#6687 - Harris V. Digital Pulse - Commercial Remedies BCL

Harris v. Digital Pulse

Palmer J.

Double Punishment

An important discretionary consideration in the award of exemplary damages has been whether wrongdoing deserving of punishment would go unpunished but for an award of exemplary damages. If the wrongdoer has received a substantial punishment at the hands of the criminal law, exemplary damages cannot be awarded in a subsequent proceeding for what is essentially the same conduct, since the demands of justice for punishment and deterrence will have already been satisfied. Exemplary damages in such a case would have the effect of a double punishment: Gray at 14, paras 42, 43. On the other hand, it will be a factor weighing in favour of an award of exemplary damages that wrongdoing deserving of punishment will otherwise go unpunished: UK Law Commission Report No.247 “Aggravated, Exemplary and Restitutionary Damages” (1997) para.1.17; Gray at 14 para.39, 15 para.48.

In the present case, as I have said, the wrongdoing of Messrs Harris and Eden would render them liable to punishment by a pecuniary penalty order if ASIC brought such proceedings under s.1317J(1) CA. There is no suggestion in the evidence that such proceedings by ASIC have been, or will be, brought. Neither is there any suggestion of prosecutions under s.176A Crimes Act. The mere possibility that such proceedings will be brought is not, in my opinion, sufficient reason to refrain from awarding exemplary damages in a proper case: Gray at 15 para.48. If such proceedings are later brought, any penalties imposed by the Court will doubtless take account of punishment already suffered by the Defendants as a result of these proceedings.

For these reasons, I consider that, if the law so permits, exemplary damages for breach of fiduciary duty should be awarded against Messrs Harris and Eden.

Punitive Damage for breach of Equitable Duties

One may pause here to observe that Lord Slynn’s view that it is categories of conduct, not causes of action, which determine entitlement to exemplary damages leads to the consequence that the Court, in deciding whether exemplary damages should be awarded in any particular case, should pay no attention to whether the plaintiff sues on a cause of action at law or a cause of action in equity. So, for example, if conduct bringing the case into Lord Devlin’s second category – that is, conduct by the defendant calculated to make a profit which may well exceed the compensation payable to the plaintiff – arises from the defendant’s breach of a fiduciary duty to the plaintiff, as in the present case, then Lord Slynn, it seems, would hold that exemplary damages might be awarded.

If, as Lord Nicholls suggests, the availability of exemplary damages should be coextensive with its rationale, it is difficult to see why the remedy should be confined to causes of action in tort. Can it seriously be suggested that if my solicitor grossly deceives me in the course of his professional dealing with me and decamps with my life’s savings, the law regards my sense of outrage as demonstrably greater if I sue him in a common law court for deceit than if I sue him in an equity court for breach of fiduciary duty? Is there any rational basis for believing the policy of the law in such a case will permit the common law court to vindicate my outrage by an award of exemplary damages but will prevent the equity court from doing so? My answer to both these questions would be in the negative.

To return to Kuddus: Lord Hutton was of the same view as Lords Slynn, Mackay and Nicholls, i.e., that rightly interpreted, Rookes laid down a “category test” not a “cause of action test”: at 1815 para.89. His Lordship shared Lord Nicholls’ view that exemplary damages served a valuable purpose in the law: at 1809 para.75, 1811 para.79.

In proposing that exemplary damages be available for breach of fiduciary duty, breach of confidence and procuring or assisting in a breach of fiduciary duty, the United Kingdom Law Commission, in its Report No.247 “Aggravated, Exemplary and Restitutionary Damages” said at para.5.55:

“But despite the absence of English authorities for awarding exemplary damages for an equitable wrong, we can ultimately see no reason of principle or practicality for excluding equitable wrongs from any rational statutory expansion of the law of exemplary damages. We consider it unsatisfactory to perpetuate the historical divide between common law and equity, unless there is a very good reason to do so.

Analogy with Account of profits Cases

But even in modern times it cannot be right to say that equity never gives a plaintiff more than his or her strict entitlement and never exacts a punishment from a defendant. When a fiduciary has derived profit by reason of his or her breach of duty, an account of profits is awarded in favour of the plaintiff. Allowances for the work and skill of the fiduciary in producing the profits are given in the accounting. If there has been no actual dishonesty on the part of the fiduciary in deriving the profit, the allowances are said to be on a liberal scale, but if there has been dishonesty then the Court, in its discretion, may stipulate that the scale of allowances will not be liberal and will reflect the degree of the fiduciary’s dishonesty: see e.g. Phipps v Boardman at 104, 112; Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No.2) [1984] WAR 32; Bailey v Namol at 112. A grossly dishonest fiduciary may even be deprived of his or her allowances altogether: see, e.g., Mason & Carter Restitution Law in Australia, para.1735.

Conclusion

In my opinion, the present position in Australia can be summarised thus. There is no authority which decides that exemplary damages cannot, as a matter of principle, be given by a court of equity for breach of fiduciary duty. Accordingly, to hold that wrongful conduct which would attract an award of exemplary damages in an action in tort cannot attract exemplary damages if the cause of action is equitable creates an anomaly which, in this country, is not justifiable either by precedent or by principle.

Consistency in the law requires that the availability of exemplary damages should be coextensive with its rationale. Where wrongful and reprehensible conduct calls for the manifest disapprobation of the community, where a punishment is called for to deter the wrongdoer and others of like mind from similar conduct and where something more than compensation is felt necessary to ameliorate the plaintiff’s sense of outrage, then it should make no difference in the availability of exemplary damages that the court to which the plaintiff comes is a court of equity rather than a court of common law.

There is no need to appeal to any perceived fusion between the principles of equity and those of the common law in order to invest the equity court with jurisdiction to award exemplary damages. Such jurisdiction is already inherent in the court. It is, and always has been, a court of conscience; at least until the early seventeenth century, it frequently inflicted punishments in aid of its ordinary and traditional jurisdiction.

For the above reasons, I am of the opinion that the law in Australia permits the award of exemplary damages for breach of fiduciary duty. As I have said, this is a case in which such an award is required.

Appeal – Spigelman CJ

The heart of the fusion fallacy — as it has come to be called in Australia — is the proposition that the joint administration of two distinct bodies of law means that the doctrines of one are applicable to the other. That is no more true of equity and common law than it was and is true of tort and contract within the common law context. That is not to say that one body of law does not influence the other. It is only to say that they remain conceptually distinct.

Analogy with contract, not tort

The argument in this Court proceeded on the basis that in Australia exemplary damages are not recoverable for breach of contract.

In his reasons for preferring the tort analogy, in my opinion, Mason P has given insufficient weight to the historical development of the law of tort which was closely connected with the development of criminal law. Many torts constituted crimes and accordingly, civil litigation raised issues of public interest, particularly involving a breach of the peace. In such a context it was entirely appropriate that considerations of punishment and deterrence arose in the context of actions in tort.

As Heydon JA notes, with further references, there was no such historical intermingling between crime and either contract or equity.

To the extent that reasoning by analogy at this level of generality is appropriate, I believe that the contract...