Punitive Damages Awards in International Arbitration - Part 5 Chapter 10 - The Practice of International Litigation - 2nd Edition
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
In recent years American courts have enforced a strong pro-arbitration policy. Parties seeking to enforce arbitral awards calling for punitive damages, however, have sometimes met with judicial resistance, on the theory that the forum’s public policy permits only courts to award such damages. New York is one of the leading states that adhere to this philosophy. Since parties frequently select New York law as the governing law in their arbitration agreements, this Chapter examines the enforceability of arbitrator-awarded punitive damages, particularly in international disputes.
Generally, punitive damage awards are more likely to be enforced in federal courts than in New York state courts, and in the United States than abroad. Although there are no precautions that will guarantee a court’s enforcement of an arbitral punitive damages award, parties can improve the odds in their favor by including a carefully drafted clause in their arbitration agreement explicitly permitting the arbitrators to award punitive damages.
Public Policy in New York
The 1976 Court of Appeals case of Garrity v. Lyle Stuart, Inc. is the leading New York decision prohibiting punitive damages awards in arbitration. In Garrity, the plaintiff brought a proceeding to confirm an arbitration award of $45,000 in compensatory damages and $7,500 in punitive damages. The arbitration agreement contained no provision for punitive damage awards. The court was unequivocal in its rejection of the arbitrators’ award of punitive damages: “An arbitrator has no power to award punitive damages, even if agreed upon by the parties.” The punitive damages award was vacated because “[p]unitive damages is a sanction reserved to the State” and thus “enforcement of an award of punitive damages as a purely private remedy would violate public policy. . . .” Recent New York decisions have continued to abide by this policy.