The Penalty Doctrine: Reformulating New Zealand’s Regime Against Penalty Clauses
45 Pages Posted: 17 Apr 2018 Last revised: 13 Jul 2018
Date Written: April 4, 2018
The penalty doctrine is a long-standing rule in contract law which allows the court to render specific terms in a contract unenforceable. However, the orthodoxy of the doctrine has recently come under fire in a series of decisions from the High Court of Australia and the United Kingdom Supreme Court. Quite contentiously, the two jurisdictions have differed in their approaches to reform. With this background, New Zealand has been left in the inevitable position of deciding which approach to follow, or whether it will carve its own path. I argue the Australian and the United Kingdoms’ approaches should not be followed. The most robust option for reform would be to abolish the doctrine in the commercial context completely, and preserve it only for parties who suffer from an inequality of bargaining power. Such an approach would best serve the current needs of the legal system and marketplace.
Keywords: Penalty Doctrine, Reform, New Zealand
JEL Classification: K00
Suggested Citation: Suggested Citation