¹ The term is problematic in a comparative study. In England it specifically refers to an invalid agreed damages clause. A valid clause is referred to as a liquidated damages clause. In France, the term clause pénale encapsulates both English notions. Unless obvious from the context, the term ‘penalty clauses’ will connote both valid and invalid agreed damages clauses as well as the French clause pénale.Google Scholar

² One French author considers the penalty clauserules a precursor for general contractual developments representing ‘une image assez exacte des modifications qui ont affecté le droit contractuel’. Mazeaud, D, La Notion de Clause Pénale (LGDJ 1992) at 31. It is a comment equally valid in England.Google Scholar

³ See Ibbetson, DAn Historical Introduction to the Law of Obligations (OxfordOxford University Press 1999) 249 who outlines how the incursion into the Will Theory from competing socio-economic, philosophical and legal theories created a suitable climate for more active judicial control of unconscionable behaviour of contracting parties. Whilst at first this did not amount to a wholesale renouncement of the Will Theory, it was recognition that contracts could be more extensively regulated by principles of reasonableness and justice. By the later part of the twentieth century, the Will Theory had been ‘seriously compromised’ (at 261).Google Scholar

⁴ It will be seen below that in England, unlike in France, even at the height of the enlightenment, penalty clauses were treated with suspicion. Intervention however was restrained by strict delimitation of what was classified as a penalty clause. A clause was only treated as penal if it could not have represented the parties' intentions. See Ibbetson, op cit at 255.Google Scholar

⁵ This, at least, is the traditional language used. The significance of the term is explored below.

⁶ It should be noted that the common law has not always been distrustful of penalties. The penal bond with conditional defeasance was a much used instrument until the mid-seventeenth century. A full account can be found in AWB Simpson ‘The Penal Bond with Conditional Defeasance’ [1966] 92 LQR 392.Google Scholar

⁷ Tai Hing cotton Mill v Kamsing Knitting Factory [1979] AC 95, at 105.Google Scholar

⁸ Export Credits Guarantee Department v Universal Oil Products [1983] 2 Lloyd's Rep 152, at 155.Google Scholar

⁹ ‘[T]he distinction between penalties and liquidated damages depends on the intention of the parties to be gathered from the whole of the contract’Law v Redditch Local Board [1892] 1 QB 127, at 132.Google Scholar

¹⁰ See, eg, Kemble v Farren (1829) 6 Bing 141 where a clause described as a ‘liquidated damages clause’ was held to be a penalty clause and, for the reverse, see Elphinstone v Monkland Iron & Coal Co Ltd (1886) 11 App Cas 332.Google Scholar

¹¹ Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, at 87.Google Scholar

¹² Above n 11.

¹³ At 87–8.Google Scholar

¹⁴ Butterworths Common Law Series The Law of Contracts (LondonButterworths 1999) 1303.Google Scholar

¹⁵ Treitel, GThe Law of Contracts (LondonSweet & Maxwell 1999) 930.Google Scholar

¹⁶ (1882) 21 Ch D 243.Google Scholar

¹⁷ See Treitel above n 15, at 931; Butterworths, above n 14, at 1304.Google Scholar

¹⁸ Above n 15, at 93.

¹⁹ Philips Hong Kong v A-G of Hong Kong (1993) 61 Build LR 41, at 59.Google Scholar

²⁰ Dunlop, at 88. This seems in contradiction with the third rule.Google Scholar

²¹ The difficulty with the common law distinction is evidenced in the contradictory cases of Dunlop and Ford Motor Co v Armstrong (1915) 31 TLR267.Google Scholar

²² Bridge v Campbell Discount Co Ltd [1962] AC 600, at 622.Google Scholar

²³ See on this Barton ‘Penalties and Damages’ [1976] 92 LQR 26; Gordon [1974] 90 LQR 296; Hudson ‘Penalties Limiting Damages’ [1974] 90 LQR 30.Google Scholar

²⁴ [1915] 3 K B 66.Google Scholar

²⁵ Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd. [1933] AC 20.Google Scholar

