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This is a good one for contract law students. *If* a particular clause was found to be a "penalty" and not a legit liquidated damages clause, English law did use to be pretty unfriendly: Dunlop [1915] basically said it needs to be a genuine pre-estimate of your damages... /1 https://twitter.com/Peston/status/1316466848901234690
Or it's a penalty and severed from the contract (i.e. unenforceable). Sums designed to deter breach, and/or those which were disproportionate/excessive were a no-no. BUT that changed pretty drastically with a UKSC decision in 2015: Cavendish Square Holdings... /2
In Cavendish, the SC decided not to abolish the rule against penalty clauses, but to massively widen the scope of what was acceptable in a contract. The clause doesn't have to be a genuine pre-estimate of loss anymore, as under the old law, but instead might legit aim to... /3
deter breach - sort of an economic nudge to make the costs of breaching higher, so you don't have as much incentive to an 'efficient breach' and go elsewhere/not perform. It still has to be proportionate/not extravagant, but if you have a legit interest in deterring breach... /4
for instance because you would find it really hard to get performance elsewhere, third parties would also suffer, or it would be particularly hard to prove your losses or detect breaches, you can include this sort of clause in the contract. So to the extent that we still... /5
have a 'no penalty clause' rule, it's rarely applies - reserved for the most egregious instances. For a good example, see the employment contract sent to my fiancé earlier this year including a penalty clause for non-performance at any date *before* the contract had started... /6
So I'm finding it pretty hard to imagine how UK govt would not have had a pretty legit interest in deterring breach in our scenario, and can only assume either their legal advisors haven't read the law since 2014, or, much more likely, the govt just make this stuff up. /end
Apologies for the typos in this thread - I'm about to start teaching and wanted to express my feelings quickly!
