Civil-Common Law Divergence on Penalties: Is it a Thing of the Past?

Abstract

This article examines the rationales for the common law’s penalty rule and finds them lacking. It examines the rule as applied in different common law systems especially since the 2015 United Kingdom Supreme Court decision in Cavendish-Parking Eye Holding BV v Makdessi. The article concludes that the chaotic jurisprudence surrounding the rule warrants its elimination. The rationales that were the original inspiration for the rule have long become antiquated over the six hundred years of its existence. The destabilizing effects of the rule on freedom of contract and certainty of damages calls for its abandonment. The specialized rules of penalty law should be stricken, and the regulation of penalties should be returned to the general body of common law contracts with the recognition of the idiosyncratic values and preferences of private parties. The voiding of penalties should be the domain of consumer contract and protection law and general common law construct of unconscionable and unreasonable terms. This approach would eliminate the overinclusive nature of the penalty rule—for there are penalties that are not penalties due to the undercompensatory nature of contract damages and there are penalties that serve other functions other than to punish the breaching party. This is also a recognition that the civil law has the better rule, which may be a biter pill to accept, but the mangled law of precedents of the anachronistic penalty rule must give way.