Civil-common Law Divergence on Penalties: Is it a Thing of the Past?

This article examines the rationale for the common law’s penalty rule and finds it lacking. It examines the rule as applied in different common law systems since the 2015 United Kingdom Supreme Court decision in Cavendish Square Holding v Makdessi and ParkingEye Ltd v Beavis. The article concludes that the chaotic jurisprudence surrounding the rule warrants its elimination. The rationale that was the original inspiration for the rule has long become antiquated over the six hundred years of its existence. The destabilizing effects of the rule on freedom of contract and certainty of damages calls for its abandonment. The specialized rules of penalty law should be stricken, and the regulation of penalties should be returned to the general body of common law contracts with the recognition of the idiosyncratic values and preferences of private parties. The voiding of penalties should be the domain of consumer contract and protection law and the common law’s construct of unconscionable terms. This approach would eliminate the overinclusive nature of the penalty rule—for there are penalties that are not penalties due to the undercompensatory nature of contract damages and there are penalties that serve other functions other than to punish the breaching party. This is also a recognition that the civil law has the better rule, which may be a bitter pill to accept, but the mangled law of precedents of the penalty rule must give way.