From: Davis, Kevin <>
Date: 07/07/2009 16:36:07 UTC
Subject: Penalty clauses and unconscionability

I am wondering whether anyone on the list has come across decisions in which common law courts have seriously questioned whether the traditional rule against enforcing penalty clauses, as opposed to doctrines of more general application such as unconscionability, should be used to analyze the enforceability of stipulated remedies.  


I am just finishing up a comment on the decision in Birch v. Union of Taxation Employees, Local 70030 (2008), [2009] 93 O.R. (3d) 1 (C.A.), leave to appeal to the Supreme Court of Canada denied May 7, 2009, in which the Ontario Court of Appeal did just that.  The issue was whether a union is entitled to enforce a fine against strike-breaking members pursuant to provisions in the union constitution.  What I found interesting about the decision is that the Court of Appeal could have refused to enforce the fine on the grounds that it was penalty.  Instead, following an approach suggested in obiter by Justice Sharpe in an earlier decision called Peachtree, the court focused its enquiry on whether the clause was unconscionable (and the majority concluded that it was). Has anyone come across similar decisions (particularly from outside Canada)?




Kevin Davis

Beller Family Professor of Business Law

New York University School of Law

40 Washington Square South Room 335

New York, NY 10011

tel: 212 992-8843

fax: 212 995-4760