Punitive Damages in Korea: Is it Necessary or Not?

 

 

Punitive Damages in Korea: Is it Necessary or Not?

 

  1. Introduction

“‘Punitive’ or ‘exemplary’ damages are money damages awarded to a plaintiff in a private civil action, in addition to and apart from compensatory damages, assessed against a defendant guilty of flagrantly violating the plaintiff’s rights.”[1] In other words, according to ‘THE AMERICAN RESTATEMENT (SECOND) OF TORTS § 908’, “punitive damages may be awarded for conduct that is outrageous, either because of defendant’s evil motive or reckless indifference to rights of others”.

More specifically, David G. Owen d explained from A Punitive Damages Overview: Functions, Problems and Reform:

A jury (or judge, if there is no jury) may, in its discretion, render such an award in cases in which the defendant is found to have injured the plaintiff intentionally or ‘maliciously’, or in which the defendant’s conduct reflected a ‘conscious’, ‘reckless’, ‘willful’, ‘wanton’ or ‘oppressive’ disregard of the rights or interests of the plaintiff.

Punitive damages have been mostly accepted by ‘common-law’ countries, “starting from the Huckle v. Money (1763) in England, which officially used the term ‘exemplary damages’”.[2] After that, the doctrine of punitive damages was introduced to the United States and has been consistently developed; even though several opponents have been against it based on Fay v. Parker(1873), saying that “The idea is wrong. It is a monstrous heresy. It is an unsightly and unhealthy excrescence deforming the symmetry of the body of the law.”[3]

What about in Korea? For a long time some have insisted that it is time to apply punitive damages, but for now, it is still under discussion. As modern society has become more complicated and bigger than before, illegal acts of big companies have also been rampant in various ways. On the other hand, it is likely that the public or the consumers have been seriously damaged by malicious companies. Although such damages can be compensated under Article 750 of the Civil Code, monetary compensation is limited since the court only considers the actual damages inflicted on the plaintiff without taking account of the defendant’s malice. Therefore, in such circumstances, it is worth reconsidering the doctrine of punitive damages in Korea. This research looks through the basic functions of the doctrine and possible problems or arguments against it in order to find out if its acceptance is necessary along with the plans to introduce the doctrine into the Korean legal system.

 

  1. The Functions of Punitive Damages

“The functions of punitive damages can be divided and subdivided in any number of overlapping ways, but the following division should prove useful for the particular points examined here: (1) education, (2) retribution, (3) deterrence, (4) compensation and (5) law enforcement.”[4]  This research examines three functions out of the five which covers retribution, deterrence, and compensation.

 

  1. Retribution

“It may initially seem strange in a modern legal system for the law to be based on a kind of private revenge, but it is entirely appropriate for the law to allow a person injured by the wanton misconduct of another to vent his outrage by extracting from the wrongdoer a judicial fine.”[5] “This form of retribution is appropriate because it protects and promotes the two most fundamental values that support the law ─ freedom and equality.”[6]

In Grimshaw v. Ford Motor Co. (1981), “An automobile manufactured by defendant unexpectedly stalled on a freeway and erupted into flames when it was rear ended by a car proceeding in the same direction.”[7] “The driver of the stalled car suffered fatal burns and a passenger suffered severe and permanently disfiguring burns on his face and entire body.”[8] “The passenger and the heirs of the driver sued defendant on the theory of strict liability for a design defect in the car’s gas tank, and, following a six-month jury trial, verdicts were returned in favor of plaintiffs.”[9] “The passenger was awarded over $2 million compensatory damages and $125 million punitive damages, while the heirs were awarded over $550,000 in compensatory damages.”[10] Even though the total punitive damages for the passenger were cut down to $3.5 million on appeal, this case shows that the function of punitive damages is quite important in terms of punishment. It was discovered that the defendant, Ford Motor Company, had already known about the fact that the new automobile, Pinto, would have a severe problem if hit from behind, by conducting crash tests before launching the product. However, instead of deciding to fix the problem, the company intentionally chose to handle high potential incidents with insurance after calculating the profit and loss of possible options. It seems obvious that this malicious and unethical behavior of the company should be punished in any way, but why is that?

It is because there is an extra damage when the violation occurs. In this case, the company infringed on not only the victims’ life or health but also their freedoms which were equally divided to the society so that they can control by themselves.[11] Therefore, compensatory damages which only restore the actual loss are not enough. On top of that, it is necessary to add something which can reinstate the imbalance of freedom stolen by the wrongdoer, and it is punitive damages that “have an important retributive role in serving to force flagrant offenders to repay their “debts” to ─ and to restore the equality of ─ both their victims and society.”[12]

 

  1. Deterrence

Another important function of punitive damages is the prevention of future crimes. It is often said that the major objectives of criminal law are retribution and general deterrence. As punitive damages are based on legal characteristics similar to criminal law, the function of deterrence is likewise one of the main factors for the doctrine. Monetary compensation, in general, is a high motivation for the victims to sue misbehaving companies and such litigations will prevent the offenders from committing an offence of a similar nature in the future.

