Penalty Agreement Definecleit0n
The Supreme Court then reformulated the common law test for what constitutes an unenforceable penalty clause. They found that the validity of such a clause depended on the ability of the party seeking to enforce the clause to assert a legitimate interest in the application of the clause: The Contractual Penalties Act in England was entirely developed by common law judges without general legislative intervention. The Supreme Court ruled that “the penal rule in England is an old building, built arbitrarily, which is not well resisted”.  Although Lord Dunedin`s decision in 1914 attempted to bring more clarity to the law, it often proved difficult to apply in practice. Cases continued to be brought before the courts in which provisions were challenged as a sanction and the courts continued to address the issue. In Workers Trust & Merchant Bank Ltd v. Dojap Investments Ltd, Lord Browne Wilkinson attempted to describe the scope of criminal law and drew attention to the slightly abnormal rules on the forfeiture of deposits related to the sale of land: “As a general rule, a contractual provision obliges a party in the event of an infringement: Paying or losing a sum of money to the other party is unlawful, insofar as it justifies a sanction, unless such a provision can be justified by the payment of a lump sum of damages, which constitutes a genuine forecast of the damage suffered by the innocent party as a result of the offence. An exception to this general rule is the provision relating to the payment of a bill (usually 10% of the contract price) on the sale of land … It is considered a penalty if the amount set is extravagant and ruthless in relation to the greatest loss that could have resulted from the offence. In 2005, Jackson LJ found in Alfred McAlpine Projects v Tilebox that he had seen only four reported cases in which a clause had been removed as a penalty.
In the same year, in Murray v Leisureplay plc in Murray v Leisureplay plc, Arden LJ posed a series of five questions that the court should consider in relation to sanctions: Although parties who use the terms “penalty” or “lump sum damages” may first mean what they say, However, the expression used is inconclusive.