²⁶ Robophone Facilities Ltd v Blank [1966] 3 All ER129, at 142.Google Scholar

²⁷ Elsley v JG Collins Ins Agencies Ltd (1978) 83 DLR (3d) 1.Google Scholar

²⁸ Perhaps a simplified way of looking at this would be to ask whether the same clause can be recognised as pursuing multifarious purposes; eg coercion, compensation and limitation. If so, a refusal to enforce a penalty clause could be viewed as ignoring one characteristic of the particular clause (viz coercion) whilst leaving another (viz limitation) to be enforced. The traditional common law separation of a penalty from a liquidated damages clause tends to hinder this process of analysis since it presupposes that the clause has either one function or another. Jobson v Johnson [1989] 1 WLR 1026 (discussed in detail below) represents a move towards viewing the same clause as having an amalgam of functions.Google Scholar

²⁹ See Hudson, above n 23.Google Scholar

³⁰ Above n 28.Google Scholar

³¹ Zimmermann, R The Law of Obligations. Roman Foundations of the Civilian Traditions (Cape TownJuta & Co 1990), at 107.Google Scholar

³² Treitel, above n 15, at 929.Google Scholar

³³ Mckendrick, EContract Law (LondonPalgrave 2000), at 430; Butterworths, above n 14, at 1295; and Clarkson et al ‘Liquidated Damages v Penalties: Sense or Nonsense’ [1978] Wise LR 351, at 351.Google Scholar

³⁴ Collins, HThe Law of Contract (LondonButterworths 1997), at 347.Google Scholar

³⁵ Harris, ‘Incentives to Perform or Break Contracts’ (1992) 45 CLP 29, at 37 and Downes, ‘Rethinking Penalty Clauses’ in Birks, (ed) Wrongs and Remedies in the Twenty-First Century (OxfordClarendon Press 1996), at 153, are noteworthy exceptions.Google Scholar

³⁶ Above n 28, at 1030. This can be compared with, eg, an ‘unreasonable’ exclusion clause which seeks to exclude or restrict liability for breach of contract under UCTA 1977, or aprovision imposing unlawful restraints on trade.Google Scholar

³⁷ Above n 28, at 1040.Google Scholar

³⁸ Above n 28, at 1042.Google Scholar

³⁹ There is an action in debt for the recoverable part of the penalty clause.Google Scholar

⁴⁰ Above n 28, at 1040.Google Scholar

⁴¹ And thus it has become a ‘dead letter’ (at 1039).Google Scholar

⁴² White and Carter (Councils) Ltd v McGregor [1962] AC 413 shows the advantages of a claim in debt. The claimants were not obliged to mitigate their loss. The advantages in avoiding the remoteness rules are exemplified in Robophone Facilities Ltd v Blank above n 26.Google Scholar

⁴³ And Elsley v JG Collins Ins Agencies Ltd, above n 27.

⁴⁴ Thilmany, J ‘Fonctions et Révisibilité des Clauses Pénales en Droit Comparé’ (1980) 44 Rev Int Dr Comp 17, at 18.Google Scholar

⁴⁵ Starck et al Droit Civil. Les Obligations Tome 2 (Paris Litec 1998) at 1843. It will be seen in Section IV that the French emphasise the performance of an obligation (exécution en nature) as opposed to an action for damages. The law is equipped with complementary mechanisms to compel, or encourage, performance. Outside the penalty clause rules one finds such things as the astreinte—‘une mesure licite d'intimidation’ (Terré et al Droit Civil; Les Obligations (Paris Dalloz 1996), at 1025)—or the mise en demeure (see below n 126).Google Scholar

⁴⁶ Other civilian systems (eg German, Italian, Spanish, Portuguese) adopt a similar approach.

⁴⁷ ‘Une clause n'est…pénale que si elle a un caractére comminatoire’ Mazeaud, D, above n 2, at 85. See also Mestre, J ‘De la Notion dela Clause Pénale’ RTD civ 1985, 372, at 373–the clause pénale is ‘nécessairement comminatoire’. For jurisprudence supporting this; Civ ler, 22 févr 1977, Bull civ I, no 99, 77.Google Scholar

⁴⁸ Treitel, G, Remedies for Breach of Contract (OxfordOxford University Press 1988), at 212.Google Scholar

⁴⁹ Civ 3e, 12 janv 1994: RTD civ. 1994, 605, obs Mestre.Google Scholar

⁵⁰ Although, it has been more recently argued that the code wholly subscribes to natural law principles and it is only through later interpretation that individualist philosophies have been given any substance. See A Burge ‘Le code civil et son évolution vers un droit imprégné d'individualisme libéral’ RTD civ. 2000, 1 and J Gordley, ‘Myths of the French Civil Code’ 42 Am J Comp Law (1994) 459.Google Scholar

