Liberty to Issue Execution in UK Law

One consequence of the attitude of the courts to penalty clauses is that the question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach— Dunlop Pneumatic Tyre Company Ltd. v. New Garage and Motor Company Ltd. (1915) AC 79 at 86–7, per Lord Dunedin.

It is interesting to compare the words used by the two learned Lord Justices in that case with chief Justice Tindal's summary of the law as to penalties in Kemble v. Farren (6 Bingham, page 141) "But that a very large sum became immediately payable, in consequence of the non-payment of a very small sum, and that the former should not be considered as a penalty, appears to be a contradiction in terms; the case being precisely that in which courts of equity have always relieved and against which courts of law have, in modern times, endeavoured to relieve, by directing juries to assess the real damages sustained by the breach of the agreement.

These illustrations convince me that in a proper case there is an equity of restitution which a party in default does not lose simply because he is not able and willing to perform the contract. The equity operates, not because of the plaintiff's default, butbecause it is in the particular case unconscionable for the seller to retain the money. In short, he ought not unjustly to enrich himself at the plaintiff's expense.