A Canadian Court of Appeal has elevated the right to receive punitive damages for breach of contract to some kind of fundamental principle of the law of contracts.
In Zurich Life Insurance Company v. Branco, 2105 SKCA 71, leave to appeal denied, 21 April, 2016, the plaintiff, Branco, the respondent on the appeal, was a welder employed by Kumtor, an indirect
subsidiary of Cameco, a corporation doing business in Saskatchewan, to work in Kyrgyzstan. He was injured at work there. He was covered by insurance policies issued to Kumtor by the defendants, Zurich and American Home. The plaintiff sued the two insurers
in Saskatchewan to recover the benefits he believed he was entitled to. After his injury, the plaintiff returned to Portugal from where he had immigrated to Canada some years before. The trial judge had awarded punitive damages against Zurich of $3 million
and $1.5 million against American Home, castigating them for callous and abusive conduct. In addition, he had awarded damages for mental distress for a total of $450,000. Punitive damages against American Home were reduced to $175,000 and damages for mental
distress to $15,000. The punitive damages award against Zurich was reduced to $500,000 and damages for mental distress to $30,000.
The question relevant to this post is that a question arose of the law to govern the Zurich claim. The Zurich policy provided:
Article 12
Should any differences arise between the contracting parties of the present Group Insurance Policy, the Courts at the domicile of Zurich Life Insurance Company Limited [Switzerland] shall be considered competent
and Swiss Law will be applicable.
The trial judge in his headlong pursuit of the evil insurers — who, admittedly, had behaved very badly — simply brushed the choice of law clause aside, and held that Saskatchewan law applied.
The Saskatchewan Court of Appeal held that the Zurich policy was governed by Swiss Law. Expert evidence on Swiss law tendered by Zurich established conclusively that that law did not permit punitive damages. Richards C.J.S. held, however,
that it would be contrary to Saskatchewan public policy to let that detail stand in the way of such an award. He said:
[173] The concept of punitive damages is deeply rooted in our legal system. In [Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, 209 D.L.R. (4th) 257],
Binnie J. explained the ancient lineage of such damages as follows:
41 Long before the days of Lord Pratt C.J., the related idea of condemning a defendant to a multiple of what is required for compensation (in the present appeal, as stated, the punitive damages were roughly
triple the award of compensatory damages) reached back to the Code of Hammurabi, Babylonian law, Hittite law (1400 B.C.), the Hindu Code of Manu (200 B.C.), ancient Greek codes, the Ptolemaic law in Egypt and the Hebrew Covenant Code of Mosaic law (see Exodus
22:1 “If a man shall steal an ox, or a sheep, and kill it, or sell it; he shall restore five oxen for an ox, and four sheep for a sheep”). Roman law also included provisions for multiple damages. Admittedly, in these early systems, criminal law and civil law
were not always clearly differentiated. The United States Supreme Court in BMW, supra, referred at p. 581 to “65 different enactments [in English statutes] during the period between 1275 and 1753 [that] provided for double, treble, or quadruple damages”.
[174] Punitive damages serve to both affirm broad social values and to remedy specific wrongs. The wider function was explained by the Ontario Law Reform Commission in its Report on Exemplary Damages (Toronto:
Ontario Law Reform Commission, 1991) …
[175] The narrower remedial role of punitive damages is reflected in the fact that they “straddle the frontier” between civil and criminal law. If the actions of a civil defendant are so outrageous, malicious,
oppressive or high-handed that a court has no choice but to conclude that the actions are deserving of punishment, a remedy must be available. Accordingly, when criminal sanctions are not available, punitive damages can be used to address the relevant wrongdoing.
Few cases require both remedies of this sort. However, their rarity should not be confused with their importance—punitive damages serve a vital function in sanctioning conduct that cries out for punishment where no other punitive remedy is available.
I have had occasion before, “Punitive Damages for Breach of Contract: A Remedy in Search of a Justification” (2003), 29
Queen’s Law Journal 596, to point out that the laws of Hammurabi and Manu are not really good authority for Canadian law in the twenty-first century — moreover, both Hammurabi and Manu did very unpleasant things to people, things so cruel that even a
Canadian court would hesitate to do them to the CEO of an insurance company! I further argue that awards of punitive damages have no place in either the law of contracts or the law of torts. It is more than a little distressing to me to find the right to
such awards now elevated in Canada almost to the level of a fundamental constitutional principle.
It is also hard to see what Saskatchewan values are forwarded when the plaintiff never resided there after his injury and the defendant insurer is Swiss.
The case must be one of the very few modern cases — at least outside the domestic context — where public policy is allowed to trump an ordinary choice of law analysis and a conclusion that a foreign law applies. I am very sorry that the
Supreme Court denied leave to appeal.
Angela Swan
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Angela Swan
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