Punishment, Deterrence and Fiduciary Obligations

The rejection, by a majority of the New South Wales Court of Appeal in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298, of submissions that exemplary damages may be awarded in respect of a breach of fiduciary obligation rested heavily on the observation that there had been no prior Australian judicial authority recognising a power to award those damages. This rejection of exemplary damages should not be seen as closing the book on the matter. Whether a novel remedy ought to be awarded depends upon whether the normative idea underlying the cause of action requires the remedy to be awarded in order to restore the condition of right as between plaintiff and defendant. While much of the case law and scholarship on fiduciary obligations emphasises the elimination of the incentive for fiduciaries to be disloyal, fiduciary obligations can be explained most simply and directly as a response of exacting loyalty in the face of any particular act of disloyalty on the fiduciary's part. Since deterrence or elimination of incentives is not an essential element of the justification for fiduciary obligations, the justification for awarding exemplary damages in fiduciary obligations cases remains elusive