Alan Rau, ‘Punitive, Exemplary, “Vindictive”, or Edifying Damages of Whatever Nature’

Abstract:
One critical arena for the clash of competing visions of arbitration – viewed from one angle as an exercise in adjudication, and yet from another as an exercise in private self-government – is the subject of the present paper – the ability of arbitral tribunals to grant or to withhold awards of punitive damages.

As the United States is one of the rare jurisdictions in which such awards are regularly given, it would only be natural that it is the jurisdiction that has experienced the most angst on the subject. In this paper I run through, in a summary fashion, the spectrum of cases in which the problem of punitive damages is likely to arise – focusing on concrete factual patterns, and moving from the fairly straightforward to the highly controverted. These fact patterns include the cases where: The parties have expressly provided by contract that the arbitrators, once they find liability, may award punitive damages, but local courts, on a motion for vacatur, hold that such awards are impermissible; The parties have no express agreement at all conferring on their arbitrators the power to make such awards but the arbitrators proceed nevertheless to do so; The parties have not expressly excluded an arbitral award of punitive damages, but they do include a choice of law clause incorporating the law of a state under which such awards are deemed to be against public policy; The parties have expressly excluded awards of punitive damages and yet the arbitrators proceed nevertheless to render an award that looks very much as if it includes punitives; The parties have expressly excluded the possibility of any arbitral award of punitive damages, and the tribunal has respected such an exclusion and has declined to award them.

These latter cases of course raise further questions: whether any contractual exclusion functions as a limit on the authority of the arbitral tribunal, bringing with it the possible consequence of vacatur on the ground of excess of power, and just what is to be understood by ‘punitive damages’ anyway?: The taxonomy of what is ‘punitive’ is obviously a delicate matter, hardly self-evident, and an enterprise that is precarious, unstable, shifting, and easily manipulated.

A final section considers the scenario raising the question the transnational implications of a US award: What is likely to be the currency of an American award of punitive damages in other jurisdictions?

Civil law jurisdictions traditionally wary of US punitive damage awards do now seem to be displaying somewhat greater receptiveness; a further level of analysis reminds us that when we are faced with an international arbitral award, other interests also come into play to be weighed against any state’s own ‘public policy’: The structure of the New York Convention exists after all to make effective contractual exercises of private autonomy, at the same time adding to ‘comity or courtesy the force of international obligation – both values that embody strong ‘policy’ in their own right.

So in a world where privately negotiated arrangements assume a privileged position, and where proponents of the arbitral process pursue their progress towards the ideal of an autonomous system, punitive damage awards are increasingly unlikely to be seen as implicating (in the canonical formulation), fundamental principles of justice or morality or the foundation of a state’s legal order.

Rau, Alan Scott, Punitive, Exemplary, ‘Vindictive’, or Edifying Damages of Whatever Nature’ (July 20, 2015). Liber Amicorum William Laurence Craig, 2016, forthcoming; KBH Energy Center Research Paper No 2015-11.

Leave a Reply