⁵¹ Embodied in Art 1134 al 1; Les conventions légalement formées tiennent lieu de loi à ceux qui les ont faites. The complementarity of Arts 1152 al 1 and 1134 al 1 is later underlined in a decision of the Cour commerciale le 2 11 1967–Bull Civ III, no 351, 333; RTD civ, 1969,116 et obs Chevallier, J, ‘la convention…tenant lieu de loi à ceux qui I'ont faite, il ne peut être alloué à l'autre partie une somme plus forte ni moindre’.Google Scholar

⁵² Other continental jurisdictions did not grant the same inviolable status to the penalty clause as France. For example, Italy (Art 1134 c.civ), Switzerland (Art 163 C. Federal des Obligations) and Germany (§343 BGB) all allowed the sum to be reduced by the courts where it was excessive.Google Scholar

⁵³ The conception of the clause as an assessment of damages means that the obligee cannot demand the penalty in addition to performance or damages. This contrasts with the German provision §340 BGB which provides that the penalty clause is a minimum sum and does not preclude an action for damages if actual loss is more.Google Scholar

⁵⁴ ‘La peine peut être modifiée par le juge lorsque l'obligation principale a été éxécutée en partie.’Google Scholar

⁵⁵ Boccarra, B‘La Liquidation de la Clause Pénale et la Querelle de 1'article 1231 du Code Civil’ JCP 1970 I 2294, at para 9.Google Scholar

⁵⁶ Sanz, S‘La Consécration du Pouvoir Judiciaire par la Loi du 9 juillet 1975 et ses Incidences sur la Théorie Générale de la Clause Pénale’ RTD civ. 1977, 268.Google Scholar

⁵⁷ Thilmany aboven 44 and Mazeaud above n 2 talk of ‘contractual terrorism’.Google Scholar

⁵⁸ For a particularly harsh case concerning a rental agreement see Com et Fin, 2 novembre 1967, Bul 1967, III, n° 351, 333.Google Scholar

⁵⁹ The Court did express regret at the principle of non-intervention in its ’Rapport au Garde des Sceaux’ 1972–1973 demanding reform of the texts that it felt bound to follow.Google Scholar

⁶⁰ The power of the judge has been seen as resting more on a notion of equity than that of law. Armand-Prevostand Richard ‘Le Contrat Déstabilise (De L'Autonomie de la Volonté au Dirigisme Contractuel)’JCP 1979 I 2952, at para 19. Nevertheless the reform affirmed the importance of judicial powers in private contractual relations; Mazeaud above n 2, at 30.Google Scholar

⁶¹ ‘Une bréche a ainsi été ouverte en 1975 dans le principe de la force obligatoire des conventions’; Paisant, G ‘Dix ans d’Application de la Reforme des Articles 1152 et 1231 du Code Civil Relative à la Clause Pénale (loi du 9 juillet 1975)’ RTD. civ 1985. 647, at 4. F Chabas—considers that the law is ‘une des premieres entorses importantes apportées à l'article 1134 du Code civil’ ‘La Réforme dela Clause Pénale’ D 1976 Chron 229.Google Scholar

⁶² Boubli, B ‘La Mort de la Clause Pénale ou le déclin du principe de l'autonomie de la volonté’J not 1976. 1. 945.Google Scholar

⁶³ Letartre, Y‘Requiem pour une Clause Pénalé?’ Rev Jur Com (1978) 101.Google Scholar

⁶⁴ It is interesting to draw attention to this powerful judicial role bearing in mind that one purpose of the clause pénale is to obviate judicial evaluation of damages.Google Scholar

⁶⁵ See Mestre above n 47, at 372 et seq; Mazeaud above n 2, 145 et seq; Dagorne-Labbe ‘Rejet de la demande de réduction de l'indemnité contractuelle de résiliation due au mandataire’ JCP 2002 II, 10 067.Google Scholar

⁶⁶ See, eg, case D 1996 Somm 329, obs Mazeaud where the court refused to extend the ambit of 1152. al 2.Google Scholar

⁶⁷ Mazeaud above n 2, at 148. Chabas Leçons de Droit Civil; Tome II Obligations (Montchrestien 1998), at 772 states that apart from certain clauses whose identity is settled—I'indemnité d'immoblisation and la clause de dédit—the court will look at the intention of the parties. The parties' denomination of the clause is not determinative.Google Scholar

⁶⁸ As per Lord Diplock, in Robophone above n 26, at 142.Google Scholar

⁶⁹ ‘[W]hat the parties have agreed should normally be upheld’ Philips Hong Kong Ltd v A-G of Hong Kong, above n 19, at 59.Google Scholar

⁷⁰ Ibid and Lord Diplock in Robophone, above n 26, at 142.

