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 accepted by the vessel’s purchaser, and was to be secured by mortgage of the vessel. On default, the contract provided for repayment of the loan and enforcement of the security. The vessel was duly arrested and sold, and her proceeds credited against the accelerated obligation to repay the loan.
Held: There was nothing penal about providing for payment of the capital to be accelerated on any default, provided that the interest which would have been payable for deferring payment under the credit was not also payable. The court rejected an argument that if the clause included a penalty element that also invalidated the provision accelerating the payment of the outstanding loan, saying that the doctrine relating to penalties is not a rule of illegality but of public policy: ‘The rule is, in my judgment, not designed to strike down any more of a lawful contract than is necessary to give effect to the Court’s purpose of applying public policy; and, moreover, the rule should be applied so as to interfere as little as possible with the proper enforcement of a lawful contract according to its terms. ‘
Neill LJ, Ralph Gibson LJ
[1988] 1 LlR 122
England and Wales
Citing:
Cited – 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 . .
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 by:
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, . .
Lists of cited by and citing cases may be incomplete.
Contract
Updated: 13 January 2022; Ref: scu.200652