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Liquidated Damages and Penalty Clauses by Halson, Roger (8th March 2018)

4 The Rationale for the ‘Penalty’ Jurisdiction

From: Liquidated Damages and Penalty Clauses

Roger Halson

Subject(s):
Damages and contract — Liquidated or agreed damages — Penalty clauses and damages

This chapter examines whether the current law with regard to stipulated damages clauses can be justified by reference to a single, or multiple, policy objectives. In the Cavendish case, counsel for Cavendish urged the Supreme Court to abolish the penalty rule. The Supreme Court mainly examined the penalty jurisdiction from a historical and comparative perspective but more briefly canvassed other rationales. The chapter considers all of the ‘justificatory’ arguments discussed in Cavendish and other cases, as well as those advanced in academic writing. It begins by looking at the context of the penalty jurisdiction in the broader law of contract. In other words, the relationship between the penalty jurisdiction and the principle of self-determination, often summarised as the freedom to contract, is discussed.

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