Penalties in English law

Penalties in English law are contractual terms which are not enforceable in the courts because of their penal character.^[1] Since at least 1720^[2] it has been accepted as a matter of English contract law that if a provision in a contract constitutes a penalty, then that provision is unenforceable by the parties. However, the test for what constitutes a penalty has evolved over time. The Supreme Court most recently restated the law in relation to contractual penalties in the co-joined appeals of Cavendish Square Holding BV v Talal El Makdessi, and ParkingEye Ltd v Beavis.^[3]

The law relating to contractual penalties in England has been entirely developed by judges at common law without general statutory intervention. The Supreme Court has noted that "[t]he penalty rule in England is an ancient, haphazardly constructed edifice which has not weathered well".^[3]

However, in addition to the common law rules relating to penalties, there are statutes which make express provision for avoidance of onerous clauses, such as the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999.