Liebeck v. McDonald’s Restaurants (1994)[13] case, also known as The McDonald’s Coffee Lawsuit, shows this aspect quite well. The plaintiff, Ms. Liebeck, aged 79, was sitting at the passenger seat when her grandson was driving into the McDonald’s drive through and ordered a cup of coffee. While the car was parked, she put the coffee between her knees so that she can add sugar and cream to the coffee. All of a sudden, she spilled the coffee all over her lap and got a serious burn and injury due to the hot coffee. She had to be hospitalized for eight days and spent approximately $11,000 for the medical treatment. As Ms. Liebeck and McDonald’s failed to reach a settlement, she filed a lawsuit against the restaurant “alleging that the coffee she purchased was defective because of its excessive heat and because of inadequate warnings”[14]. Besides, “it was learned that McDonald’s was aware of more than 700 claims brought against it between 1982 and 1992 due to people being burned by its coffee. … Moreover, McDonald’s had previously spent over $500,000 in settling these prior coffee-burn claims”.[15] Finally, the jury gave the verdict that McDonald’s had to pay total $160,000 as compensatory damages after excluding 20% of plaintiff’s fault and $2.7 million in punitive damages.

It is notable what happened afterwards. “Not only did McDonald’s, the defendant, adjust the temperature of the coffee and put additional signs or labels on the drive through way or the cup, but also nearby Dunkin Donuts put up a notice : Caution! The coffee is HOT. The prompt action of those companies implies that punitive damages are significantly efficient on deterring the misconduct in advance”[16].

 

  1. Compensation

Punitive damages also function as sufficient compensation. Under current tort liability in Korea, victims rarely get compensated as much as they are actually damaged. Once a tort is committed, victims suffer from a variety of material damage, mental anguish, and other extra losses which unfortunately are unable to prove. Plus, when a suit is filed, victims have to spend litigation expenses including attorney fee, only a portion of which is reimbursed by the defendant in case of winning. Thus without punitive damages, it is hard for victims to recover from a difficult and time-consuming process of lawsuit which propels hesitation to take action against malicious wrongdoers. It could be said that in a more developed society, the legal system is far more protective of the disadvantaged group of people. Therefore, considering the weakness of compensation, the value of punitive damages in terms of a sufficient alternative cannot be neglected.

 

  • Problems of Punitive Damages

Although three functions of punitive damages as mentioned above support the necessity of adopting the doctrine into the Korean legal system, critical and thorough deliberation of its side effects or predicted problems is necessary. There are several opposite opinions but the major three points of view will be dealt in this paper.

 

  1. Windfall to Victims

“Since punitive damages are noncompensatory, they provide the plaintiff with an undeserved ‘windfall,’ and the public-whose interests are supposedly vindicated by such assessments-is left without any monetary benefit from the penal fine.”[17]

 

One of the strongest reasons for objecting punitive damages is the matter of ‘windfall’. To put it simply, it seems unreasonable that excessive monetary compensation exclusively belongs to ‘a’ person who litigates against the law-breaker, even though the misconduct affected all the others and society itself. Consequently it gives plaintiff unfair profits and aggravates vexatious lawsuits. “By allowing a large amount of money in case of class action, punitive damages can overkill the companies and have a bad influence on the economy, not to mention its unconstitutionality.”[18]

However, from the point of view that the plaintiff actually took action to get full degree of recovery, right to ask for punitive damages should be vested in the plaintiff. This problem can also be settled by inducing the plaintiff to return certain amount of punitive damages awarded to society which includes government, public institution and etc. Besides, as long as requirements and proper limits regarding punitive damages are strictly decided, there will not be as many vexatious lawsuits in the future, and economic depression or unconstitutional possibility will not be matters to concern about.

 

  1. Prohibition against Double Jeopardy

“Because punitive damages are ‘punitive’ rather than compensatory, they ‘mar’ the symmetry of the law. Punitive damages are in the nature of criminal fines, yet defendants are not afforded the usual safeguards of criminal procedure, particularly the benefit of a higher burden of proof.”[19]

 

Another objection is that punitive damages are against the principle that criminal punishment should not be doubly executed. Criminal Procedure Code stipulates ‘prohibition against double jeopardy’ with the purpose of protecting human rights and legal stability. And this causes a problem because one of the functions of punitive damages is ‘retribution’ which is the basic goal of criminal law. As a result, there is a possibility that malicious misbehavior of the defendant may be doubly evaluated in both criminal law and tort law. Furthermore, because punitive damages are still in the field of civil law despite being criminal punishment in nature, major procedures such as due process of law or burden of proof are not followed.

