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 The contract provided that if the offer was withdrawn by the eventual employer after acceptance but before the employment was taken up, the customer was to pay one third of the annual fee.
Held: The issue was whether a term which was only a condition precedent triggering a further clause could be seen as a penalty. It could not. In this case, the sum at issue could not be a penalty since it did not operate in substitution for a claim in damages for a breach, but related to a payment or repayment of fees.
Mr Justice Lawrence Collins Lord Justice Chadwick Lord Justice Moore-Bick
Times 02-Jun-2006,  EWCA Civ 385,  2 Lloyd’s Rep 436
England and Wales
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, . .
Cited – In re Apex Supply Co Ltd 1942
A hire purchase agreement provided that if the hirer should go into liquidation, and the owner should retake possession, the hirer would pay a sum by way of compensation for depreciation.
Held: The provision for the payment of compensation was . .
Cited – Philip Bernstein (Successors) Ltd v Lydiate Textiles Ltd; orse Sterling Industrial Facilities v Lydiate Textiles Ltd CA 26-Jun-1962
Lord Justice Diplock: ‘. . the ordinary rule which the courts apply is that contracts should be enforced, pacta sunt servanda, unless they can be brought within that limited category of cases in which, for reasons of public policy, the court refuses . .
Cited – 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 – Export Credits Guarantee Department v Universal Oil Products HL 1983
A contract provided for the payment of a stated sum by one party to the contract (A) to the other party (B) in the event of the non-performance by A of one of more contractual obligations owed by A not to B himself but to C, who was not a party to . .
Cited – Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd CA 12-Nov-1987
Incorporation of Onerous Terms Requires More Care
Photographic transparencies were hired out to the advertising agency defendant. The contract clauses on the delivery note included a fee which was exorbitant for the retention of transparencies beyond the set date.
Held: The plaintiff had not . .
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 – Cine Bes Filmcilik Ve Yapimcilik and Another v United International Pictures and Others CA 21-Nov-2003
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, . .
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.
Updated: 05 July 2022; Ref: scu.240100