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The doctrine of penalties survives

The seminal judgment in ParkingEye brings welcome clarity to the test for deterrent clauses at both commercial and consumer levels, writes David Lewis

10 December 2015

For the first time in a century, the principles underlying the law relating to contractual penalty clauses were considered by the Supreme Court. The review
was long overdue and most certainly needed. In their
joint judgment, the president of the Supreme Court, Lord Neuberger, and Lord Justice Sumption (with whom Lord Clarke JSC and Lord Carnwath JSC agreed) observed: 'The penalty rule in England
is an ancient, haphazardly constructed edifice which has not weathered well.'

The two appeals heard by the court lie at opposite ends of the financial spectrum. The first appeal, Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67, raised the issue in relation to two clauses in a substantial commercial contract. The second appeal, ParkingEye Ltd v Beavis, raised the issue at
a consumer level.

The penalty rule as traditionally understood
was ...

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