Unenforceable Penalties

The recent case of Volkswagen Financial Services (UK) Ltd v Ramage (unreported, Cambridge County Court, 9 May 2007) focuses attention on the effectiveness of the payment clauses in circumstances where the hirer defaults or repudiates the contract.

The Facts

George Ramage hired a car from VW for a fixed period of 36 months under a hire agreement, agreeing to pay a set amount per month but also agreeing that, upon any repudiation, he would be liable to pay the total amount of rentals payable during the total hiring period, less the amount of rentals paid or due, less a rebate on the rentals not yet due. The relevant part of cl 8.2 provided that the hirer had to pay:

....as compensation or agreed damages on acceptance of [the hirer.s] repudiation, or a debt on our termination, the total amount of rentals payable during the Hiring Period. less the amount of rentals paid or which have become due..