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Lloyd's Maritime and Commercial Law Quarterly

REARTICULATING THE RULE AGAINST PENALTY CLAUSES

James C. Fisher*

Cavendish Square Holding v Makdessi
ParkingEye v Beavis

Introduction

In the joined appeals of Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis,1 the Supreme Court thoroughly restated the rule against penalty clauses (that “ancient, haphazardly constructed edifice”).2 Although the case also has implications for the law of statutory unfairness in consumer contracts, limitations of space confine this comment to the penalty clause issue. The outcome on that point was less radical than many will have been hoping; the penalty doctrine was neither abolished, nor confined only to commercial contracts or to consumer contracts. Lords Neuberger and Sumption doubted that the penalty rule, which restricts freedom of contract and reduces certainty,3 would have been invented today,4 but declined to abolish it. Lord Mance demanded “the strongest reasons for so radical a reversal of jurisprudence”,5 and saw a continued justification for the penalty rule in the widespread use of standard form contracts.6
Cavendish involved a major commercial contract. Mr Makdessi, a Middle Eastern marketing mogul, decided to sell his group of companies. Restrictive covenants prohibited him from certain acts throughout the staged process of transfer. He breached these covenants, for instance by soliciting clients away from the companies, rendering him a “Defaulting Shareholder” for the purposes of cll 5.1 and 5.6. Clause 5.1 deprived a Defaulting Shareholder of his entitlement to further payments that would otherwise have been due. Clause 5.6 gave Cavendish an option to require a Defaulting Shareholder to sell Cavendish all his remaining shares.
ParkingEye involved a rather more quotidian affair. ParkingEye operated a “traffic space maximisation scheme” under licence from the owner of a car park and adjacent shopping centre. Conspicuous signage advertised the terms of entry to potential parkers; two hours’

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