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Liquidated Damages and Penalty Clauses by Halson, Roger (8th March 2018)

2 The Modern ‘Penalty’ Rule

From: Liquidated Damages and Penalty Clauses

Roger Halson

Subject(s):
Damages and contract — Liquidated or agreed damages — Penalty clauses and damages

Prior to decision of the UK’s Supreme Court in Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis (Consumers’ Association Intervening), (the Cavendish case) in 2015, the principles underlying the law relating to contractual liquidated damages and penalty clauses was last examined by the UK’s highest appellate court over 100 years ago in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd. The breadth and scope of the decision is obvious from the different commercial contexts of the two conjoined appeals in the Cavendish case. This chapter analyses the Supreme Court’s decision in these cases, covering the requirement of breach, applying the test for a penalty, the application of the penalty rule to obligations other than to make payments, and the relationship between the penalty rule and the equitable relief against forfeiture.

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