⁷⁰ See Privy Council judgment of Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514.Google Scholar

⁷² My emphasis.Google Scholar

⁷³ The judge not only decides whether to intervene but also evaluates whether the conditions for intervention are present—in other words whether the sum is manifestement excessive—arrět de la Première Chambre civile—24 juill 1978 Gaz Pal 8, 9 déc 1978.Google Scholar

⁷⁴ Loi no 85–1097 du 11 oct 1985.Google Scholar

⁷⁵ This point is punctuated by comparison with the Swiss legislative provision which provides, ‘le juge doit reduire les peines qu'il estime excessives’. [my emphasis]Google Scholar

⁷⁶ The explicit inclusion of subjective values contrasts with the common law orthodoxy that the judge must work within solely objective confines.Google Scholar

⁷⁷ It is submitted that since assessment can openly incorporate all factors up to the time of the judgment—and not just the circumstances at the contract's conclusion—appreciation of the subjective element is facilitated. The contrast with the English rejection of subjective concerns is noteworthy. Dillon, LJ, in Jobson v Johnson, above n 28, at 1033 (referring to Wallingford v Mutual Society (1880) 5 App Cas 685, at 702) states that neither the financial circumstances nor the extent of culpability of the mortgagor were relevant to relief from enforcing the penalty. Nicholls, LJ (at 1041) considered the ‘circumstances of the default’ immaterial.Google Scholar

⁷⁸ Cornu, G ‘Clause Pénale; principle, limite et conséquence de l'appreciation souveraine par les juges du fond, du caractère manifestement excessif de la peine stipulée et du montant de la modération’ RTD civ 1979. 150.Google Scholar

⁷⁹ Cass com, 23 janv 1979, Bull civ IV, no 30; Amiens, CA, 23 nov 1976, JCP 1977.II.18567, note EMB.Google Scholar

⁸⁰ ‘Modérer n'est pas supprimer’ Paisant;D 1991, 481, at 13.Google Scholar

⁸¹ Com, juill 1991, D 92, 365.Google Scholar

⁸² See Section V.Google Scholar

⁸³ White & Carter (Councils) Ltd v McGregor, above n 42; The Protector Endowment Loan Co v Grice (1880) 5 QBD 529. It is not the purpose of this paper to evaluate the commercial efficacy or desirability behind this mechanism, rather to highlight the fact that a penal element is seen as acceptable.Google Scholar

⁸⁴ In other words, a provision that stipulated for interest for the whole contractual period as well as accelerated payment would be considered penal. See The Angelic Star [1988] 1 Lloyd's Rep 122, at 125Google Scholar

⁸⁵ Civ lre, 22 fév 1977 Bull civ I, no 99.Google Scholar

⁸⁶ Hongkong Fir Shipping Co Ltd v Kawasaki Risen Kaisha Ltd [1962] 2 QB 26.Google Scholar

⁸⁷ See below n 90 and n 91 for qualifications to this rule.Google Scholar

⁸⁸ La résolution doit être demandée en justice.Google Scholar

⁸⁹ Thus the onus of initiating litigation shifts to the obligor.Google Scholar

⁹⁰ Although where breach of a ‘condition’ occasions negligible damage the court may hold that termination is not justified; Wickman Ltd v Schuler AG [1974] AC 235. See also Rice v Great Yarmouth BC (2001) 3 LGLR 4 where the Court of Appeal refused to recognize a termination clause which extended to multiple types of obligation under a 4-year contract.Google Scholar

⁹¹ In practice, the courts will have regard for the consequences that termination will have for the obligor in determining whether a breach is sufficiently serious to justify termination by the obligee.Google Scholar

