Punitive damages — also called exemplary damages — are sums a court orders a defendant to pay over and above compensatory damages. Their purpose is not to make the plaintiff whole but to punish particularly reprehensible conduct (fraud, malice, recklessness, oppression) and to deter the defendant and others from repeating it.
The remedy is most prominent in common law jurisdictions, especially the United States, where juries may award them in tort and certain statutory actions. U.S. constitutional limits have been developed through Supreme Court cases such as BMW of North America v. Gore (1996) and State Farm Mutual Automobile Insurance Co. v. Campbell (2003), which held that grossly excessive awards violate due process under the Fourteenth Amendment. State Farm suggested that ratios of punitive to compensatory damages in excess of single digits will rarely satisfy due process, though no rigid cap applies.
In England and Wales, the leading authority Rookes v. Barnard (1964) restricts exemplary damages to three categories: oppressive or unconstitutional acts by government servants, conduct calculated to make a profit exceeding any compensation, and where expressly authorised by statute. Many civil law systems (France, Germany, Japan) traditionally reject punitive damages as inconsistent with the compensatory principle of tort law, and courts have sometimes refused to enforce foreign punitive judgments on public-policy grounds — for example, the German Federal Court of Justice (BGH) in a 1992 ruling declining to enforce a U.S. punitive award.
Key features usually include:
- A higher evidentiary standard than ordinary negligence (often clear and convincing evidence of malice or recklessness).
- Consideration of the defendant's wealth so the sanction is meaningful.
- Statutory caps in many U.S. states (e.g., multiples of compensatory damages or fixed ceilings).
For IR and policy researchers, punitive damages matter in cross-border litigation, sovereign immunity disputes, and debates over tort reform, investor–state arbitration, and the enforceability of foreign judgments.
Example
In the 1994 *Liebeck v. McDonald's Restaurants* case, a New Mexico jury awarded Stella Liebeck $2.7 million in punitive damages (later reduced by the trial judge to $480,000) over third-degree burns from spilled coffee.
Frequently asked questions
Generally no. Jurisdictions like France, Germany, and Japan view damages as strictly compensatory, though some have begun recognising limited functionally similar awards. Foreign punitive judgments are often unenforceable on public-policy grounds.
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