations are causation, foreseeability, certainty, fault, and avoidability. In order to obtain damages, there must be a causal connection between the respondent’s breach and the claimant’s loss. In addition, the claimant must show that the loss was foreseeable or not too remote. Further, the claimant is required to show with reasonable certainty the amount of the damage. Many civil law countries also require, as a prerequisite to an award of damages for breach of contract, that the respondent be at fault in breaching the agreement. Damages may also be limited by the doctrine of avoidability, which provides that damages which could have been avoided without undue risk, burden, or humiliation are not recoverable. The rules concerning damages for breach of contract are complex and vary greatly from country to country. Furthermore, in some federal countries, such as the United States and Canada, the applicable rules differ among states and provinces. This chapter, which is part of a comprehensive study of the awarding of damages in private international law, focuses on the general rules concerning damages awarded in lieu of performance because of a breach of contract (“performance damages”). It begins with an overview of the purposes served by awarding damages. It then examines performance damages for breach of contract in common law and civil law countries. The study subsequently analyzes the awarding of damages under the Convention on the International Sale of Goods (CISG), general principles of law, and principles of equity and fairness

A Study of Interest

In recent years, a number of tribunals, mainly those deciding investment disputes, have re-examined traditional practices concerning the awarding of interest, particularly whether interest should be awarded at market rates and on a compounded basis. However, many tribunals deciding transnational contracts disputes continue to follow the practice of applying national laws on interest, which often results in the application of domestic statutory interest rates calling for a fixed rate of interest to accrue on a simple as opposed to compound basis. These statutory rates often do not change to reflect economic conditions and thus may under compensate or over compensate a claimant. I argue that when tribunals award interest in both international investment disputes and transnational contract disputes they should strive to fully compensate the aggrieved party for the loss of the use of its money. In many cases then, they should award interest at a market rate and on a compound basis. I begin the article by providing an overview of interest and a brief comparative study of laws providing for its payment, the period during which interest should accrue, and the rate of interest. I then compare the practice of awarding interest in international commercial disputes and international investment disputes. I conclude by offering a proposal that essentially provides a framework for awarding interest as damages and achieves the goal of awarding interest to make a party whole after being deprived of the opportunity to earn a return on the use of its money

Attorneys\u27 Fees Agonistes: The Implications of Inconsistency in the Awarding of Fees and Costs in International Arbitrations

The awarding of arbitration costs and attorneys’ fees in international arbitrations is often arbitrary and unpredictable. In one recent investment arbitration where the tribunal deciding a case under the auspices of the international Centre for the Settlement of Investment Disputes (ICSID) had broad discretion to award costs and fees, the tribunal allocated arbitration costs evenly amongst the claimant and respondent and required each party to bear its own fees and expenses, even though the claimant prevailed. In another case where the claimant was successful on its substantive claim, the ICSID tribunal ordered the respondent to pay the claimant US$6 million for legal fees, but required the parties to bear the costs of the arbitration equally. And in still another recent investment arbitration the unsuccessful respondent was ordered to pay the costs of the arbitration, but each party was responsible for its own legal fees. These results are not unique to investment arbitrations; they can also be found in international commercial arbitrations. The lack of uniformity in the awarding of costs and fees poses two major problems. First, arbitrary awards undermine the legitimacy of the dispute resolution system. Second, the lack of predictability may hinder parties from being able to settle the dispute and could rob arbitration of its efficiency. These problems are exacerbated in the international context because the costs and fees in transnational disputes can run into the millions of dollars. Indeed, in one recent celebrated arbitration, the costs and fees totaled over US$21 million. This article examines the awarding of costs and fees in international commercial arbitrations and transnational investment disputes. My study finds that awards of costs and fees are arbitrary and unpredictable under both systems. To remedy these problems, I propose two different approaches: one for ICSID tribunals and another for international commercial arbitrations. In the case of ICSID arbitrations, the parties should share equally the costs of the arbitration and bear their own legal expenses. In essence, I propose that ICSID adopt what has become known as the American Rule with respect to the awarding of costs and fees. This approach is needed to bring predictability to the field, provide greater administrative efficiency, and reduce the overall costs. In the case of international commercial arbitrations, I argue that parties should be free to select the method for resolving claims for costs and fees, including authorizing the tribunal to resolve such claims pursuant to the principle of “costs follow the event” or the “loser pays” rule. In this context, the adoption of the American Rule would not achieve the same administrative and economic benefits, and the principle of party autonomy calls for this different approach

