14.1 The traditional law on penalties

This short paper discusses the implications for charterparty provisions of the significant restatement of the law of penalties by the Supreme Court in November 2015 in the conjoined appeals in Cavendish Square Holdings and ParkingEye.2 The traditional tests – which focused on the need for liquidated or agreed damages provisions to reflect a genuine pre-estimate of loss, and insisted that where the purpose of the clause was to deter breach it must be a penalty – have been jettisoned and replaced with a new ‘legitimate interest’ test. In the commercial and maritime spheres the new law is likely to be much more permissive and tolerant of agreed damages provisions and similar terms.