Supreme Court curtails doctrine of penalty clauses

Cavendish Square Holding BV v El Makdessi and ParkingEye v Beavis [2016] BLR 1, [2015] UKSC 67, 4 November 2015

In a conjoined appeal, the Supreme Court revisited the well-established test for penalty clauses laid down a century ago by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. The first appeal involved the sale of some of Mr Makdessi’s shares to Cavendish, and in the event of a breach of the non-compete clause in the sale and purchase agreement, clauses 5.1 and 5.6 provided that Cavendish had an option to purchase all of Mr Makdessi’s shares at net asset value, and withhold payment of any outstanding interim/final payments. The second appeal was about an £85 charge for overstaying the permitted free parking period in a car park in Chelmsford.