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Aftershocks of commercial contract changes

Mark Lucas reviews some recent developments in relation to the law on penalties, the interpretation of contracts, and implied terms

31 May 2016

Rarely do the courts produce a seismic shift in the laws relating to commercial contracts - more often the law develops gradually. The following recent cases from 2016 are good examples of small tremors in the wake of tectonic shifts on three issues affecting commercial contracts.

Penalty clauses

The change to our understanding of the enforceability of penalty clauses in Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Limited v Beavis [2015] UKSC 67 was certainly a major tremor.

In Cavendish Square, the Supreme Court instituted a new standard to establish whether penalties are unenforceable. This replaced Lord Dunedin's tests in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (which differentiated between clauses that are a genuine pre-estimate of loss and penalties) with the question: 'Is the impugned provision a secondary obligation which imposes a detriment on the contract-breaker out of all prop...

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