Limits Of Arbitral Power To Award Punitive Damages In The Uk
1. Meaning of Punitive (Exemplary) Damages in English Law
Punitive or exemplary damages are awarded not to compensate the claimant, but to:
Punish the defendant for egregious conduct, and
Deter similar conduct in the future.
Under English law, punitive damages are exceptional and are fundamentally different from:
Compensatory damages (to make good the loss), and
Restitutionary damages (to strip unjust enrichment).
2. Statutory Framework: Arbitration Act 1996
Section 48 – Remedies Available to Arbitral Tribunals
An arbitral tribunal may grant:
Damages
Injunctions
Declarations
Specific performance
Crucially, Section 48 does not expressly authorise punitive or exemplary damages.
Section 46 – Applicable Law
Arbitrators must decide disputes:
According to the substantive law chosen by the parties, or
In accordance with English law in the absence of choice
Since English law severely restricts punitive damages, arbitrators are equally constrained.
3. General Prohibition on Punitive Damages in Arbitration
Core Principle
Arbitration is a private, consensual dispute resolution mechanism. Punishment is traditionally a public law function, reserved for courts and the state.
As a result:
Arbitrators lack inherent jurisdiction to punish
Their role is primarily compensatory and restorative
4. Judicial Restrictions on Punitive Damages under English Law
Foundational Case Law
(1) Rookes v Barnard [1964]
The House of Lords limited exemplary damages to three narrow categories:
Oppressive, arbitrary, or unconstitutional conduct by government servants
Conduct calculated to make a profit exceeding compensation payable
Where statute expressly authorises exemplary damages
Relevance to Arbitration
Most commercial arbitrations do not fall within these categories, especially private contractual disputes.
(2) Cassell & Co Ltd v Broome [1972]
Reaffirmed the restrictive approach in Rookes v Barnard
Warned against arbitrary expansion of punitive damages
Relevance to Arbitration
Arbitrators must apply the same restrictive principles and cannot broaden the scope of exemplary damages.
5. Contractual Nature of Arbitration and Limits on Punishment
(3) Addis v Gramophone Co Ltd [1909]
Damages for breach of contract are compensatory, not punitive
Injury to feelings or punishment is not recoverable in contract
Relevance to Arbitration
Since most arbitrations arise from contracts, punitive damages are incompatible with contractual remedies.
(4) Watts v Morrow [1991]
Reinforced that damages in contract focus on financial loss
Emotional or punitive considerations are excluded
Relevance to Arbitration
Arbitral tribunals cannot award damages exceeding actual loss to punish misconduct.
6. Limits Derived from Public Policy and Enforcement Concerns
(5) Lesotho Highlands Development Authority v Impregilo SpA [2005]
English courts adopt a non-interventionist approach to arbitration
However, awards must remain within substantive legal limits
Relevance to Punitive Damages
An award granting punitive damages beyond English law limits risks:
Challenge under Section 68 (serious irregularity)
Refusal of enforcement on public policy grounds
(6) Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd [1999]
Public policy operates as a narrow but firm control mechanism
Awards contrary to fundamental English legal principles may be unenforceable
Relevance to Arbitration
Punitive damages in purely private disputes may violate English public policy.
7. Party Autonomy: Can Parties Authorise Punitive Damages?
General Rule
Even if parties agree that arbitrators may award punitive damages:
Such agreement cannot override mandatory rules of English law
Supporting Case Law
(7) Soleimany v Soleimany [1999]
Party autonomy cannot legitimise outcomes contrary to public policy
Application
A clause empowering arbitrators to award punitive damages will not be upheld if it contradicts English substantive law.
8. Distinction Between Punitive and Aggravated or Restitutionary Damages
English law allows certain non-punitive enhanced remedies, which arbitrators can award:
(a) Aggravated Damages
Compensatory, reflecting additional injury caused by the manner of breach
(b) Restitutionary Damages
Designed to strip profits, not punish
Key Case Law
(8) Attorney General v Blake [2001]
Allowed account of profits for breach of contract in exceptional cases
Not punitive, but restitutionary
Relevance to Arbitration
Arbitrators may award enhanced damages if the purpose is not punishment.
9. International Perspective: Foreign Punitive Awards in English-Seated Arbitration
If:
Arbitration is seated in England, and
Tribunal awards punitive damages under foreign law
English courts will examine:
Whether the award offends English public policy
There is strong judicial reluctance to enforce punitive damages exceeding English legal norms.
10. Summary of Key Limits on Arbitral Power
| Limitation | Legal Basis |
|---|---|
| Statutory silence | Arbitration Act 1996, Section 48 |
| Substantive law restriction | Section 46 |
| Judicial doctrine | Rookes v Barnard |
| Contractual nature of arbitration | Addis v Gramophone |
| Public policy | Westacre, Soleimany |
| Enforcement risks | Sections 68 & 69 |
11. Conclusion
Under English law, arbitral tribunals have very limited power to award punitive damages. The combined effect of:
Restrictive substantive law,
Contractual foundations of arbitration, and
Public policy constraints
means that punitive damages are generally unavailable in UK arbitration, except in extremely rare circumstances falling squarely within recognised legal categories.
Arbitrators must instead rely on:
Compensatory damages,
Aggravated damages, or
Restitutionary remedies
to ensure justice without overstepping their jurisdiction.
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