Penalty clauses in commercial agreements: El Makdessi v Cavendish Square Holdings
By Rebecca Gardner and Zachary Brown
It is common for parties to commercial agreements to agree mechanisms for resolving breaches of their agreement without having to resort to legal proceedings. Typically this is done by incorporating provisions, such as forfeiture or compulsory buy-back clauses, into a contract, which are activated upon one party’s breach of its terms.
In such a situation, it is important for the parties to ensure that such provisions could not be characterised as penalties so as to render them unenforceable. This issue was considered in the case of El Makdessi v Cavendish Square Holdings BV and another *2013+ EWCA Civ 1539, where the Court of Appeal was asked to review an earlier decision by the High Court on the question of whether clauses in a share purchase agreement (SPA), which were activated in response to the seller’s breach of restrictive covenant, constituted unenforceable penalties.
It is a long-established rule of law that a clause that is deemed to be a penalty will be unenforceable. In determining whether a clause is a penalty, the courts often use liquidated damages clauses (which are enforceable) as a point of comparison…
Click on the link below to read the rest of the Goodman Derrick briefing.
Sign in or Register to continue reading this article
It's quick, easy and free!
It takes just 5 minutes to register. Answer a few simple questions and once completed you’ll have instant access.Register now
Why register to The Lawyer
In-depth, expert analysis into the stories behind the headlines from our leading team of journalists.
Identify the major players and business opportunities within a particular region through our series of free, special reports.
Receive your pick of The Lawyer's daily and weekly email newsletters, tailored by practice area, region and job function.
More relevant to you
To continue providing the best analysis, insight and news across the legal market we are collecting some information about who you are, what you do and where you work to improve The Lawyer and make it more relevant to you.
News from Goodman Derrick
Briefings from Goodman Derrick
Tories plan to raise the IHT threshold to £1m for married couples and civil partners.
Following the introduction of the Enterprise and Regulatory Reform Act 2013, the rules on whistleblowing require disclosures made on or after 25 June 2013 to be in the public interest.
Analysis from The Lawyer
Active financial management is vital, but with firms looking more closely at the process of debt and fee collection, the personal touch still counts
The lure of the law can kick in at any stage of life. We speak to four individuals who have made a radical switch to a legal career