PLC Construction Blog: Penalty clauses: genuine pre-estimate of loss versus commercial justification
In April this year I looked at the “new test” (set out in Cavendish Square Holdings BV and another v El Makdessi) for determining whether or not a contractual provision is a penalty. Last week, the Court of Appeal overturned the decision at first instance, and struck out the relevant clauses as penalties. In doing so, the court went some way towards clarifying the law on penalties. Although the Cavendish case is not a construction case this decision is relevant to everyone negotiating liquidated damages clauses in construction contracts.