Academic journal article McGill Law Journal

Penalty Clauses through the Lens of Unconscionability Doctrine: Birch V. Union of Taxation Employees, Local 70030

Academic journal article McGill Law Journal

Penalty Clauses through the Lens of Unconscionability Doctrine: Birch V. Union of Taxation Employees, Local 70030

Article excerpt

---CASE COMMENT--

The author reviews the recent case of Birch v. Union of Taxation Employees, Local 70030, in which the Ontario Court of Appeal evaluated--in terms of the doctrine of unconscionability--the enforceability of a clause fining union members who cross picket lines during legal strikes. He applauds the decision as an important step toward jettisoning the traditional common law penalty doctrine, according to which stipulated remedy clauses designed to have an in terrorem effect upon a contracting party are per se unenforceable. The author criticizes the decision, however, for its failure to examine features of the case that would have been ignored under the penalty doctrine but that should have been prominent under the unconscionability doctrine. These features include: other provisions of the contract, the relative difficulty of arriving at "a genuine pre-estimate of the loss" as opposed to a "reasonable penalty", and the process by which the contract was formed. The author concludes that, in failing to examine these features, the court missed an opportunity to clarify the changing law on the enforceability of stipulated remedy clauses.

L'auteur analyse l'arret Birch v. Union of Taxation Employees, Local 70030 dans lequel la Cour d'appel de l'Ontario a evalue sous l'angle de la theorie de l'iniquite la validite d'une clause imposant une amende aux membres d'un syndicat qui traversent la ligne de piquetage lors d'une greve legale. L'auteur approuve la decision de la cour, qu'il considere comme un pas significatif vers la possibilite de se defaire de la doctrine traditionnelle des clauses penales de la common law selon laquelle les clauses destinees a avoir un effet in terrorem sur une des parties au contrat etaient reputees impossibles a executer. L'auteur critique neanmoins le jugement pour avoir ignore certains aspects de la situation ; des elements auxquels la doctrine traditionnelle des clauses penales ne s'interesse pas, mais qui, du point de vue de l'auteur, auraient du etre examines sous l'angle de la theorie de l'iniquite. Parmi ces elements, l'auteur soutient que la cour aurait du se pencher sur les autres clauses du contrat, sur la difficulte d'evaluer les couts anticipes de la reparation du prejudice et sur le processus de formation du contrat. L'auteur conclut que, parce que la cour n'a pas examine ces elements, elle a manque une occasion de faire evoluer la common law dans le domaine de la mise en oeuvre des clauses penales.

Introduction

  I. The Decision in Birch
 II. Missed Opportunities
III. Should the Court's Reasoning Be Taken at Face
Value?

Conclusion

Introduction

Do advances in legal doctrine matter? Will it make a difference if courts begin to analyze a particular legal problem under the rubric of one doctrine rather than another? In theory, new doctrinal lenses should bring different features of the problem into lotus, and this should in turn lead judges to form different impressions of how the problem ought to be resolved. The Ontario Court of Appeal's recent decision in Birch v. Union of Taxation Employees, Local 70080 casts doubt on this hypothesis. (1) The majority's decision in the case suggests that changing the doctrine used to analyze the enforceability of stipulated remedies will not necessarily affect the outcomes of future cases. Changing outcomes may require a more fundamental shift in judges' understandings of stipulated remedies and their role in contractual relationships.

Birch was preceded by a path-breaking line of cases in which Canadian appellate courts signalled their willingness to depart from the strict common law rule against enforcing a stipulated remedy that amounts to a penalty rather than a genuine pre-estimate of damages. (2) Those cases marked a positive development in Canadian contract law, as adherence to the traditional rule against penalty clauses is difficult to justify. This is not to say that all penalty clauses ought to be enforced. …

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