Campbell Discount Company Ltd v Bridge: HL 1962

The parties disputed the validity of a clause in a car hire contract relating to the consequences of a breach.
Held: (Majority) The agreement had been terminated by breach rather than by the exercise of an option, so that the stipulated payment could be, and in fact was, a penalty. Lord Morton said that had it been triggered by the exercise of an option then: ‘In that event the present appellant would have been bound to pay the stipulated sum of andpound;206 3s.4d., not by way of penalty or liquidated damages but simply because payment of that sum was one of the terms upon which the option could be exercised.’
The question of penalty or not is determined as a matter of substance not form. The House discussed the meaning of the words ‘in terrorem’ in the context of penalty clauses in contracts: ‘I do not find that that description adds anything to the idea conveyed by the word ‘penalty’ itself, and it obscures the fact that penalties may quite easily be undertaken by parties who are not in the least terrorised by the prospect of having to pay them.’
The rule against penalty clauses is not a rule as to the illegality of a clause, but rather one of refusing to sanction legal proceedings for recovery of a penalty sum, as a matter of public policy.


Radcliffe, Morton, Devlin, Denning LL


[1962] 2 WLR 439, [1962] 1 All ER 385, [1962] AC 600


England and Wales


Approved (Obiter)Associated Distributors Ltd v Hall CA 1938
The common law doctrine of penalty is inapplicable where the triggering event is not a breach of contract. . .
Appeal fromCampbell Discount Company Ltd v Bridge CA 1961
Agreed compensation is not a penalty
A hirer under a hire purchase agreement could terminate the hiring during the course of the term whereupon the hirer was required to pay a sum by way of agreed compensation.
Held: A sum of money payable under a contract on the occurrence of an . .
ApprovedCooden Engineering Co Ltd v Stanford CA 1953
A payment to be made on a wrongful termination of a lease by a tenant, will attract consideration of the law of penalties, for notwithstanding the requirement for acceptance of it, the amount to be paid is, ‘plainly a sum to be paid in consequence . .

Cited by:

CitedOresundsvarvet AB v Marcos Diamantis Lemos (The ‘Angelic Star’) CA 1988
As part of a contract for ship-building, a delivery credit was made available to the purchaser as an ‘option’, in default of exercise of which the full price was payable in cash. The option was taken. The loan was to be repaid by bills of exchange . .
CitedSwan Hill Developments Limited, Lloyd-Thomas etc v British Waterways Board CA 25-Feb-1997
The issue was whether the rights given under the section could only be exercised by owners of land on either side of the canal.
Held: The Act took rights over land and was to be construed in the case of any ambiguity against its proposers. . .
CitedStocznia Gdynia Sa v Gearbulk Holdings Ltd CA 13-Feb-2009
Orders were placed for the construction of ships. They were not delivered. The buyer, the defendant, cancelled the orders. The defendants sought the loss of profit. The claimants said they were entitled only to the repayment of instalments. The . .
AppliedRe a Debtor; ex parte Berkshire Finance Co Ltd QBD 2-Jan-1962
The court was asked to consider whether a judgment debt in respect of sums due under a hire-purchase agreement was a good petitioning creditor’s debt. The judgment sum included the balance of all the remaining hire charges which became payable on . .
MentionedMcGuinness v Norwich and Peterborough Building Society CA 9-Nov-2011
The appellant had guaranteed his brother’s loan from the respondent, and the guarantee having been called in and unpaid, he had been made bankrupt. He now appealed saying that the guarantee debt, even though of a fixed amount could not form the . .
CitedLombard North Central v Butterworth CA 31-Jul-1986
The defendant entered into a hire-purchase contract for a computer, time being stipulated to be ‘of the essence’ in relation to the payment obligations. He defendant defaulted, and the plaintiff took possession of the goods, and and sought payment . .
CitedCavendish Square Holding Bv v Talal El Makdessi; ParkingEye Ltd v Beavis SC 4-Nov-2015
The court reconsidered the law relating to penalty clauses in contracts. The first appeal, Cavendish Square Holding BV v Talal El Makdessi, raised the issue in relation to two clauses in a substantial commercial contract. The second appeal, . .
MentionedWright and Another (Liquidators of SHB Realisations Ltd) v The Prudential Assurance Company Ltd ChD 6-Mar-2018
IVA is a special form of contract
Liquidators asked the court whether sums sought by the insolvent company’s landlords were payable and or provable. Under an IVA, the copany had been paying reduced rents, but the arrangement document provided that the full rents would be restored on . .
Lists of cited by and citing cases may be incomplete.


Updated: 13 May 2022; Ref: scu.200653