Punitive Damages: A Comparative Analysis

In light of expanding international trade, it is increasingly likely that politicians, courts and tribunals will wrestle with whether punitive damages are appropriate in transnational disputes, and whether countries that traditionally do no allow exemplary relief should recognize and enforce foreign awards of such damages. Furthermore, by seeing how different systems address these problems, we can gain a deeper understanding of the role of punitive damages in our own legal system and be better able to deal with punitive damages issues in the international arena. This Article undertakes a thorough comparative study of punitive damages in common law countries. It examines the laws of England, Canada, Australia, New Zealand and the United States to determine whether there exists a consensus on the availability of punitive damages. The Article finds that, despite the controversy over the appropriateness of punitive damages, they are widely available in these countries and claims for such damages have increased in recent years. It also finds, however, that there is little consensus on the factors that are used to determine the amount of punitive damages that should be awarded. Some jurisdictions provide little or no guidance to the judge or jury who sets the award. Others provide a detailed list of factors, and one country even provides damages brackets to guide the decision maker in fixing the amount of punitive damages. The Article concludes that all countries have taken steps to rein in unreasonably large punitive damages awards. Those steps vary greatly from country to country, as do the standards for determining what constitutes an excessive award

A Study of Interest

In recent years, a number of tribunals, mainly those deciding investment disputes, have re-examined traditional practices concerning the awarding of interest, particularly whether interest should be awarded at market rates and on a compounded basis. However, many tribunals deciding transnational contracts disputes continue to follow the practice of applying national laws on interest, which often results in the application of domestic statutory interest rates calling for a fixed rate of interest to accrue on a simple as opposed to compound basis. These statutory rates often do not change to reflect economic conditions and thus may under compensate or over compensate a claimant. I argue that when tribunals award interest in both international investment disputes and transnational contract disputes they should strive to fully compensate the aggrieved party for the loss of the use of its money. In many cases then, they should award interest at a market rate and on a compound basis. I begin the article by providing an overview of interest and a brief comparative study of laws providing for its payment, the period during which interest should accrue, and the rate of interest. I then compare the practice of awarding interest in international commercial disputes and international investment disputes. I conclude by offering a proposal that essentially provides a framework for awarding interest as damages and achieves the goal of awarding interest to make a party whole after being deprived of the opportunity to earn a return on the use of its money

The Foggy Road for Evaluating Punitive Damages: Lifting the Haze from the BMW/State Farm Guideposts

In light of increasing punitive damages awards, the United States Supreme Court formulated criteria for evaluating whether a punitive damages award is so unreasonably large that it violates substantive due process. Unfortunately, these guideposts, which were first erected in BMW v. Gore and applied last term in State Farm v. Campbell, are difficult to use and have resulted in inconsistent decisions. Indeed, Justice Scalia stated that they mark a road to nowhere. The authors argue that the problems with the guideposts can be fixed by refining the third guidepost, which compares the punitive damages award to the criminal (or civil) sanctions that could be imposed for comparable misconduct. To date, the Court\u27s decisions have obfuscated this guidepost and, not surprisingly, it has largely been ignored by courts and commentators. The authors propose that courts, in applying the third guidepost, view comparable criminal (and civil) sanctions as a presumptive limit on punitive damages. This approach is consistent with the Court\u27s views on the subject, satisfies the due process need for notice, is respectful of federalism concerns, and allows for greater proportionality and nuance while evaluating punitive damages awards. Most importantly, it should be easy to apply and result in more uniform decisions