ABSTRACT
The Supreme Court’s rulings in Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis represent a transformative moment in UK contract law, particularly concerning the enforceability of penalty clauses and non-compete agreements. These conjoined cases addressed critical legal principles surrounding the balance between contractual obligations and legitimate business interests. In Cavendish, the court examined a Sale and Purchase Agreement where Talal El Makdessi faced substantial financial penalties for breaching restrictive covenants, arguing that these clauses were unenforceable penalties. Conversely, in ParkingEye, the court evaluated an £85 parking charge imposed on Barry Beavis for overstaying a two-hour limit, which he contested as excessive and punitive.
The Supreme Court’s decision in Cavendish Square Holding BV v Talal El Makdessi, clarified the definition of penalty clauses, establishing that they are not enforceable if they serve a legitimate business interest and are proportionate to that interest. But where the amount charged is not extravagant and unconscionable regarding to breach be it expressed or implied, then it can be binding, particularly because the clauses served a legitimate business interest and were not penalties under the law. This ruling promotes greater contractual freedom, allowing businesses to impose reasonable financial consequences for breaches while ensuring that such terms are justified by legitimate interests. The implications of these decisions extend beyond individual cases, influencing future contract drafting practices and litigation strategies. This essay will explore the key facts, legal reasoning, and broader impacts of these landmark rulings on contract law in the UK.
Amara, Frederick Daniel, Revisiting Contractual Penalty Clauses: A Critical Analysis of Implied Terms and Breach in Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis in Modern Contract Law (November 11, 2024).
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