Penalty Interest
November 26, 2010 Leave a comment
It is a fundamental principle of contract law that any attempt to penalise a contracting party for breaching that contract will be unenforceable .
However the law also recognises a number of exceptions to this principle, notably the entitlement of a vendor of a contract of sale to forfeit the deposit paid by the purchaser if the purchaser fails to complete the contract. Such an outcome clearly operates as a penalty against the purchaser arising from breach of the contract, but such an outcome is accepted by the law as a reasonable consequence of the breach in the circumstances of the contractual relationship. The law reserves the right of the Courts to review the imposition of such a penalty in particular circumstances by allowing the penalised party (the purchaser) to apply to the Court to exercise the Court’s discretion to avoid forfeiture of the deposit where it would be just to do so. Read more of this post
