Confused in Words: Unconscionability and the Doctrine of Penalties

Abstract

This paper is concerned with the role of unconscionability in the doctrine of penalties. It argues that unconscionability, although clearly a requirement in the Australian doctrine of penalties, is un elusive concept that has given rise to much confusion. This is because of the general uncertainty of the doctrine, ambiguity in the meaning of the term 'unconscionahility' and uncertainty as to whether unconscionability is a separate requirement in determining whether a liquidated damages provision is a penalty. This paper argues that if unconscionahility is to continue us a requirement in judicial determination of penalties, the courts should maintain a robust and relatively narrow notion of unconscionability. This is because the very purpose of liquidated damages clauses is to avoid uncertainty and litigation and to minimise the likelihood and costs of disputes. Ironically, the continued uncertainty surrounding the concept of 'unconscionability', and therefore the doctrine of penalties as a whole - means that 1iquidated damages c1auses actually perpetuate, rather than avoid, these problems