The first argument advanced by unions in favour of civil enforcement of their fines was that the provisions for disciplinary fines in the union constitution are part of the contract between the member and the union. Unions have argued where a member is properly fined by his or her union, and then refuses to pay the fine, that member is in breach of the union contract. Unions have argued that the normal rules of contractual enforcement should apply to the refusal to pay fines, essentially categorizing such fines as liquidated debts.
In the case of Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809 (CanLII), the Ontario Court of Appeal ruled that union fines were not enforceable as breaches of contract.
The reason lies in a common law rule which prohibits penalty clauses in contracts: J.G. Collins Insurance Agencies Ltd. v. Elsley Estate, 1978 CanLII 7 (SCC), [1978] 2 S.C.R. 916. The rationale is that the proper measure of damages for a breach of contract is the value that the victim of the breach expected to obtain from the contract and lost by virtue of the breach.
A penalty clause is unenforceable because the penalty clause does not merely seek to compensate the victim of the breach for the loss, but goes further in seeking to punish the contract breaker with damages above and beyond what the other party has actually lost. The problem is that the penalty clause gives the victim of the breach a windfall. Unless the penalty clause can be shown to be a genuine attempt to calculate a pre-estimate of the actual damages that the victim of a breach would suffer, it will be found to be unenforceable. Penalty clauses are typically found in contracts between parties with unequal bargaining power.
Unions have been unsuccessful to date in proving that their fines are not penalty clauses.