The Court heard two appeals together. One concerned clauses in a major commercial sale agreement after a seller breached restrictive covenants. The other concerned an £85 parking charge imposed by ParkingEye for overstaying in a car park.
Selected cases
UK Supreme Court · [2015] UKSC 67
Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis
The UK Supreme Court restated the penalty clause test in commercial and consumer contexts.
UK Supreme Court4 Nov 2015
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Quick read
- Liquidated damages, default charges, service credits and termination consequences need a legitimate commercial rationale.
- The UK Supreme Court restated the penalty clause test in commercial and consumer contexts.
Use this to check
- Document the commercial reason for default charges
- Do not assume a charge is valid just because both parties signed
- Consumer-facing charges need fairness review as well as penalty-rule review
Decision snapshot
What happened
- The Court heard two appeals together.
- One concerned clauses in a major commercial sale agreement after a seller breached restrictive covenants.
- The other concerned an £85 parking charge imposed by ParkingEye for overstaying in a car park.
What the court had to decide
- The issue was when a contractual consequence for breach is an unenforceable penalty, and how that interacts with consumer fairness rules.
What the court decided
- The Court held that the relevant clauses were enforceable.
- The modern question is whether the detriment is out of all proportion to the innocent party's legitimate interest in enforcing the obligation.
Practical impact
Practical read
- Liquidated damages, default charges, service credits and termination consequences need a legitimate commercial rationale.
- They should not look like punishment detached from the business interest being protected.
Useful next steps
- Document the commercial reason for default charges
- Do not assume a charge is valid just because both parties signed
- Consumer-facing charges need fairness review as well as penalty-rule review
How businesses should read it
Liquidated damages, default charges, service credits and termination consequences need a legitimate commercial rationale. They should not look like punishment detached from the business interest being protected.
Key takeaways
- Document the commercial reason for default charges
- Do not assume a charge is valid just because both parties signed
- Consumer-facing charges need fairness review as well as penalty-rule review