Lloyd's Maritime and Commercial Law Quarterly
REVITALISING A WITHERED VINE: EQUITY’S PENALTY DOCTRINE
Brian Mason*
It is generally assumed that the penalty doctrine invalidates only those extravagant or unconscionable payment obligations triggered by contractual breaches. This assumption suggests that, although the penalty doctrine’s ancestry is grounded in equity, equity’s version of that principle atrophied because it merely replicated the relief otherwise available at common law. The High Court of Australia rejected this assumption in the recent case Andrews v Australia and New Zealand Banking Group Ltd. It concluded that equity’s dormant penalty doctrine may still be invoked in cases not involving contractual breaches because the Judicature system left that doctrine untouched and free to develop in a principled manner when it unified the administration of common law and equity. This article contextualises that judgment. It demonstrates that an appreciation of the penalty doctrine’s jurisprudence may revitalise equity’s manifestation of this principle in other common law jurisdictions. It then begins the process of analysing the unanswered questions arising from Andrews: how does equity’s penalty doctrine operate, how may it be reconciled with a party’s freedom of contract, and how may it operate harmoniously with other legal principles? The resolution of these questions in future cases will determine the extent to which this previously withered, but now revitalised, vine of equity may flourish.
I. INTRODUCTION
The penalty doctrine is an entrenched feature of English and Australian contract law. Although at first glance it appears refreshingly simple—the courts will not enforce the “imposition of an additional or different liability upon breach of a contractual stipulation”1—its application is complicated by the nuances of each situation. These complexities have traditionally been restrained by limiting the penalty doctrine’s application to cases involving breaches of contract. The High Court of Australia in Ringrow Pty Ltd v BP Australia Pty Ltd
2 acknowledged these unresolved questions regarding the penalty doctrine’s operation by recognising its “standard application” where a predetermined sum exceeds a genuine pre-estimate of the damage likely to result from a contractual breach, but reserving for future cases whether “any particular feature of
* Solicitor, Melbourne, Australia. I am grateful for the comments provided on a draft version of this article by an anonymous referee. Naturally, the usual disclaimer applies.
1. Legione v Hateley (1983) 152 CLR 406, 445.
2. [2005] HCA 71; 224 CLR 656.
LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY
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