Aggravated, Exemplary and Restitutionary ... - Law Commission

assignment of claims to damages; 703
rules governing the awarding of interest on, 704
and taxation of, 705
awards of damages; rules relating to the deductibility of damages
paid when calculating taxable profits; 706
rules relating to the ability of a person to
prove an unliquidated claim to, or judgment debt for, damages upon the
insolvency of a wrongdoer, 707
and as to the ranking of such a claim or debt. 708
1.131 It is also important to emphasise at this point that nothing in our Act should be
construed as stopping further common law development of the law relating to
punitive damages, to the extent that such development would be consistent with
our draft Bill. Nor should our draft Bill be construed as taking a particular view of
the principles which currently apply at common law. For example, the fact that we
have chosen to state expressly in a statutory provision that insurance against the
risk of liability to punitive damages is not contrary to public policy, should not be
taken to cast doubt on whether that may or may not be the current position at
common law. 709
1.132 In the light of the above, we recommend that:
701 See eg Clerk & Lindsell on Torts (17th ed, 1995) paras 3.33-3.56; on contractual limitation
or exclusion clauses generally, see Chitty on Contracts (27th ed, 1994; first cumulative
supplement, 1996).
702 See Dicey & Morris on The Conflict of Laws (12th ed, 1993; fourth cumulative supplement,
1997) vols 1 and 2.
703 See eg Clerk & Lindsell on Torts (17th ed, 1995) para 4.42.
704 See eg Clerk & Lindsell on Torts (17th ed, 1995) para 27.25; McGregor on Damages (15th ed,
1988) ch 14.
705 See eg Clerk & Lindsell on Torts (17th ed, 1995) para 27.16; McGregor on Damages (15th ed,
1988) ch 13.
706 See Simon’s Direct Tax Service, B3.12.
707 See eg I F Fletcher, The Law of Insolvency (2nd ed, 1996) ch 9 (personal insolvency) and ch
29 (corporate insolvency).
708 See eg I F Fletcher, The Law of Insolvency (2nd ed, 1996) pp 288-299 (personal insolvency)
and pp 606-613 (corporate insolvency). We have given some thought to the question
whether unliquidated claims to, or judgment debts for, punitive damages should be capable
of being proved on personal or corporate insolvency, and if so, how such claims should
rank. At present they rank as ordinary unsecured claims, and can be proved in the same
way as any other claim to damages, whether liquidated or unliquidated. At first sight, it
might be thought unfair to other (innocent) unsecured creditors if they were to receive less
because the defendant’s assets also had to be used to satisfy what many regard as ‘windfall’
claims to punitive damages. But on reflection, we do not think it appropriate to consider
this issue further in this Report. It was not raised in Consultation Paper No 132 and no
consultees alerted us to any problems with the current law in this area. (We would also
observe that, in any case, a claim to punitive damages merely ranks as an ordinary
unsecured claim; it ranks alongside other such claims, and does not take priority over
them). Although we say nothing further on this issue, we do draw it to the attention of the
Lord Chancellor, who has statutory responsibility for making rules as to inter alia what
debts are provable on personal or corporate insolvency and how those debts rank, and to
the specialist bodies (in particular the Insolvency Service and the Insolvency Rules
Committee) which assist him in this task. Cf US law: L Schleuter and K Redden, Punitive
Damages (3rd ed, 1995) § 19.5 indicate that under the Bankruptcy Code, exemplary or
punitive damages can be proven on bankruptcy, but are subordinated to the payment of all
other types of claim.
709 See paras 4.108-4.112 above.
138