Key takeaways

• The Supreme Court’s decision brings welcome clarification and certainty to the law of penalties.
• While Dunlop remains good law, the modern and authoritative test that will be applied is whether “the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation”.
• Going forward, it will likely be difficult, but not impossible, for a party to challenge the enforceability of a provision in a negotiated commercial contract on the basis that it is a penalty.