The state of Indiana (in the United States) goes along with this attitude. “[On the basis that] … the original Indiana case of Taber v. Hudson declared that allowing exemplary damages would ‘not accord with the spirit of our institutions’, … [a]ll the remaining cases have on close analysis, either expressly or impliedly adhered to the constitutional theory that the legislature has no power the authorize punitive damages when the defendant is also susceptible to criminal prosecution for the same act.”[20]

Still, punitive damages are a type of compensation in ‘tort law’. Therefore it is not a serious legal violation when the defendant is sentenced to criminal penalties in spite of punitive damages. Plus, “when it comes to between compensatory damages and punitive damages in the same area of civil law, it is rather nothing to do with double jeopardy directly.”[21] Even so, according to Model Punitive Damages Act, it seems recommendable to consider criminal punishment when awarding punitive damages.

 

  1. Possibility of Overcompensation

“Because of the vagueness in the standards for determining the defendant’s liability for punitive damages, juries have no legitimate basis for determining whether or not to make such awards, which invites juries to award punitive damages improperly on the basis of passion, bias and prejudice rather than on the law.”[22]

 

The last concern about punitive damages is the vagueness of its calculation. In the case of BMW of North America, Inc. v. Gore as a matter of fact, “[t]he Alabama Supreme Court … reduced the award to $2 million [as punitive damages] on the ground that, in computing the amount, the jury had improperly multiplied Gore’s compensatory damages by the number of similar sales in all States, not just those in Alabama.”[23] If a certain legal system is fundamentally unstable in this way, then awarding punitive damages needs to be reconsidered thoroughly.

However, the matter as to how much punitive damages should be awarded is basically different from that of deciding which legal system to adopt because the imperfect part can be always dealt with afterwards. Even in the case above, the Court suggested:

[t]hree guideposts, each of which indicates … [whether the punitive damages are] grossly excessive: the degree of reprehensibility of the nondisclosure; the disparity between the harm or potential harm suffered by Dr. Gore and his punitive damages award; and the difference between this remedy and the civil penalties authorized or imposed in comparable cases.

Moreover, overcompensation is a minor problem in Korea where professional judges, who have rather balanced insights, are final decision-makers whereas in the United States, the jury consisted of ordinary people reach a verdict.

 

  1. Introduction Plans for Korea
  2. Current Civil Law System of Tort Liability

Then, how can the doctrine of punitive damages be a part of the current civil law system? Analysis of the compensation system provided by Korean tort law is required in order to answer the question.

Under Article 750 of the Civil Code, an offender who inflicts damage on a victim through an illegal act on purpose or by mistake has liability to compensate damages. The offender has liability not only for material loss but for violation of physical completion, freedom, honor or mental anguish under Article 751. There are more detailed legal bases for various tort liabilities, and they are divided into ordinary damage and special damage in accordance with Article 393. Whereas the former is usually accepted without any extra requirement, the latter needs to fulfill a condition that the offender has also known or at least been able to know the circumstances. Punitive damages are not officially included in this special damage yet.

 

  1. Specific Plans

“The plans can be roughly categorized into three ways: (1) by the interpretation of current civil law, (2) by the reform of civil law, and (3) by the legislation of special punitive damages law.”[24]

First of all, the meaning of special damage can be expanded to the extent of punitive damages. In this case, only the interpretation of the law-enforcers or judges affects the outcome whether punitive damages can be accepted or not. “However, this is not a good approach since special ‘compensatory’ damage can never be ‘punitive’ damages conceptually, although they look very similar.”[25]

Secondly, reforming the law can be an alternative. This stance is also separated into several opinions depending on the methods of ‘how and where’ to add new articles.

Lastly, there is a movement to establish a special new code for punitive damages. If this option is adopted, Model Punitive Damages Act (MPDA), established in November 1996 by the National Conference of Commissioners on Uniform State Laws, shall be a useful reference.

 

  1. Conclusion

Looking around complicated and variously changing modern societies, it cannot be more emphasized that the doctrine of punitive damages has to be introduced in Korea as soon as possible. It is true that many people are reluctant to file a suit against law-breakers and are not satisfied with the outcome after tortuous litigation. This fact implies that current tort law system is not enough to cover all of the damages and is rather an obstacle for victims to get reimbursements for their invaded rights. While compensatory damages system still stand as they used to be, the public has been eager to get full recovery with the occurrence of new types of illegal acts. Therefore, it is time to consider seriously about adopting the doctrine of punitive damages which can satisfy the victims and fill up a gap between old tort law and fast-changing tort as well.