⁹² See, eg, Mazeaud above n 2, at 63.Google Scholar

⁹³ See Friedmann ‘Good Faith and Remedies for Breach of Contract’ in Beatson, and Friedmann, (eds)Good Faith and Fault in Contract Law (OxfordOxford Univeristy Press 1995)Google Scholarand Goode, R ‘Europe and English Commercial Law’ in Markesinis, (ed), The British Contribution to the Europe of the Twenty-first Century. British Academy Centenary Lectures (OxfordHart 2002) 19. It should also be borne in mind that judicial assistance may be required to work out the consequences of termination. Thus, the distinction between self-help and judicial remedies can be slightGoogle Scholar

⁹⁴ A good example is Alder v Moore [1961] 2 QB 57. A sum due to an insurance company if a professional footballer returned to the sport after an injury was not a penalty. There was no breach on his return to the sport since he had not promised otherwise. As far back as 1975 a Law Commission Working Paper (No 61) recommended that the ‘court should have the power to deal with such clauses in the same way whether or not they come into operation by breach’ (para 22). It further proposed that the penalty clause rules should apply ‘wherever the object of the disputed contractual obligation is to secure the act or result which is the true purpose for the contract’ (para 26).Google Scholar

⁹⁵ Associated Distributors Ltd v Hall [1938] 2 KB 83 and Bridge v Campbell Discount Co Ltd, above n 22.Google Scholar

⁹⁶ Where the contract is governed by the Consumer Credit Act 1974 then this may not apply.Google Scholar

⁹⁷ Above n 32. Here the judges were able to find the hirer in breach of contract to release him from liability. In this case the result furthered the general policy underlying the law relating to penalties. But it is a rather precarious basis on which to proceed should the facts of the case differ.Google Scholar

⁹⁸ Civ 3e, 5 déc 1984 D 1985.545 et note Benac-Schmidt.Google Scholar

⁹⁹ Export Credits Guarantee Department v Universal Oil Products, above n 8 and Civ Ire, 16 janv 1985 JCP 1986 II 20661 et note Paisant.Google Scholar

¹⁰⁰ The court will look at the intention of the parties to determine their objectives; Mayson v Clouet [1924] AC 980, at 985.Google Scholar

¹⁰¹ Howe v Smith (1884) 27 Ch D 89.Google Scholar

¹⁰² Mayson v Clouet above n 100. However the issue of whether a part payment is recoverable will be subject to the standard of unconscionability. See Stockloser v Johnson [1954] 1 QB 476.Google Scholar

¹⁰³ Linggi Plantations Ltd v Jagatheesan [1972] 1 MLJ 89 at 94. It is interesting that this definition replicates one given to the French clause pénale in an attempt to distinguish between that and a clause de dédit: une clause pénale ‘est la garantie des obligations contractuelles’—Mazeaud D 29996 Somm 329. (A clause de dédit can be broadly translated as a ‘forfeiture clause’. It is seen not as a guarantee to perform but as the payment by the obligor for the freedom to unilaterally withdraw from the contract without incurring liability. It is the exercise of a right as opposed to the English breach of an obligation).Google Scholar

¹⁰⁴ Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573.Google Scholar

¹⁰⁵ The 1975 Law Commission's Working Paper No 61 had proposed that control over penalty clauses should be extended to forfeitures and deposits (paras 64–6).Google Scholar

¹⁰⁶ This percentage, although [without logic], was used as a benchmark since it was normal practice in contracts for the sale of land.Google Scholar

¹⁰⁷ Unless special circumstances prove otherwise.Google Scholar

¹⁰⁸ As per Lord Browne-Wilkinson in Workers Trust, above n 104, at 580.Google Scholar

¹⁰⁹ Although there is scope for the argument that ‘unreasonable’ can be equated with ‘unconscionable’ under the first Dunlop rule.Google Scholar

¹¹⁰ Following the Jobson v Johnson rules on penalty clauses.Google Scholar

¹¹¹ He will though be able to recover damages for any loss suffered from breach.Google Scholar

¹¹² Defined above n 103.Google Scholar

¹¹³ Dimatteo, L‘A Theory of Efficient Penalty; Eliminating the Law of Liquidated Damages’ 38 Am Bus LJ (2001) 633, at 635.Google Scholar

