P – Penalty
28/6/24
HOUSSEIN v LONDON CREDIT LIMITED [2024] EWCA Civ 721
The court reviewed principles applicable to penalties and default interest. The trial judge had not applied to correct test. He had not asked if the default rate (an additional 3% per month) was a secondary obligation, had not separately considered factors relevant to whether the lender had a legitimate interest in charging the default rate, wrongly considered the lender’s subjective intention, and had not asked whether the default rate was extortionate, extravagant and/or unconscionable in the light of any legitimate interest in charging it. Whether the rate was penal was remitted for reconsideration. If the default rate was penal, on its proper construction the credit agreement made no provision for any other rate so the lender would be left with a claim to statutory/equitable interest. The judge had also been wrong to make an issue based costs order without having considered which party was the overall winner and whether that party’s costs should be discounted. The judge had been entitled to refuse to order costs in the indemnity basis.
11/5/20
EUROPEAN FILM BONDS A/S v LOTUS HOLDINGS LLC [2020] EWHC 1115 (Ch)
Summarises principles for the interpretation of contracts [52], estoppel by convention [98] and penalty clauses [146]. A provision that delivery of a film was to be conclusively presumed in certain events of default was not a penalty 166].
19/3/20
LOMBARD NORTH CENTRAL PLC v EUROPEAN SKYJETS LTD [2020] EWHC 679 (QB)
When the claimant demanded repayment of a loan it had wrongly believed there were arrears of $300k when the arrears were only $179.99. The court allowed an appeal against a refusal to set aside a default judgment. It was arguable with a real prospect of success that the arrears had been de minimis [45], that the claimant had a duty to state the debt with reasonable accuracy [47], or that there was an estoppel preventing the claimant relying on the lower sum as a default [48]. Discusses arguments that the contract contained penalties or that the defendant could seek relief from forfeiture [50] [57]. The fact that the arrears were so small also meant there was “some other” reason to set aside the judgment. Considers the impact of delay in applying to set aside the judgment [106] and considerations common to set aside and summary judgment applications [120].
28/7/17
BHL v LEUMI ABL LTD [2017] EWHC 1871 (QB)
A clause in a receivables financing agreement entitling a bank to fees of "up to 15%" of receivables recovered was not a penalty but required the bank to exercise its discretion in a way that was not arbitrary, capricious or irrational (applying Braganza v BP Shipping, 2015). The bank’s decision to charge 15% without any attempt to calculate the likely costs of recovery, and without considering charging less than the maximum, was a failure to exercise its discretion properly. The court allowed a reasonable estimate of the bank's actual collection expenses and required it to refund the excess to the company.
4/11/15
CAVENDISH SQUARE HOLDING BV v EL MAKDESSI; PARKINGEYE LTD v BEAVIS [2015] UKSC 67
Reviews the rule against penalties. The rule should neither be abolished nor extended [36-40]. It only applies to contractual remedies (including clauses requiring payment or transfers/forfeiture of assets) for breach of primary obligations [13-18]. The test is whether the clause is a secondary obligation which imposes a detriment out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation [32]. In Makdessi the price adjustment provision in issue was a primary not a secondary obligation so the penalty rule was not engaged. In Parkingeye the £85 parking charge was payable for breach so the penalty rule was engaged. But the charge was not a penalty because the owners had a legitimate interest in charging over-staying motorists for the purpose of efficient management of customer parking. For the same reason the charge was not unfair under the Unfair Terms etc Regs 1999.
23/4/15
PARKINGEYE LTD v BEAVIS [2015] EWCA Civ 402
An £85 charge for over-staying in a car park was not a penalty. On the facts, comparison between the company’s actual loss and the sum payable was inappropriate. The charge was not extravagant or unconscionable and needed to be sufficient to deter over-staying so as to free up space for others and to justify recovery action. The parking conditions had been prominently displayed and there could not be said to have been any lack of good faith of significant imbalance in the parties’ rights/obligations so as to cause the provision for payment of the charge to fall foul of the Unfair Terms in Consumer Contracts Regs 1999.
12/2/15
MSC MEDITERRANEAN SHIPPING COMPANY SA v COTTONEX ANSTALT [2015] EWHC 283 (Comm)
Liquidated damages payable under a contract are not be be reduced on grounds of the receiving party’s failure to mitigate [71]. On the facts, a contracting party had not been entitled to refuse to accept a repudiatory breach and instead to keep the contract alive solely to claim liquidated (rather than unliquidated) damages for continuing breaches by the other party. If the claimant had been allowed to keep the contract alive for that purpose the liquidated damages clause would have been a penalty [116].
30/1/15
EDGEWORTH CAPITAL (LUXEMBOURG) SARL v RAMBLAS INVESTMENTS BV [2015] EWHC 150 (Comm)
Summarises principles applicable to deciding whether a sum to be paid is a penalty [56]. On the facts a £105m fee payable under a financing arrangement was not payable on a breach of duty and would have been payable in any event. It was not a disguised penalty.
26/11/13
MAKDESSI v CAVENDISH SQUARE HOLDINGS BV [2013] EWCA Civ 1539
The judge below had been wrong to hold that clauses in a share sale agreement providing for a reduced price in the event of default were not a penalty. The court reviewed the law on penalties [44].
29/4/13
BERG v BLACKBURN ROVERS FOOTBALL CLUB & ATHLETIC PLC [2013] EWHC 1070 (Ch)
A clause in a contract of employment allowed a football club to terminate a manager’s employment and pay him compensation in the sum of his basic salary for the unexpired term. It was not realistically arguable that the clause was a penalty, because it provided for payment in a specified event, not a breach of contract.
15/2/13
CADOGAN PETROLEUM HOLDINGS LTD v GLOBAL PROCESS SYSTEMS LLC [2013] EWHC 214 (Comm)
A provision that on termination of a contract of sale the seller’s accrued rights were unaffected so the seller retained title to the goods and instalments paid by the buyer for the goods, was not subject to the law on penalties because the latter only applies to payments which take effect on breach.
14/12/12
CAVENDISH SQUARE HOLDINGS BV v EL MAKDESSI [2012] EWHC 3582 (Comm)
Clauses in a share sale agreement restricting competition by the seller of the shares and providing for a reduced price in the event of default were not a restraint on trade or a penalty. They were commercially justifiable by reference to the loss of goodwill suffered by the breach.
10/12/12
IMAM-SADEQUE v BLUEBAY ASSET MANAGEMENT (SERVICES) LTD [2012] EWHC 3511 (QB)
A clause in a compromise agreement which gave an employee the right to a bonus provided he complied with certain obligations could not be a penalty. It merely conferred a conditional benefit which did not accrue because the employee failed to satisfy the condition, so the employee never acquired any rights to the bonus. Even if such a clause could be penal the arrangement was commercially justifiable and not penal.