Liquidated and Unliquidated Damages under Law of Torts

What is a Tort?

The term ‘Tort’ has been derived from the Latin term ‘Tortum’ which means “To Twist”. Following from this derivation, a tort can be said to be any ‘Twisted Act’. It is also referred to as a civil wrong. It essentially refers to any wrongful act or omission that is not a breach of contract, crime or a breach of trust.

The only Indian Legislation that defines the term ‘Tort’ is the Indian Limitations Act, 1963. Section 2(m) of this Act defines tort as a civil wrong which is not exclusively the breach of trust or a breach of contract.

Similarly, according to Salmond, Tort is a civil wrong for which remedy is a common law action for unliquidated damages, and which is not exclusively the breach of contract, or the breach of trust, or other merely equitable obligation.

Elements of a Tort

Three main elements constitute the presence of a Tort. In order to hold any party accountable for the commission of a Tort, all of the following elements must be fulfilled. In case, any of the elements is not fulfilled, the accusation of tort will not be held as valid in an Indian Court of Law. The elements are:

1. Wrongful Act or Omission

An interested party must have done an act bound to be done as per the law or omitted the commission of an act that is legally required to be done.

2. Legal damage

As a result of a wrongful act or omission, the aggrieved party must have suffered some kind of hurt, physical or mental.

3. Damages

In order to compensate for the harm suffered by the aggrieved party, the Court awards them certain damages that are required to be paid by the tort-feasor (The party committing the tort). The concept of awarding compensation arises from the Doctrine of Restitution which follows that the aggrieved party must be placed back in the position that they would have been in if the offense was not committed. The Courts, therefore, have several types of damages that they award to the aggrieved party, which are:

Types of Damages

Damages can be broadly classified into two categories. Both these types of damages are paid to the aggrieved party by the defendant. However, only the mode of deciding the amount payable differentiates one type from the other. Damages are two types –

1. Liquidated Damages
2. Unliquidated Damages

Liquidated Damages

Liquidated Damages are those kinds of damages that have been explicitly mentioned in the statutes in force in India. In other words, these amounts are pre-determined by the lawmakers. Thus, it can also be said that such compensation will not differ on a case-to-case basis.

The most common examples of these kinds of damages are seen in the criminal law of India. The Indian Penal Code, 1860 prescribes the amount that an offender is liable to pay in case of the commission of a particular crime. Similarly, examples of such compensation in civil law include the amounts pre-decided by a contract that has been signed by two parties. Such an amount is often payable in cases of a breach of the concerned contract.

Unliquidated Damages

Unliquidated Damages are the kinds of compensations that are not specifically mentioned in any legally binding document. Such compensation is payable as per the orders passed by the Court which in turn depends on the subject matter of the particular case.

Such damages are mostly awarded in cases of tortious matters. This is essentially due to the lack of written legislation for the principles under Tort Law in India. Since the judgments in matters of tort law in India are entirely dependent on judicial precedents and the similarity of facts of the present case with past, decided cases, the amount of damages also differs.

Liquidated and Unliquidated damages are a broad classification of compensations under Indian Law. These damages can further be classified into the following on the basis of the purpose they are being paid for. Therefore, a few of the following damages can be classified under liquidated and unliquidated damages as well.

Types of Unliquidated Damages

This classification differentiates between damages (compensation) on the basis of why they are being awarded. This question helps us answer the aspect of the degree of damage caused to the aggrieved. Therefore, there are 5 types of damages on the basis of purpose, which are:

Nominal Damages

Nominal damages are awarded in cases of injuria sine damnum. These are cases where the aggrieved party has suffered a violation of their legal rights at the hands of the respondent. However, the aggrieved does not face any physical or mental injury in such cases. Such compensation is awarded merely on account of the legal injury such as violation of rights that the aggrieved party has suffered at the hands of the respondent.

For instance, in the case of Ashby v. White (1703) 92 ER 126, the Appellant was not permitted to vote. Therefore, the Court instructed the Respondent to pay the Appellant nominal damages despite the fact that the candidate that the Appellant wished to vote for won the elections. The damages were awarded merely due to the violation of the Appellant’s right to vote.

Contemptuous Damages

This kind of compensation is awarded when an Appellant has moved the Court for a trivial matter. In such cases, the Appellant is awarded the damages, however, it is a minimal amount on account of the penalty for wasting the Court’s time on an extremely petty matter.

Compensatory Damages

Compensatory damages are awarded in cases where the aggrieved party is required to be replaced to the position that they were in prior to the injury/damage they suffered.

This kind of compensation, as opposed to exemplary damages, is awarded only with the intention to put the aggrieved party back in a stable or sustainable position rather that focusing on punishing the offender.

Aggravated Damages

There are several cases where the aggrieved party suffers a certain kind of permanent or long-lasting damage as a result of the defendant’s actions. In such cases, the Court commands the wrongdoer to compensate the aggrieved party for the additional damage suffered in addition to the immediate damage caused by the unlawful action.

For instance, if an individual loses a limb as a result of an accident caused by a drunken driver, he would be awarded damages in order to compensate for not only the medical expenses but also the physical pain and the struggles the aggrieved will have to face as a result of being handicapped. Such damages awarded by a Court of law are referred to as “aggravated damages”.

Exemplary Damages

These damages are awarded to an injured party when, in addition to restoring their position, to punish the defendant party for the offense that they have committed. This kind of damages ensures that the defendant party or similar parties refrain from negligence or other kinds of behaviors that lead to such incidents thereby compelling them to pay large amounts of money as compensation.

Such damages are most often awarded in cases involving large organizations. This is because, while a certain amount can restore the complainant, the same may seem like a minimal expenditure for the organization. Such a fine would not compel them to refrain from acting negligently or recklessly. Therefore, it becomes necessary to impose large amounts on such institutions in order to be able to make an impact on the institution itself thereby ensuring careful behavior in the future.

One of the most well-known examples of such a case is the Union Carbide Corporation v. Union of India, 1989, which is famously known as the Bhopal Gas Tragedy Case. This is considered to be the landmark judgment that introduced the concept of Vicarious Liability in the Indian Law of Torts. In this case, the Supreme Court of India had ordered Union Carbide India Ltd. to pay a total amount of Rs. 750 Crores as compensation. This is considered exemplary damages since it is an extremely large amount.

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