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MORTGAGEBROKER mbabc.ca fall 2015 | 45
What are the factors determining
whether a required payment is a penalty?
What are the consequences of it being a
penalty?
What determines whether
a required payment is a
penalty?
A requirement for payment may be a
penalty or it may be liquidated damages.
e essence of a penalty is to cause fear
in the debtor. e fear is intended to cause
the debtor to comply with a requirement.
e essence of liquidated damages is to
genuinely pre-estimate damage which would
be suffered by the lender if the debtor does
not comply with the requirement.
A required payment which is extravagant
and unconscionable compared to the greatest
loss that the lender could conceivably occur
will generally be a penalty. If a single lump
sum is to be awarded to the non-breaching
party for any one of several events which
vary significantly in terms of resulting
damage, the lump sum is probably a penalty.
What are the consequences
of a required payment
being a penalty?
e Legislation
e Law and Equity Act, s.24 allows a
court to relieve against all penalties and
forfeitures. It authorizes the court to impose
any terms as to costs, expenses, damages,
compensations and all other matters that the
court thinks fit in granting the relief.
An order under s. 24 is discretionary.
A penalty clause will be struck down only
where it is oppressive or unconscionable.
When is a penalty clause oppressive
or unconscionable?
For a penalty clause to be oppressive or
unconscionable there must be:
■ inequality in the position of the parties
arising from the ignorance, need or
distress of the weaker which le him or
legalease
