Penalty Clause in UK Law

Leading Cases
  • Robophone Facilities Ltd v Blank
    • Court of Appeal
    • 27 Junio 1966

    Nevertheless the Courts would be doing an ill-turn to those whom the rule about "penalty clauses" is designed to protect if they were to apply it so as to make it impracticable for parties to agree at the time when they enter into a contract upon a fair and easily ascertainable sum to become payable by me party to another as compensation for the loss which the latter will sustain as a consequence of its breach.

  • Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis
    • Supreme Court
    • 04 Noviembre 2015

    The real question when a contractual provision is challenged as a penalty is whether it is penal, not whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive categories. The question whether it is enforceable should depend on whether the means by which the contracting party's conduct is to be influenced are "unconscionable" or (which will usually amount to the same thing) "extravagant" by reference to some norm.

    The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance.

    I therefore conclude that the correct test for a penalty is whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party's interest in the performance of the contract.

  • Export Credits Guarantee Department v Universal Oil Products Company
    • House of Lords
    • 24 Marzo 1983

    My Lords, one purpose, perhaps the main purpose, of the law relating to penalty clauses is to prevent a plaintiff recovering a sum of money in respect of a breach of contract committed by a defendant which bears little or no relationship to the loss actually suffered by the plaintiff as a result of the breach by the defendant.

  • The General Trading Company (Holdings) Ltd v Richmond Corporation Ltd
    • Queen's Bench Division (Commercial Court)
    • 03 Julio 2008

    The penalty rule has been seen to have application beyond the paradigm situation of a provision that requires the payment of a sum of money in the event of breach.

  • Jobson v Johnson
    • Court of Appeal (Civil Division)
    • 25 Mayo 1988

    A forfeiture clause, of which a right of re-entry under a lease on non-payment of rent is the classic example, may also be penal in its effect. For instance, the lease may be exceedingly valuable and the amount of unpaid rent may be small. Thus the innocent party is in a better position when seeking to enforce a forfeiture clause than when seeking to enforce a penalty clause in a contract.

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Legislation
  • Salmon Fishery Act 1861
    • UK Non-devolved
    • 1 de Enero de 1861
    ... ... Law of Fishing ... Penalty on mixing poisonous Substances in Rivers. 5 Penalty on mixing poisonous ... S-38 ... Saving Clause for dredging. 38 Saving Clause for dredging ... 38. Nothing in this ... ...
  • General Police and Improvement (Scotland) Act 1862
    • UK Non-devolved
    • 1 de Enero de 1862
    ... ... in this Act in the contrary implied or expressed, and whether this Clause be adopted by any Burgh or not, it is hereby enacted, That in all Cases ... Copies or Extracts to be taken as aforesaid, shall be liable in a Penalty not exceeding Ten Pounds; and in case any Person who shall be assessed ... ...
  • Titles to Land Consolidation (Scotland) Act 1868
    • UK Non-devolved
    • 1 de Enero de 1868
    ... ... 1 (with ss. 58, 62, 75); S.S.I. 2003/456, art. 2 ... 6: Import of clause expressing manner of holding ... ...
  • Merchant Shipping Act 1854
    • UK Non-devolved
    • 1 de Enero de 1854
    ... ... issued by the Board of Trade, shall for each such Offence incur a Penalty not exceeding Ten ... Application of Monies and Fines paid to Board of ... Saving Clause ... Saving Clause ... Saving of 3 & 4 Vict. c. 56. relating to East ... ...
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Books & Journal Articles
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Law Firm Commentaries
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