Penalty Clauses – Recent Supreme Court View

What is a penalty clause?

Parties to a contract often agree that, in the event of a breach, the party that has committed the breach must pay the other party a specified sum of money. However, that sum may be deemed a penalty by the courts if it breaks the common law rule on penalties. The rule against penalties and the unenforceability of penalty clauses originated in courts which sought to prevent exploitation of borrowers during a time when credit was not as easily accessible as it is today and borrowers were particularly vulnerable.

Supreme Court judgment

Launceston Property Finance Limited v Burke [2017] IESC 62 (Burke) involved an appeal by a married couple of a decision and subsequent order of the High Court for the possession of two properties by Anglo Irish Bank. The couple had entered into a number of loan transactions on which they defaulted. The loans were secured against the repossessed properties in question. The borrowers appealed on four grounds.