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Penalty


Extravagant and unconscionable
Last updated: 08-May-2015

Per Clarke LJ in El Makdessi v Cavendish Square Holdings BV [2013] EWCA Civ 1539, at p.295:

125. I am also conscious that there is a degree of ambiguity as to what is meant by the terms "extravagant" and "unconscionable" and how such descriptions fit with the concept of deterrence. "Extravagant" and "unconscionable" were terms originally used to characterise a provision which required far too high a payment in the event of breach. That it did so offended the conscience of equity, which treated it as penal – because its function was not to compensate but to deter breaches of obligations - and unenforceable (save as to the amount of the proved damage). Nowadays, when a term which provides for excessive payment on breach may be valid if it has a proper commercial justification, the term "unconscionable" would, perhaps more appropriately be used for a clause which provides for extravagant payment without sufficient commercial justification. Such a clause is likely to be regarded as penal and deterrence its predominate function, on the basis that if it requires excessive payment and lacks commercial justification for doing so, there is little room for any conclusion other than its function is to deter breach or, to put it positively, to secure performance.


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