The parties entered into agreements licensing the exclusive distribution of encrypted television channels within Turkey. A clause provided a calculation of damages for a breach amounting to the balance of licence fees due, and other penalties, including the return of proprietary rights. On a breach the licensors sought to enforce the contract. On an application for summary judgment, the judge refused to accept as arguable a suggestion that the clause was a penalty.
Held: The judge was wrong to focus on only one element of the damages clause, and to grant summary judgment. There was a triable issue as to whether the clause was a penalty. However, a particular clause might be commercially justifiable provided that its dominant purpose was not to deter the other party from breach. There are clauses which may operate on breach, but which fall into neither category and may be commercially justifiable and therefore enforceable.
Judges:
Lord Justice Mance, Lord Justice Peter Gibson, Lord Justice Thomas
Citations:
[2003] EWCA Civ 1669, [2004] 1 CLC 401
Links:
Jurisdiction:
England and Wales
Citing:
Cited – Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd HL 1-Jul-1914
The appellants contracted through an agent to supply tyres. The respondents contracted not to do certain things, and in case of breach concluded: ‘We agree to pay to the Dunlop Pneumatic Tyre Company, Ltd. the sum of 5 l. for each and every tyre, . .
Approved – Lordsvale Finance Plc v Bank of Zambia QBD 20-Mar-1996
The court looked at a facility agreement opened by a bank in favour of the defendant which provided that in the event of default the defendant should pay interest during the period of default at an aggregate rate equal to the cost to the bank of . .
Cited – Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd PC 22-Feb-1993
(Jamaica) The purchaser at an auction had been obliged under the terms of the auction contract to pay a deposit of 25%. He failed to complete, and the vendor took the deposit by way of forfeit. The standard deposit payable would be 10%. The Court of . .
Cited – Philips (Hong Kong) Ltd v The Attorney General of Hong Kong PC 9-Feb-1993
After referring to two Australian cases on penalty clauses in contracts: ‘These statements assist by making it clear that the court should not adopt an approach to provisions as to liquidated damages which could, as indicated earlier, defeat their . .
Cited – Robophone Facilities Ltd v Bank CA 1966
Parties to a contract should be free to stipulate not only primary obligations and rights but also the secondary rights and obligations, ie those which arise upon non-performance of any primary obligation by one of the parties to the contract, but . .
Cited – Oresundsvarvet 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 . .
Cited by:
Cited – Murray v Leisureplay Plc QBD 5-Aug-2004
The claimant sought payment of three years’ salary after termination of his service contract. He said that an agreement had been made by the company to purchase a ‘financial institution’, which would trigger the additional payments. The defendants . .
Cited – Euro London Appointments Ltd v Claessens International Ltd CA 6-Apr-2006
The court considered whether a clause in an employment agency’s terms and conditions amounted to a penalty and was unenforceable. The contract provided that if the offer was withdrawn by the eventual employer after acceptance but before the . .
Cited – Tullett Prebon Group Ltd v El-Hajjali QBD 31-Jul-2008
The defendant signed an employment contract to join the claimants as a senior broker. He changed his mind and decided to stay in his existing job. The new employers sued for breach of contract. The defendant said that the claimants had refused to . .
Cited – Azimut-Benetti Spa (Benetti Division) v Healey ComC 3-Sep-2010
The claimant sought summary judgment under a guarantee. The defendant said that the liquidated damages clause under which the claim was made was a penalty clause and unenforceable.
Held: The request for summary judgment was granted.
Cited – Parkingeye Ltd v Beavis CA 23-Apr-2015
The appellant had overstayed the permitted period of free parking in a retail park by nearly an hour. The parking was managed by the respondent who had imposed a charge of 85.00 pounds. The judge had found that the appellant was in breach of a . .
Cited – Cavendish 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, . .
Lists of cited by and citing cases may be incomplete.
Media, Contract
Updated: 08 June 2022; Ref: scu.188048