An end to the century old English law against penalties?
July 31, 2015
This LexisNexis article is worth reading for every English lawyer that’s asked to draft “penalties” into contracts. It comes up often in relation to whether service credits in complex commercial contracts could be seen as penalties. Also the amount payable for breach of a non-solicitation clause can be argued to be a penalty. Regardless of whether or not the Supreme Court abolishes, clarifies or redraws completely the law on penalties, good drafting can maybe take care of the issue. For example, potentially one should not perhaps ban solicitation of each other’s employees in the agreement, simply provide instead for a payment such as one year’s gross salary should one party solicit the other’s employees to join it. Then you could say there’s no penalty for breach of contract, just a contractual obligation to pay. I’d love to know your views on this.
It seems unlikely that the Supreme Court will accept the submissions and abolish the law of penalties. To do so would be to remove a significant legal protection and one which has existed in some shape or form for many centuries.
Such a big change in the law (particularly one which decreases, rather that increases, legal protection) would require research and public consultation; something better done by Parliament.
However, there are problems with the law of penalties that need to be fixed and these cases present the Supreme Court with an ideal opportunity to fix them.
http://blogs.lexisnexis.co.uk/comet/an-end-to-the-law-of-penalties-..
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