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On appeal from: [2013] EWCA Civ 1539; [2015] EWCA Civ 402

The Supreme Court allowed the appeal in Cavendish and dismissed the appeal in ParkingEye, thus upholding the validity of the disputed clauses in both cases concerning whether the rules against penalty clauses applied to commercial contracts between sophisticated parties and, if so, if the clauses in the present cases are within the scope and are therefore enforceable.

Lord Neuberger and Lord Sumption giving the joint lead judgments stated that the fundamental principle is that the penalty rule regulates only the contractual remedy available for the breach of primary contractual obligations, and not the fairness of those primary obligations themselves. The law will not generally uphold a contractual remedy where the adverse impact of that remedy significantly exceeds the innocent party’s legitimate interest. They reasoned that the true test for establishing whether a contractual provision is penal is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.

The court concluded in the Cavendish appeal that neither clause 5.1 nor clause 5.6 in this case were unenforceable penalty clauses.

In the ParkingEye appeal it declared that the charges in this case did not contravene the penalty rule or the Unfair Terms in Consumer Contracts Regulations 1999.

 

For judgment, please download: [2015] UKSC 67
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watching the hearing please visit: Supreme Court website