The Study On The Application Of Punitive Damages In The View Of Economic Law

Punitive damage is most controversial till today. The core of the controversy is theproper application of the institution to ensure full play of this system and to avoid abusiveapplication of this system. Practical investigations into the continental law system countries’punitive damages institution reveal that its function is to solve public externalities. In juridicalpractice of common law system countries, the popularly applicable punitive damages systemhas experienced several development stages, punishment for insulting actions, punishment forabuse of force and effective repression to dangerous actions. But controversies have neverceased in theoretical and judicial circles about the compliance of applicable judicial procedureto the constitution. Germany and France refuse to accept punitive damages system, but theirlegal systems include legal systems similar to punitive damages system and their judicialpractice also exceeds traditional civil liability and involves charging the defendant withpunitive damages liabilities which are similar to punitive damages, such as sufferingcompensation, prejudice compensation,“preventive” compensation and civil compensation inGermany and such similar applications in contract law system and intellectual property rightlaw system of France. In China, there are related regulations about punitive damages but itsbasic theory is still awaiting completion and perfection, and in addition, in judicial practice,different courts might make contradictory judgments on the same fact. Therefore, theapplicability of punitive damages system is still awaiting further researches. What are thetheoretical bases for the function of punitive damages system? This system is philosophicallybased on utilitarianism and is a law system for the solution to public hazards. This system is astate tool for correcting injurious acts and a maintenance of the benefit of the entire society.The punishment and repression functions in punishment compensation are contradictory andconflicting to the idea of civil law and criminal law. To solve such conflict, the theoreticalcircle has put forward three approaches: civil law generalization, punishment privatizationand right-error-tracing mode, but none of them has proved an effective solution to thecontradiction. In terms of its background, its social significance, its operation mechanism andits protective function, this system should be classified in the scope of economic law. Thedefendant liability scope has evolved from infringement of the victim to the liability scope forinfringement of the social public. While the accuser gets benefited from the punitive damages, it also gets questioned about its lawfulness of benefit. As the punitive damages system hasexperienced an evolution from its compensation function to a punishment-repression function,it should be classified in the scope of economic law system. The economic law liability isfeatured for its sociality, complexity, unevenness and unbalance and the economic lawliability theory is able to present a reasonable interpretation to the punitive damages system.How does punitive damages system perform its function and why is it superior to other lawsystems? A law system performs a function of social control and adjustment, as acts thathazard the public exist in society, which is beyond the function of the market mechanism,they must be solved through official intervention and law. Punitive damages system is moreeffective than criminal law, civil law and administrative law. There are two approaches to thesolution of hazards to the public: First: Repression and depression by “public derivation”from criminal law and administrative law; Second: Paying the victim with the compensationfrom the infringer. Which approach is more effective? As public products are noncompetitiveand are supplied by state organs, their effective supply is restricted by state organs’ financialand human resources and also by the efficiency and commitment of state organs. Civil lawhas its advantage in its easier access to information, its simple procedure and its higherefficiency in liability definition. In case infringement involves public hazard and numerousvictims, civil law procedure is fairly costly and less efficient. The punitive damages systemencourages the victims to compete for a solution and victims, encouraged by the high rate ofpunitive damages, would be active in gaining related information, in entrusting lawyers and intimely and effectively submitting lawsuit to the court.. As public infringement can bediscovered earlier, lawsuits can be submitted to the court earlier and can be repressed earlier,victim-submitted lawsuits have better externality, infringers have to refrain or from or stoptheir infringement so that the social public may save much preventive cost. What factorsinfluence or restrict the performance of the function of punitive damages system? Legislation,jurisdiction and law enforcement all play a part in distributing rare resources, so all legalactivities could be analyzed by economic methods. Legal activities should also be reasonablyallocated according to resources to as to achieve the maximum goal. In economic view, themajor factors that affect the function of punitive damages system includes the following: thetime of legal intervention, the strictness of preventive punishment, adequacy of actinformation, the doer’s awareness of his dangerous act and the cost of his act execution. Theresponsibility definition principle also plays a role in defining the efficiency of legal liability definition. On the principle of strict liability, the optimal condition is compensation liability,the sum of compensation liability and civil compensation are equal to the damage, as whencompensation liability is more than damage, the potential infringers is properly incented toadopt preventive measures, but when legal liability is excessive, the result is excessiveprevention. On the faulty reliability principle, the doer usually adopts preventive measure torealize a state of “usual caution” behavior standard, which often ends in inadequateprevention. Therefore punitive damages may be intensified to stimulate the doer to takefurther preventive measures and therefore damage may be avoided. The “soil” of differentlegal systems may also play a role in the application of punitive damages system. Commonlegal system follows judicial activism, aiming at solving practical problems, therefore,punitive damages system has much room for application, with a tendency to excessiveapplication. The strict continental legal system does not provide room for the highlyinstrumental punitive damages system, even in case of “legal loophole”, the continental legalsystem tends to expand the interpretation of the existing system for a solution instead ofestablishing systems with features of a department law. In legal practice, the application ofpunitive damages system should be relatively restricted and as it is punitive, it should berestricted by necessity. The punitive damages system should comply with the legal principleof justice and efficiency responding to evaluation requirement. The amount of punitivedamages should be reasonable. How to apply the punitive damages system in China? First ofall, under the incomplete legal system, the social management bias to administrativeinstitutions and the moral abnormality, the establishment of application of a punitive damagessystem in China is of special and positive realistic significance. Secondly, on the basis ofeconomic law theory, the punitive damages system application should be confined to thefollowing conditions: Socially hazardous market failure and civil law and criminal law are notadequate to give full play to their functions. Thirdly, China’s punitive damages system shouldbe perfected inefficient regulations should be modified, such as commodity price as punitivedamages calculation basis and other such regulations.“General Terms” for punitive damagesshould be regulated so as to regulate define the legal definition of compensation scope andapplication scope. A punitive damages fund should be established in the light of partitionedpunitive damages system so as to depress acts hazardous to the public, to encourage victims tosubmit lawsuit to the court and to benefit the social public. Fourthly, in judicial practice,punitive regulation application methods involve legal interpretation and evidence of proof. In China, different verdicts sometimes result from different interpretation of legal norms. Toachieve an effective application of punitive damages system, the first interpretation methodshould be made in the light of purpose interpretation as the prior norm. In cases of judicialjudgment applicable punitive damages, free evaluation of evidence on the part of the judge inascertaining facts is more applicable to China and is more efficient.