Penalty Clauses – What Has Changed?

Abstract

Building on two seminal cases that consider the character of penalty clauses, Paciocco v Australia and New Zealand Banking Group Ltd from Australia and Cavendish Square Holding BV v. Talal El Makdessi from England, this Article sheds a new light on the treatment of fixed sums and argues that the view on whether penalty clauses are governed by the CISG requires new considerations. Importantly, this Article demonstrates a two-step approach to the analysis of penalty clauses: 1) whether the sum in question is penal in nature, and 2) if so, whether the CISG determines the fate of the penalty clause by reference to its general principles. Considering new international developments, this Article argues that such clauses should generally be enforced.