Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67

Cavendish bought a controlling interest in a business from Mr Makdessi. The agreement included obligations restricting competition and provisions reducing or affecting payments if he breached them. He challenged those consequences as penalties. In the joined appeal, Mr Beavis overstayed a two-hour limit in a car park operated by ParkingEye and disputed an £85 charge. That dispute also raised the fairness of a consumer term. The Supreme Court considered the governing penalty rule and applied it to a negotiated business acquisition and a standard parking arrangement.

Whether the charge was an unfair term. Whether the penalty clauses could be enforced. Whether the common law rule regarding the enforcement of the contractual penalty clause could be restricted or removed entirely.

The Supreme Court upheld the disputed provisions in both appeals. The penalty doctrine applies to secondary obligations arising on breach, rather than providing general review of the fairness of primary contractual obligations. The relevant question is whether the detriment is disproportionate to the innocent party's legitimate interest in performance.

In Cavendish, the provisions protected the business and goodwill acquired and formed part of the parties' negotiated commercial arrangement. In ParkingEye, the £85 charge served legitimate interests in managing parking turnover and operating the scheme; it was not invalid merely because it exceeded a direct estimate of loss. The majority also rejected the challenge under the consumer regulations applicable to that contract. The result did not approve every parking charge or eliminate separate consumer fairness controls.

A secondary obligation triggered by breach is penal if the detriment imposed is out of all proportion to the innocent party's legitimate interest in performance. That interest can extend beyond compensation. The penalty doctrine does not generally assess primary obligations, and statutory consumer fairness remains a separate inquiry.

The joined appeals restated the modern penalty test while retaining a useful role for Dunlop's guidance in straightforward damages clauses. They show why a clause can protect an interest not readily measured by direct financial loss, but also why characterising the obligation comes first. ParkingEye should not be reduced to a universal approval of parking charges. In current consumer problems, the Consumer Rights Act 2015 must be considered separately from the common law penalty doctrine and its focus on breach-triggered obligations.