How to miss penalties: a guide to avoiding penalty clauses

Being English, you might think it is our nature to miss penalties, but what you might not realise is that as lawyers we can be just as anxious about penalties as the Premier League’s finest. The issue here, of course, is not about scoring from 12 yards, but about the unenforceability of contractual terms that might be considered penalties.

If you enter into a contract which specifies that if the other party breaches the agreement they have to pay you a large sum of money, it is possible the court will not enforce that term of the contract because it constitutes a penalty. Similarly, if the term imposes an obligation that has a similar effect, the court is likely to come to the same conclusion; for instance, it might be that the party in breach is required to sell you something for a lot less than it is worth, or perhaps to sacrifice an expected payment…

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