ABSTRACT
This article explores the nature and function of contractual remedies through the lens of the doctrinally flawed and conceptually incoherent approach adopted by the Supreme Court in Cavendish Square Holding BV v Makdessi. Whilst acknowledging the validity of the criticisms against it, this article does not advocate for the abolition of the penalty rule. Instead, it seeks to rationalise it by identifying the key reason why the Makdessi approach is flawed: a lack of uniform and clear understanding of contractual obligations and the role of damages. It criticises the test’s jurisdictional limb, focusing on the introduction of conditional primary obligations and the unprincipled substance-over-form interpretative approach, showing how they resulted in the inconsistent treatment of substantially similar clauses and in judicial intrusion into the substantive jurisdiction. In light of this, it proposes an alternative justification for the penalty rule, drawing on private law principles to reconceptualise its operation. Finally, this article advocates for a revision of the jurisdiction limb in Makdessi, proposing (i) a redefinition of secondary obligations and the relevant interpretative approach, and (ii) a reinterpretation of the validity limb which would focus on procedural fairness and freedom of contract.
Kosta-Foti, Alexandra, Reconsidering Penalty Clauses: a Specifically Enforced Exception (February 25, 2025).
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