Penalties – always a price to pay?

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Penalties - always a price to pay?

09 Feb 2016

A recent case is the first in 100 years to reset the bar on penalty clauses. Cue the moans that it is now almost certain you will not get away without paying that annoying parking fine for parking too long on private land. However, for businesses it brings some clarification, more certainty and power.

What this means for your business

To refresh your memory, we are referring to clauses which set the consequences for breaches of contract.

Gone is the time where you could half-heartedly cry ‘penalty!’ and avoid paying the price.

For businesses on a level playing field who enter into contracts, and are properly advised, it is now presumed that you are the best judges of provisions dealing with breaches of your contracts.

This means that you are provided with more flexibility when negotiating contracts and greater certainty that the Court will not interfere.

The red flag

You need to be clear that your power is not unlimited. You must have a legitimate interest in the provisions you negotiate and they must not be extravagant – these are the grounds which open you to attack. Provided you keep this in mind, the dreaded waving of a red flag is a thing of the past, and there may be no discount to the price tag, which
must be paid.

So…fear not

The crystal ball is placed back at your feet and there is less cause to fear the most dreaded word of the eighty ninth minute being shouted – ‘penalty!’

For further information on enforcing penalty clauses or contracts generally, please contact us or call 0161 832 3434.

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