Clifford Chance

Landmark Supreme Court Decision – The Penalties Doctrine Lives On (In a New Guise)

4 November 2015

Today the Supreme Court of the United Kingdom handed down a landmark decision in which Clifford Chance acted, confirming that the centuries-old penalties doctrine still has a place in the modern commercial world of contracts, in spite of calls for its abolition, leaving the door open for Courts to interfere in contracts.

The Court was unanimous that the doctrine of penalties should not be abolished, but was divided on its scope and the relevant test to be applied. It is clear that there is a shift in focus from the classic test of "genuine pre-estimates of loss" and concepts of extravagance, unreasonableness and deterrence, and a greater emphasis on "legitimate interests" and punishment.‎

Given the similarities between English law and the law of other common law countries, the decision is expected to resonate globally.

The attached briefing summarises the key lessons for commercial parties arising out of this complex case and suggests possible next steps.

Download PDF