¹¹⁴ Ibbetson, above n 3, at 245.Google Scholar

¹¹⁵ This is common law terminology. Whereas in England the law of ‘remedies’ is treated as a coherent set of legal principles, in France, the same area of law is instead incorporated in different chapters and sections of the Code civil and analysed as the effects of the contract or obligation rather than a wholly separate legal category. Although the difference is principally only one of structure, it does draw attention to the different approaches (see B Nicholas The French Law of Contract (OxfordOxford University Press 1992) 211).Google Scholar

¹¹⁶ It should be stressed that the discussion in this section represents the traditional theoretical positions. Legal systems do not remain static and trends have meant that in practice, despite the different emphasis, the systems often arrive at the same results. The types of contract which are specifically enforced in France and England ‘share common characteristics’ Ogus ‘Remedies. 1. English Report’ in Harris and Tallon (eds) Contract Law Today; Anglo-French Comparisons (OxfordClarendon Press1989) 243. Despite modern trends examination of the traditional approach is of course imperative to an understanding of the underlying legal structures and ‘attitudes of mind’ (Nicholas ibid, at 211) that have formed the penalty clause rules.

¹¹⁷ Farnsworth ‘Legal Remedies for Breach of Contract’ Columbia L Rev (1970) 1145.Google Scholar

¹¹⁸ Despite the suggestion in Art 1142 that damages are the primary remedy (for an obligation defaire or de ne pas faire) the principle is subject to numerous qualifications and a juristic interpretation that has reduced it to an exception.Google Scholar

¹¹⁹ Davy v Spelthorne BC [1983] 3 All ER 278,185 per Lord Wilberforce, ‘Typically English law fastens not on principles but remedies.’Google Scholar

¹²⁰ Ogus above n 117, at 293.Google Scholar

¹²¹ See on this generally, A de Moor ‘Common and Civil Law conceptions of Contract and a European Law of Contract; the Case of the Directive on Unfair terms in Consumer Contracts’ European Review of Private Law (1995) 257.Google Scholar

¹²² It is suggested that the term ‘remedies’ accentuates the common law focus on only one side of the contractual relationship—the obligee's. In France conceptualization as les effets du contrat presupposes rules relating to both obligor and obligee.Google Scholar

¹²³ Picod, ‘L'Obligation de coopération dans l'exécution du contrat’ JCP 1988 I 3318, visualises the contract as an obligation of cooperation. Kötz believes French law ‘ranks solidarity higher than individualism’ ‘Towards a European Civil code; The Duty of Good Faith’ in Cane, P and Stapleton, J (eds) The Law of Obligations; Essays in Celebration of John Fleming (OxfordClarendon Press 1988) 256. This concept of contract is not fitting for an adversarial system such as the common law.Google Scholar

¹²⁴ When the French do talk of damages it is perceived as a substitute for actual performance rather than simply compensation for the loss of bargain, reflecting the French emphasis on performance.Google Scholar

¹²⁵ The French requirement of the mise en demeure (Art 1146) whereby the injured party, acting through a huissier, must serve a formal notice on the defaulter is another example of the importance of performance in France. In practice it will work to give the obligor one last chance to perform. The nineteenth century judicial innovation known as the astreinte, likewise, is geared towards ensuring performance. It imposes a monetary sanction for each day of non-compliance with the contractual obligation.Google Scholar

¹²⁶ Although apart from the dicta in Printing and Numerical Registering Company v Sampson (1875) LR 19 Eq 462 as per Sir Jessel, G, MR, at 465, adherence to the Will Theory is perhaps usually more a question of objective interpretation rather than formal, explicit judicial acknowledgement.Google Scholar

¹²⁷ By ‘certainty’ is meant the formulation of clear rules that enable forward planning and risk assessment rather than the systemic certainty that comes with the preservation of the contractual obligation itself.Google Scholar

¹²⁸ Harris and Tallon (eds), above n 116, at 386.Google Scholar

¹²⁹ This is the basis for the so-called ‘efficient breach’ theory advocated by Posner in Economic Analysis of Law (5th edn New YorkAspen Law & Business 1998). Where the breaching party will still be better off by the breach, even after paying damages to the ‘innocent’ party, then economic theory regards this as a positive thing. Thus, a contracting party should be free to breach and not be compelled to perform the obligation.Google Scholar

