Appellant (Cavendish Respondent (Talal El

Square Holding BV) Makdessi)

Joanna Smith QC Michael Bloch QC

Richard Leiper Camilla Bingham QC
James McCreath
Edwin Peel

(Instructed by Squire (Instructed by Clifford

Patton Boggs (UK) LLP) Chance LLP)

Respondent (ParkingEye

Appellant (Beavis) Limited)

John de Waal QC Jonathan Kirk QC

David Lewis David Altaras

Ryan Hocking Thomas Samuels

(Instructed by Harcus (Instructed by Cubism

Sinclair) Law)

Intervener (Consumers’

Association)

Christopher Butcher QC

(Instructed by Consumers’

Association In-House

Lawyers)

LORD NEUBERGER AND LORD SUMPTION: (with whom Lord
Carnwath agrees)
1. These two appeals raise an issue which has not been considered by the Supreme Court or by the House of Lords for a century, namely the principles underlying the law relating to contractual penalty clauses, or, as we will call it, the penalty rule. The first appeal, Cavendish Square Holding BV v Talal El Makdessi, raises the issue in relation to two clauses in a substantial commercial contract. The second appeal, ParkingEye Ltd v Beavis, raises the issue at a consumer level, and it also raises a separate issue under the Unfair Terms in Consumer Contracts
Regulations 1999 (SI 1999/2083) (“the 1999 Regulations”).
2. We shall start by addressing the law on the penalty rule generally, and will then discuss the two appeals in turn.
The law in relation to penalties
3. The penalty rule in England is an ancient, haphazardly constructed edifice which has not weathered well, and which in the opinion of some should simply be demolished, and in the opinion of others should be reconstructed and extended. For many years, the courts have struggled to apply standard tests formulated more than a century ago for relatively simple transactions to altogether more complex situations. The application of the rule is often adventitious. The test for distinguishing penal from other principles is unclear. As early as 1801, in Astley v Weldon (1801) 2 Bos & Pul 346, 350 Lord Eldon confessed himself, not for the first
time, “much embarrassed in ascertaining the principle on which [the rule was]
founded”. Eighty years later, in Wallis v Smith (1882) 21 Ch D 243, 256, Sir George
Jessel MR, not a judge noted for confessing ignorance, observed that “The ground of that doctrine I do not know”. In 1966 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”: Robophone Facilities Ltd v Blank [1966] 1
WLR 1428, 1446. The task is no easier today. But unless the rule is to be abolished or substantially extended, its application to any but…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Cavendish Square Holding BV v Makdessi

Details

AGLC: Cavendish Square Holding BV v Makdessi [2015] UKSC 67
Case: [2015] UKSC 67
Decision Date

CaseChat Overview and Summary

The Supreme Court in Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Limited v Beavis considered the law relating to penalty clauses in commercial and consumer contracts. The Court was required to decide whether certain contractual provisions were penalties and thus unenforceable. The Court concluded that the penalty rule, which renders unenforceable any contractual provision that imposes a detriment on the party in breach out of proportion to any legitimate interest of the innocent party, remains a valid principle of English law. However, the Court emphasised that the rule should not be applied rigidly or formally, and that the focus should be on the substance of the contractual provision and the legitimate interests of the parties.

In the first appeal, the Court held that a clause in a commercial contract providing for the payment of a substantial sum in the event of a breach of a non-compete obligation was not a penalty. The clause was justified by the significant interest of the employer in protecting its business and reputation, which extended beyond mere compensation for the breach. In the second appeal, the Court held that a clause in a consumer contract providing for the payment of £85 for overstaying in a car park was a penalty and thus unenforceable. The clause imposed an excessive burden on the consumer and did not reflect the legitimate interests of the car park operator in managing the effective use of parking space.

The Court also considered whether the penalty rule should be abolished or extended. The Court rejected the argument that the rule should be abolished, as it is a long-standing principle of English law and is consistent with other well-established principles that involve the court in declining to give full force to contractual provisions. However, the Court also rejected the argument that the rule should be extended to apply to any sufficiently onerous provision which is conditional upon a failure to observe some other provision, regardless of whether that failure is a breach of contract. The Court considered that such an extension would be inconsistent with established authority and the historical development of the rule.

Orders