These are questions that the Supreme Court of the United Kingdom in Cavendish appears to address. But the answer the court provides is, in this essay’s view, unsatisfactory. The court created uncertainty rather than clarity on how the penalty doctrine will continue to operate. The haphazardly constructed edifice continues to loom large, due to one fatal error: the misidentification of the penalty doctrine as a doctrine concerned with the substance of a contract, rather than the procedure by which that substance is formed.

This essay is in three parts. Firstly, it will analyse and define the difference between procedural doctrines and substantive doctrines in contract. Having set up this framework, the essay will then argue that the court in Cavendish erred when it described the penalty doctrine as one concerned with substance and not procedure. The essay will do so by reference to previous applications of the penalty doctrine by a variety of courts, which will evince a common, predominant concern with the procedures of how a liquidated damages clause is formed over the amount of the liquidated damages itself.

Secondly, the essay will criticise the new test of whether the liquidated damages clause is proportionate to a party’s “legitimate interest”.2 The new yardstick of “legitimate interest”, while purportedly more forgiving than having to show a genuine pre-estimate of loss, fails to achieve its intended purpose of respecting freedom of contract by being too uncertain to rely on, especially in the construction context. The essay will note that