PENALTY CLAUSE DOES NOT APPLY TO A SUM WHICH IS NOT PAYABLE ON A BREACH OF CONTRACT

Euro London Appointments Ltd v Claessens International Ltd [2006] EWCA Civ 385; [2006] All ER (D) 79 (Apr)

In Euro London Appointments Ltd v Claessens International Ltd [2006] EWCA Civ 385; [2006] All ER (D) 79 (Apr) the Court of Appeal held that the penalty clause rule did not apply to a sum which was payable on an event which was not a breach of contract. On the facts, the clause was held to impose a condition precedent to a party’s right to claim a refund and such a clause does not fall within the scope of the penalty clause rule because it is not a sum which is payable on a breach of contract. The case is a reminder of the fact that the penalty clause rule can be evaded by careful draftsmanship. Finally, it is of interest in so far as the Court of Appeal declined the invitation to extend the ambit of the penalty clause jurisdiction.