Conflicts Presented by Arbitral Awards of Punitive Damages

Abstract

The imposition of punitive damages is not employed in most nations. In fact, any form of civil, as opposed to criminal, punishment is rare in nations other than the United States. Yet, several types of breach of contract involve tortious acts which are punishable by punitive damages under United States law. For example, a party contracting to buy or sell goods or services may commit fraud, contract in bad faith, or design, manufacture or service a product with gross negligence1a. Until recently, punitive-damage claims and claims for multiple damages in antitrust or RICO actions1b were nonarbitrable under American state and federal law. If awarded, they were struck down in enforcement actions. Because they believed it an abuse of arbitrators' powers to punish parties voluntarily submitting to arbitration, many judges rejected such awards on public policy grounds2. Yet changes have occurred in recent years. The United States Supreme Court has held that arbitrators may award treble damages in international arbitrations concerning American federal antitrust issues and in domestic arbitrations concerning RICO issues3. Ignoring state law, two United States district courts have recently held that punitive damage claims are arbitrable under federal law and a United States court of appeals has affirmed one district court holding4. Such innovative opinions demonstrate the strong public policy now favouring arbitration as a means of dispute resolution. Although United States federal courts agree, international arbitrators' opinions differ about whether punitive damage awards could be enforced in their jurisdiction5a. Some believe international comity and the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (or New York Convention)5b, signed by seventy nations, strongly support enforcement of foreign awards, even where the enforcing state's domestic laws or policies would not permit enforcement. Other …