r/uklaw • u/DarbeliMatkap- • 41m ago
Confused on Nullity of Penal Clauses under UK Law
Hello y'all, I am surprised and confused on application of penal clasues (or liquidated damages as they say) under UK law. I practice my profession on a country where common law applies rather than Anglo-Saxon System and here we have clear rules on excessive obligations on penal clauses applied on contracts, they are not to be considered null, instead, if a litigation comes the court the judge is to limit its excesses (mostly regarding the amount but can vary depending on the nature of contract)
I was conducting a research on the subject regarding similar topic on UK law and surprised to see that under UK Law, the excessive penal clauses are outright nullified. I believe the relevant caselaw is Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis setting certain conditions on validity. Considering the legal system, I was led to believe the judges in UK have a larger margin of judicial discretion regarding disputes, with power to just curb excesses rather than direct nullification. Also, UK being a liberal country and all, I thought you guys had given the contractual freedom precedence over protection of weaker parties.
Total nullity also seems unhealty from business perspective as parties shall have limited insight on what they can agree as a penal clasue. So I wonder how the legal practitioners approach this subject ? Are there sector specific limits and ratios which is only known by relevant people ? Or people just stay on safe side and limiting the amount entirely ? In that case, how can one party deter other from breach ?

