General legal information about contract terms in the UK, not legal advice.
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Penalty clause

A penalty clause imposes a payment on breach that is out of all proportion to any legitimate interest of the innocent party. Penalty clauses are unenforceable.

Prepared by a retired English qualified solicitor (LLB, LLM) · reviewed · applies across the UK unless stated · how we draft

In more detail

The modern test comes from the Supreme Court in Cavendish Square Holding v Makdessi and ParkingEye v Beavis (2015).

In Scotland

Scots law applies the same test.

Put it into a contract

Be Contract Wise provides very powerful, carefully prepared tools to draft and review simple or complex contracts under the law of England and Wales or Scots law, explaining every clause in plain English.

England & Wales appScotland app

Reviewed 2026-09-24. General legal information, not legal advice.