Cavendish Square Holding BV v Makdessi : ParkingEye Ltd v Barry Beavis (2015)

Supreme Court clarifies when to regard contract clauses as "penalties"

In two conjoined appeals, the Supreme Court has provided a landmark restatement of the law relating to contractual penalty clauses. It did this in order to better reflect the complexity of modern day transactions.

In Cavendish, Mr Talal El Makdessi agreed to sell Cavendish Square Holding BV a controlling stake in the holding company of the largest advertising and marketing communications group in the Middle East. Two clauses of the agreement provided that if he breached certain restrictive covenants, Mr Makdessi (a) would not be entitled to receive the final two instalments of the sale price (clause 5.1); and (b) may be obliged to sell his remaining shares to Cavendish at a price that excluded the value of the goodwill of the business (clause 5.6). When Mr Makdessi breached them, he argued that the two clauses were unenforceable penalties.