(2013) 41 ABLR 314

In 1915 the House of Lords delivered reasons for judgment in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd in which it set out the applicable test and guidelines to determine whether a stipulated sum payable on breach of a contract was to be treated as liquidated damages and enforceable, or a penalty and hence unenforceable. That test was universally applied throughout the common law world. The High Court of Australia’s decision in 2012 in Andrews v Australia and New Zealand Banking Group has recast the test. This article reviews the first instance decision of Gordon J from the Federal Court of Australia together with the High Court decision and concludes that the latter is unsatisfactory, as it will be difficult to apply to a wide variety of commercial transactions and thereby lead to uncertainty and confusion in an area of contract law that had been trouble free for nearly a century.

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