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 (as to a penalty clause) whilst ‘The court should not be astute to descry a ‘penalty clause’ in every provision of a contract which stipulates a sum to be payable by one party to the other in the event of a breach by the former.’, ‘the right of parties to a contract to make such a stipulation is subject to the rule of public policy that the court will not enforce it against the party in breach if it is satisfied that the stipulated sum was not a genuine estimate of the loss likely to be sustained by the party not in breach, but was a sum in excess of such anticipated loss and thus, if exacted, would be in the nature of a penalty or punishment imposed upon the contract-breaker. Where the court refuses to enforce a ‘penalty clause’ of this nature, the injured party is relegated to his right to claim that lesser measure of damages to which he would have been entitled at common law for the breach actually committed if there had been no penalty clause in the contract.’
Diplock LJ, not a judge given to recognising defeat, declared that he could ‘make no attempt, where so many others have failed, to rationalise this common law rule’ as to penalties.
Judges:
Lord Justice Diplock
Citations:
[1966] 3 All ER 128, [1966] 1 WLR 1428
Jurisdiction:
England and Wales
Citing:
Cited – Carlill v Carbolic Smoke Ball Co CA 7-Dec-1892
Unilateral Contract Liability
The defendants advertised ‘The Carbolic Smoke Ball,’ in the Pall Mall Gazette, saying ‘pounds 100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any disease caused by . .
Cited by:
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 – 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 – Jeancharm Ltd (T/A Beaver International) v Barnet Football Club Ltd CA 16-Jan-2002
The claimant contracted to supply football shirts to the defendant, but claimed that clauses in the contract with regards to late delivery and payment operated as penalties and so were void at common law.
Held: The sums set out were immodest . .
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 – 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.
Contract
Updated: 06 May 2022; Ref: scu.183118
