Liquidated Damages or Penalty: Cavendish v Makdessi

Joanna Smith QC

December 2015

A paper based on a presentation to the Society of Construction Law at a meeting in London on 3rd November 2015

The author represented Cavendish at first instance, in the Court of Appeal and in the Supreme Court, and in this paper she looks at the law of penalties as set out in the 100 year old locus classicus, Dunlop Pneumatic Tyre Company v New Garage & Motor Company, and the intervening developments up to the 2015 Supreme Court decision in Cavendish Square Holdings v Makdessi. She considers the rule against penalties, its rationale and the scope of its application, the Dunlop case, the recent development of the concept of 'commercial justification', the first instance and Court of Appeal decisions in Cavendish, before moving on to looking at the Supreme Court decision in some detail, and looking at the position following that case.

The rule against penalties - Dunlop - The development of the commercial justification test - Cavendish Square Holdings v Makdessi - Cavendish in the Supreme Court - Where does that leave us now?

The author: Joanna Smith QC is a barrister practising at Wilberforce Chambers, Lincoln's Inn, London: jsmith@wilberforce.co.uk; she was Counsel for Cavendish at first instance, in the Court of Appeal and the Supreme Court.

Text: 20 pages