Defined Terms and Documents       

Penalty Clause or Penalty

Parties to a contract obviously have an interest in keeping the other side to the bargain. The traditional view is that a penalty clause penalises a party for breaching the contract by requiring it to pay a specified sum that is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach (for example it is not a genuine pre-estimate of the damage suffered by the other party). If a clause is a penalty, it is void.

Australia: When is a penalty clause not a penalty clause?

When is a penalty clause not a penalty clause?