held the Clause was not a penalty and was enforceable. For a detailed outline of the judgment, read the update from our litigation team here. The Law According to Honey Bees The law of penalties (also known as the ‘Penalty Doctrine’) applies to contracts which specify a sum payable by a party if it breaches the contract. Such clauses are usually described as liquidated damages clauses in the contract but if the Court decides that these clauses are penal, they will be unenforceable. The Penalty Doctrine has recently been considered by the NZ Court of Appeal in Wilaci PTY Limited v Torchlight Fund No 1 LP (In rec) (you can read our article on the case here). We note that this case was decided under Australian law, not New Zealand Law, so the decision did not provide a final conclusion on the law of penalties in New Zealand. Nonetheless, the High Court in Honey Bees chose to adopt the framework set out in Torchlight: - Is the stipulated remedy for breach out of all proportion to the legitimate performance interests of the innocent party, or otherwise exorbitant or unconscionable, having regard to those interests? According to Torchlight the Court can look at the following factors in making this assessment: - whether the parties were commercially astute, had similar bargaining power and were independently advised; and - whether the predominant purpose of the impugned clause is to punish (as opposed to simply deter) non-performance. Under the traditional law relating to Penalty Doctrine, courts would only uphold liquidated damages clauses if the amount claimed was compensatory and represented a genuine pre‑estimate of the party’s loss resulting from the breach. It is now clear that deterrence can be acceptable and that contractual clauses negotiated between commercial parties of equal standing are less likely to be open to assessment by the courts. In light of Honey Bees, parties to contracts may not need to be so conservative when drafting clauses that provide for payment upon breach of contract.