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UK Supreme Court Provides Welcome Clarification to Rules on Penalty Clauses for First Time in a Century
10 November 2015
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The Supreme Court’s decision brings welcome clarification and certainty to the law of penalties.
remains good law, the modern and authoritative test that will be applied is whether “
the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation”
Going forward, it will likely be difficult, but not impossible, for a party to challenge the enforceability of a provision in a negotiated commercial contract on the basis that it is a penalty.
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