Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis
Citation: [2015] UKSC 67
Background Facts
Cavendish v Makdessi
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Cavendish Square Holding BV was a purchaser of a controlling stake in a Middle Eastern advertising and marketing group.
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Talal El Makdessi was a seller and founder of the group.
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The share purchase agreement contained restrictive covenants preventing Mr Makdessi from competing with the group.
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If he breached these covenants:
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He would lose his right to further payments (Interim and Final Payments).
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Cavendish could buy his remaining shares at a discounted value.
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Mr Makdessi breached the covenants. He argued that the clauses triggered by his breach were unenforceable penalties.
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ParkingEye v Beavis
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ParkingEye operated a car park with a maximum 2-hour free stay and £85 charge for overstaying.
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Mr Beavis overstayed by nearly an hour and challenged the charge as a penalty and as unfair under consumer protection law.
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Mr Beavis claimed the charge was a penalty and/or unfair and unenforceable.
​Judgment
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Supreme Court’s decision:
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Both appeals dismissed (in favor of Cavendish and ParkingEye).​
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Reformulation of the penalty test:
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A clause will be a penalty only if it imposes a detriment out of all proportion to any legitimate interest in enforcing performance.
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Cavendish:
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The clauses protecting goodwill and share value were not penalties; they protected Cavendish’s legitimate interest in the business and its value.
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ParkingEye:
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The £85 charge was not a penalty; it protected the efficient use of parking spaces and was not exorbitant or unconscionable.
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Consumer law (ParkingEye):
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The charge was also not "unfair" under the Unfair Terms in Consumer Contracts Regulations 1999.
General Principles Developed
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New test for penalties:
A provision is penal if it imposes a detriment out of all proportion to any legitimate interest in enforcing a primary obligation.
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Focus on legitimate interests:
Not just compensatory; may include deterrence and other commercial justifications.
Recognises broader commercial interests beyond exact loss compensation.
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Less formalistic approach:
Moves away from rigid reliance on “genuine pre-estimate of loss.”
Considers substance over form, commercial context, and bargaining power.
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Consumer fairness (ParkingEye):
Even non-compensatory charges can be valid if they pursue a legitimate aim and are transparent and proportionate.
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Freedom of contract:
Strong presumption that negotiated terms between sophisticated parties should be respected.