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Dr Dodsworth presents research findings at the SLS conference 2017

Dr. Dodsworth presented his views on a recent Supreme Court decision dealing with penalty clauses at the 108th SLS conference in Dublin.

The decision has a significant impact especially on consumers since it has opened the door for businesses to charge penalties where consumers are in breach of their contract. For example this affirms the practice of companies that manage carparks to charge customers that overstay a hefty fee. The presentation in the contract, commercial and consumer law section of the SLS conference,  was well-received and sparked further discussions on the application of his new approach to penalty clauses in a variety of other jurisdictions (e.g. the US and Ireland).

The decision by the Supreme Court in Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis (conjoined appeals) has changed the approach to liquidated damages and penalty clauses. It now seems permissible, according to Neuberger LJ, to ask for more than a genuine pre-estimate of loss so long as there was a ‘legitimate interest in ensuring performance of the obligation’. This was not only a deviation from the traditional line of cases but also a shift in the weighting of underlying values, towards freedom of contract. The aim of the presentation was to address the question whether such a shift is desirable or not. To do so, he analysed how and where the changes originated.

He argued that the change in approach is in part due to the development of the law in relation to specific performance and the approach by the courts to the award of damages since the decision in the Achilleas. There also seems to be an interesting parallel between the approach chosen by the Supreme Court and the approach by the German courts to penalty clauses. Looking at the German approach revealed, first, that the test suggested by the Supreme Court may need re-phrasing as ‘the cost of compliance’ but more importantly that there is a complete lack of safeguards and mechanisms in the English courts that the German courts can fall back on where the clause may be considered contrary to good faith, contrary to public policy or where the clause can be adjusted.

Dr Dodsworth concluded that basic approach to penalty clauses with this decision had shifted to allow for a more doctrinally coherent approach to penalty clauses but that the substantive assessment of the way in which the clause was assessed was not only uncharacteristic for the Supreme Court but also interfered with the underlying policy for the amendment.

The assessment of this case follows Dr Dodsworth’s wider research into the underlying values of English (and German) contract law which provides a better understanding of the possibility of comparing approaches in each of the jurisdictions and allows for a more in-depth assessment of the desirability  of the rules that these values underpin.

Date: 14 September 2017

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