¹³⁰ This brief foray into economic analysis cannot do justice to the complexity of this area. Nor does it give adequate voice to the persuasive counter-arguments of many commentators. See, eg, Rubin ‘Unenforceable Contracts: Penalty Clauses and Specific Performance’ 10 (1981) Legal, JStudies 237; Goetz and Scott ‘Liquidated Damages, Penalties and the Just Compensation Principles: Some Notes on an Enforcement Model and a Theory of Efficient Breach’ 77 Colum L Rev (1977) 554; Clarkson et al, above n 45.Google Scholar

¹³¹ The first provision of Ch III which deals with Les Effets Des Obligations.Google Scholar

¹³² Whittaker, Zimmermann and Good Faith in European Contract Law (CambridgeCambridge University Press, 2000)33.Google Scholar

¹³³ Though it was not until 1985 that the Cour de cassation ruled on an appeal that was based on this provision—Civ 1, 20 mars 1985, B 1985 1, no 102.Google Scholar

¹³⁴ ‘La concept de bonne foi en droit francais du contrat’ <http://www.cnr.it/CRDS/tallon.htm>. In several civilian systems the concept of good faith has developed far beyond what the common lawyer might immediately think of—Beale,.+In+several+civilian+systems+the+concept+of+good+faith+has+developed+far+beyond+what+the+common+lawyer+might+immediately+think+of—Beale,>Google Scholar‘Legislative Control of Fairness; The Directive on Unfair terms in Consumer Contracts’ in Beatson, and Friedmann, (eds) Good Faith in Contract Law (OxfordOxford University Press 1995).Google Scholar

¹³⁵ La bonne foi est le moyen de faire pnétrer la régie morale dans le droit positif. Terré et al, above n 45, at 347.Google Scholar

¹³⁶ Picod, above n 123.Google Scholar

¹³⁷ Ghestin, J, Traité de Droit Civil—Les Obligations. Le Contraf. Formation (LGDJ 1988), at 184 sees loyalty as a necessary complement to contractual justice.Google Scholar

¹³⁸ Aubert, Flour and Les Obligations; L'Acte juridique (ParisArmand Colin 1998), at 386.Google Scholar

¹³⁹ Tallon, Harris and, above, n 116, at 386.Google Scholar

¹⁴⁰ Whilst the prolific and protean nature of English commentary on good faith counsels against cursory mention of the principle, a deep examination is outside the true scope of this paper. See instead, eg, Beatson and Friedman (eds), above n 171;Google ScholarBridge ‘Does Anglo-Canadian Contract Law Need a Doctrine of Good Faith?’ 9 Canadian Business Law Journal (1984) 385;Google ScholarTeubner ‘Legal Irritants: Good Faith in British Law of How Unifying Law Ends up in New Divergences’ 61 [1988] MLR 11:Google ScholarWhittaker, Zimmermann and, above n 132; Brownsword et al ‘Good Faith in Contract: Concept and Context’ in Brownsword, et al. (eds) Good Faith in Contract: Concept and Context (DartmouthAshgate 1999).Google Scholar

¹⁴¹ ’English law has…committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness’ as per Lord Bingham, Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989[ QB 433, at 439.Google Scholar

¹⁴² Although note comments regarding Law Commission Report No 166 in Section V below.Google Scholar

¹⁴³ Waddams, The Law of Contracts (TorontoCanada Law Book Inc 1998), at 458.Google Scholar

¹⁴⁴ Waddams seems to equate ‘unconscionability’ with ‘reasonableness’. See also Downes, above n 35.Google Scholar

¹⁴⁵ He draws support for his argument from the law lords' speeches, Lord Atkinson and Lord Dunedin both using the words ‘unconscionable’ to describe the clause under consideration and Lord Atkinson supplementing ‘unconscionable’ with ‘unreasonable’ and ‘extravagant’. He further notes that in the facts of the case the clause, stipulating for a payment of £5 on each breach of the agreement, could hardly be described as a genuine pre-estimate of damage and that the only reason that it was enforced was that it was ‘unreasonable’.Google Scholar

¹⁴⁶ Waddams, above n 143, at 456.Google Scholar

¹⁴⁷ United Dominion Trust (Commercial) Ltd v Ellis [1968] 1 QB 54, at 67.Google Scholar

