Exemplary damages in the context of international arbitration

Arbitration is a consensual dispute resolution process based on the parties'

agreement to submit their disputes for resolution to an arbitral tribunal
usually composed, of one or three independent arbitrators appointed by or on
behalf of the parties. Arbitration is conducted in accordance with the terms of the
parties' arbitration agreement, which are often found in the provisions of a
commercial contract or applicable investment treaty.1 The main advantage of
arbitration over any other type of proceeding is its neutrality, flexibility, cost
efficiency and confidentiality.

The confidentiality of the proceedings is a major advantage of International

Arbitration specifically in commercial transactions. Arbitration hearings are
conducted in private and awards are, under normal circumstances, not
published. Therefore, disputes will not be revealed to the public and where possible
business relationships can be maintained. Article 42 of the Hong Kong International
Arbitration Centre Rules2 provide that unless otherwise agreed by the parties, no
party may publish, disclose or communicate any information regarding the
arbitration or the award made in the arbitration.

1 http://www.hkiac.org/arbitration/what-is-arbitration
2 Article 42 – Confidentiality
42.1 Unless otherwise agreed by the parties, no party may publish, disclose or
communicate any information relating to:
(a) the arbitration under the arbitration agreement(s); or 

(b) an award made in the arbitration. 

xxx
42.4 The deliberations of the arbitral tribunal are confidential. 

42.5 An award may be published, whether in its entirety or in the form of excerpts or
a summary, only under the following conditions:
(a) a request for publication is addressed to HKIAC; 

(b) all references to the parties’ names are deleted; and 

(c) no party objects to such publication within the time limit fixed for that
purpose by HKIAC. In the case of an objection, the award shall not be
published. 

 Given the confidentiality of the arbitration proceeding award, the question
now is whether or not an arbiter can award exemplary damages given the conflict in
the nature of exemplary damages and the confidentiality of arbitration proceedings.

Exemplary damages or otherwise known as punitive damages are generally

defined as damages awarded to serve two main functions: to serve as a punishment
and deterrence. Punitive damages are often awarded where compensatory
damages are deemed an inadequate remedy. The court may impose them to prevent
under-compensation of plaintiffs, to allow redress for undetectable torts and taking
some strain away from the criminal justice system. The idea of punitive damages
however, is perhaps one of the major differences in the legal theories of civil law and
common law. In civil law countries the concept of punitive damages is scarcely
known, whether in breach of contract cases or otherwise, with a limited exception in
some countries where there has been a willful intention to harm the claimant,
amounting effect to fraud. Of the common law countries, only in the United States
are punitive damages awarded in what are essentially breach of contract cases. The
use of civil damages to punish and deter is common in the American system.
Punitive damages serve a public policy function, and the award of punitive damages
is entrusted to American civil juries on a daily basis.3

Therefore, given the difference in understanding of punitive damages in the

various jurisdictions, international arbitrational tribunals are not restricted to
awarding punitive damages in order to serve as a deterrence for the party and
society. An award of punitive damages may be made in cases of wanton bad faith or
of under-compensation. Thus, a party claimant in international arbitration claiming
for punitive damages may properly claim exemplary damages without violating the
confidential nature of the proceedings by focusing its claim on the punishing nature
of punitive damages and avoiding the public policy aspect of punitive damages of

3 Jessica Jia Fei, Awards of Punitive Damages, accessed at

http://www.jonesday.com/files/Publication/75b937bb-b41b-4971-b7a0-
49c4bff2ec21/Presentation/PublicationAttachment/905d1ac6-50ba-4695-87c0-
718ef9772f4a/JiaFei_Punitive_Damages.pdf
serving as a deterrence for future acts by the public. This can be done by providing
evidence of the wanton, fraudulent, reckless, oppressive or malevolent action of the
defendant before the arbitral tribunal.