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A restatement of relief against contractual penalties (I): Underlying principles in equity and at common law

Tiverios, NA; (2017) A restatement of relief against contractual penalties (I): Underlying principles in equity and at common law. Journal of Equity , 11 (1) Green open access

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Abstract

The rule preventing a contracting party from enforcing a penalty clause has been the subject of recent decisions of the highest courts of the United Kingdom and Australia, which has led to a number of significant divergences in the law. This article outlines two potential rationales that can explain the distinct approaches to the law of penalties adopted in England and Australia. It is argued that the Australian or 'equitable' rule against penalties concerns fixed sum clauses that are characterised as being in the nature of security rights. This rule prevents rights or interests taken or retained by way of security from being enjoyed beyond the function or purpose of security in light of how the law attributes value to the underlying secured stipulation or obligation (thereby [*2] preventing the imposition of an unjustifiable detriment or punishment on a contracting party). Whereas the English or 'common law' rule regulates the parties' ability to determine the quantum of the secondary obligation that arises upon breach of a primary contractual obligation. The English rule prevents fixed sum clauses which derogate too far from the default remedy available for a breach of contract. While there is overlap between these two rationales, which is unsurprising given that the rules share a common history, they remain distinct.

Type: Article
Title: A restatement of relief against contractual penalties (I): Underlying principles in equity and at common law
Open access status: An open access version is available from UCL Discovery
Publisher version: https://www.lexisnexis.com.au/en/products-and-serv...
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of Laws
URI: http://discovery.ucl.ac.uk/id/eprint/1556417
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