Penalty Clause in UK Law

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

    And the more difficult it is likely to be to prove and assess the loss which a party will suffer in the event of a breach, the greater the advantages to both parties of fixing by the terms of the contract itself an easily ascertainable sun to be paid in that event. The Court should not be astute to descry a "penalty clause" in every provision of a contract which stipulates a sum to be payable "by one party to the other in the event of a breach by the former.

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

  • United Dominions Trust (Commercial) Ltd v Ennis
    • Court of Appeal (Civil Division)
    • 20 Fevereiro 1967

    He did not terminate under clause 10 and I cannot see therefore how there is any ground for saying the agreement to terminate which in fact took place gave this finance house any right to the sum of £709 If there was no agreed termination then I think that the finance house must be taken to have repossessed the goods under clause 8 as they were entitled to do since the hirer was in arrears with the first instalment As I have already stated this would give the finance house no right to collect any part of what would than clearly be a penalty under clause 11.

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

    It has been held to apply to a clause entitling the innocent party to the retransfer of property which had previously been transferred to the contract breaker ( Jobson v Johnson [1989] 1 WLR 1026), and (see Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573) to a clause which requires a contract breaker to forfeit a deposit or sum of money due or to become due to the other party in the event of breach.

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

    In principle, a transaction must be just as objectionable and unconscionable in the eyes of equity if it requires a transfer of property by way of penalty on a default in paying money as if it requires a payment of an extra, or excessive, sum of money. In each case the clause ought to be unenforceable in equity in so far as it is a penalty clause.

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  • Naval Discipline Act 1866
    • UK Non-devolved
    • 01 de Janeiro de 1866
    ....... Misconduct in the Presence of the Enemy. . S-2 . Penalty for Misconduct in Action. 2 Penalty for Misconduct in Action. . 2. Every ...VII . PART VII. . Saving Clause. . S-99 . Trial of Offences against repealed Acts. 99 Trial of Offences ......
  • General Police and Improvement (Scotland) Act 1862
    • UK Non-devolved
    • 01 de Janeiro 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 ......
  • Merchant Shipping Act 1854
    • UK Non-devolved
    • 01 de Janeiro de 1854
    ...... issued by the Board of Trade, shall for each such Offence incur a Penalty not exceeding Ten. Pounds. S-11 . Application of Monies and Fines paid ...produced. Saving Clause. . Saving Clause. . S-108 . Saving of 3 & 4 Vict. c. 56. relating to ......
  • Railway Regulation Act 1840
    • UK Non-devolved
    • 01 de Janeiro de 1840
    ....... S-II . Penalty for opening Railways without Notice. II Penalty for opening Railways .... X. And be it enacted, That so much of every Clause, Provision, and Enactment in any Act of Parliament heretofore passed as ......
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Books & Journal Articles
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Law Firm Commentaries
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  • Chapter COG915604
    • HMRC Guidance manuals
    • Formularios de Derecho Civil, Mercantil y Registral
    ......The standard offer has been amended so the penalty clause covers any penalty relating to the tax and NIC the employer ......
  • Chapter INTM522040
    • HMRC Guidance manuals
    • Formularios de Derecho Civil, Mercantil y Registral
    ......, some loan agreements, whether third-party or not, contain a penalty clause bringing in a higher interest rate in the event of the borrower’s ......
  • Chapter CTM97440
    • HMRC Guidance manuals
    • Formularios de Derecho Civil, Mercantil y Registral
    ...... the arrangement at that time, subject to the conditions set out at clause 16. Please check that you have provided all the relevant information by ... than that, by the filing date), it may be liable to a tax-related penalty. For the purpose of possible liability to any tax-related penalty, and not ......
  • Chapter CTM97430
    • HMRC Guidance manuals
    • Formularios de Derecho Civil, Mercantil y Registral
    ...... the Board have agreed shall be the nominated company pursuant to Clause 22 of the arrangement;. ‘The participating companies’ means all such ...12.1) For the purposes of the tax-related penalty specified in paragraph 18 of Schedule 18 (but not otherwise), payments ......
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