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. However, punitive damages awarded under court system that recognize them, may be difficult to enforce in jurisdictions that do not recognize them. Punitive damages awarded to one party in a US case would be difficult to get recognition for in a European court, where punitive damages are most likely to be considered to violate ordre public.
Because they usually compensate the plaintiff in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, usually under tort law, where the defendant's conduct was egregiously insidious. Punitive damages cannot generally be awarded in contract disputes.
Also, punitive damages can be in excess as compared to the compensatory damages. There is no certain limits or ratio of punitive damages to that of compensatory damages.
Another case, that could arguably be seen as an example of punitive damages, was that of Attorney-General v Blake in which the defendant profited from publishing a book detailing his work for MI5. The details were very old and therefore did not cause loss to the state. The publishing was however in breach of the contract of employment (and incidentally criminally in breach of the Official Secrets Act 1911). He was required to give an account of his profits gained from writing the book.
In New Zealand it was held in Donselaar v. Donselaar and confirmed in Auckland City Council v. Blundell that the existence of the Accident Compensation Corporation did not bar the available of exemplary damages. In Paper Reclaim Ltd v Aotearoa International it was held that exemplary damages are not to be awarded in actions for breach of contract but the Court left open the possibility that exemplary damages might be available where the breach of contract is a tort.
Punitive damages are a settled principle of common law in the United States. They are a matter of state law, and thus differ in application from state to state. In many states, including California and Texas, punitive damages are determined based on statute; elsewhere, they may be determined solely based on case law. Many state statutes are the result of insurance industry lobbying to impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional.
Punitive damages are a focal point of the "tort reform" debate in the United States, where numerous highly-publicized multi-million dollar verdicts have led to a fairly common perception that punitive damage awards tend to be excessive. However, statistical studies by law professors and the Department of Justice have found that punitive damages are only awarded in two percent of civil cases which go to trial, and that the median punitive damage award is between $38,000 and $50,000.
In response to judges and juries which award high punitive damages verdicts, the Supreme Court of the United States has made several decisions which limit awards of punitive damages through the due process of law clauses of the Fifth and Fourteenth Amendments to the United States Constitution. In a number of cases, the Court has indicated that a 4:1 ratio between punitive and compensatory damages is broad enough to lead to a finding of constitutional impropriety, and that any ratio of 10:1 or higher is almost certainly unconstitutional.
In BMW of North America, Inc. v. Gore (1996), the Court ruled that punitive damages must be reasonable, as determined based on the degree of reprehensibility of the conduct, the ratio of punitive damages to compensatory damages, and any criminal or civil penalties applicable to the conduct. In State Farm Auto. Ins. v. Campbell (2003), the Court held that punitive damages may only be based on the acts of the defendants which harmed the plaintiffs.
Most recently, in Philip Morris USA v. Williams (2007), the Court ruled that punitive damage awards cannot be imposed for the direct harm that the misconduct caused others, but may consider harm to others as a function of determining how reprehensible it was. More reprehensible misconduct justifies a larger punitive damage award. Dissenting in the Williams case, Justice John Paul Stevens found that the "nuance eludes me," suggesting that the majority had resolved the case on a distinction that makes no difference.
In Japan, medical negligence and other species of negligence are governed by the criminal code. For instance, many causes of action which would subject a defendant to a potential punitive damage award in the U.S. would subject the same individual to prison time in Japan. With that in mind, the simple statement, "Japanese courts do not award punitive damages," seems wildly misleading.