¹⁴⁸ The voluminous literature on the term proves its will-o-the-wisp nature. For example, the concept has been separated into substantive and procedural unconscionability—(Leff, ‘Unconscionability and the Code—The Emperor's New Clause’ 115 (1966–1967) University of Pennsylvania 485), defined as ‘substantive fairness’—(Smith ‘In Defence of Substantive Fairness’ 112 LQR (1996) 392) and as incorporating concepts such as unfairness, inequity, unreasonableness or oppression—Waddams above, n 143, at 543. One American commentator finds substantive unconscionability coterminous with the civilian idea of ‘manifestly excessive’ while procedural unconscionability draws on similar factors as are taken into account in the civilian review of the clause, Dimatteo, above n 113, at 653.Google Scholar

¹⁴⁹ Waddams does not limit unconscionability to penalty clauses but includes areas of contract such as interpretation, duress, and incorporation of documents.Google Scholar

¹⁵⁰ Good faith has been likened to the ‘surprise’ factor in a contract and unconscionability the ‘imbalance’; Dugan ‘Standardized Forms; Unconscionability and Good Faith’ 14 New England Law Review (1979) 711. Despite the fact that both ‘sound somewhat familiar’ good faith has different meanings in different contexts whereas unconscionability can encompass and unify quite different legal techniques under the same doctrinal umbrella. It is this difference that excludes good faith from similar treatment to unconscionability—Waddams ‘Good Faith, Unconscionability and Reasonable Expectations’ 9 JCL (1995), at 57–9.(Waddams, curiously, is very much against adoption of good faith as a general principle).Steyn ‘Contract Law; Fulfilling the Reasonable Expectations of Honest Men’ 113 LQR [1997] 433 likens good faith to ‘reasonable expectations’. Collins ‘Good Faith in European Contract Law’ 14 Oxford Journal Legal Studies (1994) 229, at 250 perceives unconscionability in similar terms as the French notion of bonne foi.Google Scholar

¹⁵¹ 93/13/EEC.Google Scholar

¹⁵² Teubner, above n 140.Google Scholar

¹⁵³ Collins, above n 150, at 249.Google Scholar

¹⁵⁴ Tenreiro ‘The Community Directive on Unfair Terms and National Legal Systems. The Principle of Good Faith and Remedies for Unfair Terms’ European Review of Private Law (1995) 273 at 279 and Beale above n 134 at 245.Google Scholar

¹⁵⁵ Collins, above n 150, at 250.Google Scholar

¹⁵⁶ This is considered to be the case in France; in consumer law ‘les règles ont de surcrôit tendanace à s'étendre par contagion à d'autres secteurs’ Chabas, above n 67 at 634.Google Scholar

¹⁵⁷ Article L 132–1.Google Scholar

¹⁵⁸ Loi no. 95–96 du ler févr 1995. The report from the Commission on the implementation of Council Directive 93/13/EEC of 5 Apr 1993 on unfair terms in consumer contracts (COM/2000/248 final) considers that France has incorrectly implemented this article.Google Scholar

¹⁵⁹ Or a ‘non-professional’ according to the French transposing legislation.Google Scholar

¹⁶⁰ Les clauses abusives sont réputes non écrites Art L132–1 al 6.Google Scholar

¹⁶¹ D 1992 Somm. 268 obs Kullmann. Also, see Paisant, above n 61 ‘[L]e legislateur n'avait pas songé aux clauses pénales en modifiant la definition des clause abusives’.Google Scholar

¹⁶² Or according to some commentators, to an amount that equals loss. See above.Google Scholar

¹⁶³ One could argue that the consumer would be adequately protected under Art 1152 Code civil without resort to the Code de la consommation. This is mooted by Kullmann, above 161. But since the 1993 law is a lex specialis it is to this that one should resort; Starck et al. above n 45, at 1833.Google Scholar

¹⁶⁴ Even for the United Kingdom, whose commercial legal roots are attractive to foreign investment and who stands to gain the most from resisting harmonisation.Google Scholar

¹⁶⁵ Consultation and discussion continues at the European Community level. See the recent Communication from the Commission to the European Parliament and the Council of 12 Feb 2003 (COM (2003) 68 final). This ‘Action Plan’ continues the consultative nature of the process begun by the Commission Communication of 11 July 2001 (COM (2001) 398 final).Google Scholar

¹⁶⁶ Art 9:509 PECL; Art 7.4.13. Unidroit.Google Scholar

¹⁶⁷ A de Moor, above n 121, at 262.Google Scholar