At first instance and then on appeal, the High Court and the Court of Appeal adopted a recast rule against contractual penalties, reflecting developments in England and Australia. The Supreme Court has now delivered its judgment, confirming New Zealand's adoption of the recast rule and clarifying the test and its relationship with concepts of unconscionability and the relative bargaining power of the parties.
The Court of Appeal recently upheld a High Court judgment, confirming New Zealand's adaption of the recast rule. In doing so, the Court of Appeal has set out the context for adopting the revised rule. However, as the appellant has been granted leave to appeal to the Supreme Court, the final word is awaited.
A recent High Court decision adopted the perspective taken in the United Kingdom and Australia on the contractual penalties rule, shifting focus from a comparison between secondary obligations and genuine pre-estimates of damage caused by breach to comparing secondary obligations and the innocent party's performance interest. The decision confirmed the continued relevance of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd but not the rigour of its application in earlier cases.