El Makdessi related to a share sale and purchase dispute between Mr. Makdessi, as seller, and Cavendish, as the buyer purchasing a controlling interest in a company.
The payment terms under the sale and purchase agreement were such that further consideration was to be paid at various stages after completion, provided that Mr. Makdessi did not breach certain restrictive covenants (clauses 5.1 and 5.6). Mr. Makdessi did, however, breach the covenants and Cavendish withheld the further consideration, causing Mr. Makdessi to claim that clauses 5.1 and 5.6 were unenforceable penalties.
ParkingEye involved a motorist, Mr. Beavis, parking his car in a car park, the terms of which provided for free parking for two hours and then the payment of £85 if the car overstayed the period.
Mr. Beavis overstayed by almost an hour and ParkingEye, the managers of the car park, demanded payment of the £85 charge. Mr. Beavis did not pay, but proceeded to argue that it was an unenforceable penalty.
Court of Appeal decisions
The Court of Appeal in both cases considered the well-known test for penalties under English law, looking at (i) whether the penalty represented a genuine pre-estimate of the loss; and (ii) whether it was commercially justifiable. There was more focus on the latter part of the test, with much consideration given to whether the provisions in question were commercially justifiable or whether they were “extravagant and unconscionable”. This seemed to indicate that the English courts were looking for ways to move away from the traditional position on penalties in order to uphold, as far as possible, a party’s freedom to contract.