In common-law countries, punitive damages have developed for a long time and now play a major function as compensation. Although there is still an on-going discussion about ‘windfall’ matter, ‘double jeopardy’ problem, and excessive compensation, it is unlikely that the doctrine has disappeared. Punitive damages are quite valuable in terms of tort law since simple monetary compensation can work well as retribution, deterrence and more sufficient reward.

To implement punitive damages in Korea, specific awareness regarding the meaning, function, and relevance of systematic tort law is needed beforehand. The next step would be trying to figure out the most suitable and appropriate method. The options mentioned previously are simply expanding the meaning of express provision, revising and adding new contents or establishing a separate special code. It is hard to say which one is the right answer, but “it is better to phase the punitive damages in by priority on some fields such as Product Liability Act, environmental illegality by companies, the Securities and Exchange Act, a car accident of gross negligence, food, human rights violations and defamation, sexual harassment or discrimination, and disability discrimination than to reform the tort system all over.”[26]

 

Abstract

Punitive or exemplary damages are money damages awarded to a plaintiff in a private civil action, in addition to and apart from compensatory damages, assessed against a defendant guilty of flagrantly violating the plaintiff’s rights. The doctrine of punitive damages has developed in common-law countries and now it is necessary for Korea to accept it as modern society is getting complicated and changing fast.

Punitive damages have three major functions: Retribution, Deterrence and Compensation. The case of Grimshaw v. Ford Motor Co. shows well about strong punishment on malicious law-breakers and Liebeck v. McDonald’s Restaurants case is a good example in the aspect that the case itself contributed in preventing future crimes.

Meanwhile, punitive damages still face several problems; Windfall to victims, prohibition against double jeopardy, and possibility of overcompensation. However, these are all possible to overcome through proper adoption of the doctrine.

Under the current tort law system in Korea, awarding punitive damages can be considered by reinterpreting the present provisions, adding new articles or by establishing separate special law. Either way, a phase-in is believed to be a better way to accept the doctrine than a sweeping reform.

[1] David G. Owen, A Punitive Damages Overview: Functions, Problems and Reform, 39 Vill. L. Rev. 363, 364 (1994), available at: http://digitalcommons.law.villanova.edu/vlr/vol39/iss2/3

[2] 김상찬·이충은, 징벌적 손해배상제도의 도입을 위한 비교법적 고찰, 「법학연구」 vol. 35, 168 (2009)

[3] Fay v. Parker, 53 N.H. 342, 382 (1873); Francis Scott Baldwin, PUNITIVE DAMAGES REVISITED, available at http://www.iatl.net/files/public/93_punitive_i4a.pdf; See generally 박종렬, 징벌적 손해배상에 관한 연구, 「법학연구」 vol. 26, 148 (2007. 5)

[4] Owen, supra note 1, at 373-374

[5] Owen, Ibid, at 375

[6] Owen, Ibid at 375

[7] Grimshaw v. Ford Motor Co. (1981) 119 Cal.App.3d 757

[8] Ibid

[9] Ibid

[10] Ibid

[11] See generally Owen, supra note 1, at 375-377

[12] Owen, Ibid, at 377

[13] No. CV 93 02419, 1995 WL 360309 (Bernalillo County, N.M. Dist. Ct. Aug. 18, 1994)

[14] Kevin G. Cain, And Now, The Rest Of The Story…The McDonald’s Coffee Lawsuit, Journal of Consumer & Commercial Law, Vol. 11, No. 1, 15 (2007), available at: http://www.jtexconsumerlaw.com/V11N1/Coffee.pdf

[15] Cain Ibid at 15

[16] See generally 김용대, 미국불법행위법상의 징벌적 손해배상제도, 재판자료 vol. 84: 외국사법연구논집(17), 법원행정처, 43, footnote 81 (1999); 이점인, 징벌적 손해배상제도의 도입 필요성과 가능성에 대한 일고찰, 「동아법학」 vol. 38, footnote 75 (2006. 6)

[17] Owen, supra note 1, at 392

[18] See generally, , supra note 16, at 216

[19] Owen, supra note 1, at 382

[20] Aldridge, Victor E. Jr., Indiana Doctrine of Exemplary Damages and Double Jeopardy, Indiana Law Journal: Vol. 20: Iss. 2, Article 1, 135-146 (1945), available at: http://www.repository.law.indiana.edu/ilj/vol20/iss2/1

[21] See generally, 박종렬, supra note 3, at 160

[22] Owen, supra note 1, at 384

[23] BMW of North America, Inc. v. Gore – 517 U.S. 559 (1995)

[24] See generally, 김·이, supra note 2, at 179-181

[25] 김·이, Ibid at 179-181

[26], supra note 3, at 162

Posted in Autumn 2014.