Contractual Penalties in Australian Law after Andrews: An Opportunity Missed

This article considers the extent to which an Australian court might be willing to declare a contractual clause to be a ‘penalty’, and so not be enforceable. A recent High Court decision takes a broader view of the courts’ jurisdiction to relieve against ‘penalties’ than has previously been the case. This article has two purposes; first, it critically considers whether the Court’s position is correct, having regard to the long history and rationale for the rule. Secondly, it considers whether the doctrine forbidding penalties in contracts remains an appropriate stand-alone doctrine in contemporary contract law, or whether a recasting of the law in this area is desirable. It concludes that the High Court missed an opportunity to consider more thoroughly the reform of the penalty-liquidated damages distinction, and should have subsumed that principle within the organising principle of unconscionability.