Whether Mr Beavis could be described as exceptionally principled or unadvisedly cavalier in pursing his case to the Supreme Court is a matter of opinion, but the conjoined appeals of Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis have been widely reported and are worth mentioning again.
A penalty is a clause in a contract whose purpose is to punish a breach. Once a clause is designated as a penalty it is legally void and unenforceable. The courts have long sought to identify penalties because they do not attempt to estimate the innocent party’s loss but the Supreme Court now requires the following two-stage test to be applied:
- Does the clause protect a legitimate business interest which cannot readily be protected by a right to issue a claim for damages?
- Does the clause seek to protect business interests in a way which is extravagant, exorbitant or unconscionable?
Following the decision, it will be more difficult to argue that a clause is a penalty. Mr Makdesi was forced to sell his shares under an agreement because the shareholders were entitled to try to prevent each other from competing with the business. Mr Beavis lost his appeal against the £85 parking fine because managing the efficient use of a car park and generating a profit to continue moderating its use were legitimate aims. He must now be left ruing what once seemed like a crusade on behalf of motorists.
If you need advice about penalties or any breach of contract please contact Alexander Haddad. Each case is highly context-specific and requires individual consideration.