A Reminder on the Rule Against Penalties

As an exception to the general notion of freedom of contract under English law, penalty clauses are generally not enforceable. This is a matter of public policy against oppressive terms which punish the party in breach, instead of just protecting the legitimate interests of the innocent party.

The 21 December 2017 English High Court case of Holyoake v. Candy contains a useful analysis of the basic concepts regarding the rule against penalties, and a reminder that care needs to be taken in drafting provisions that risk being viewed as penalties

In this article we take a look at some of the lessons that can be learnt from the judgement.

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