penalty clauses - Court of Appeal judgment

digp

Repayment Clauses in Compromise Agreements (the principle is the same though IMO)

The Court of Appeal has handed down an important decision in CMC
Group plc v Zhang.

Mr Zhang signed a contract (not strictly a compromise agreement, but
that does not matter) settling his claim against CMC for $40,000.
It contained a clause, common in compromise agreements, that the
full $40,000 would be immediately repayable if Mr Zhang broke any
terms in the agreement (namely, non-harassment / derogatory remarks
clauses).

CMC Group alleged that Mr Zhang broke his side of the deal, and
issued proceedings for the return of the $40,000. They obtained
default judgment, with damages to be assessed. Mr Zhang appealed.

The issue for the Court of Appeal was whether the repayment clause
was valid, or whether it amounted to a penalty clause.

The Court of Appeal noted that the other provisions in the agreement
(such as Mr Zhang not being able to bring further claims) remained
enforceable. They considered that fixed damages for breach of the
non-derogratory statement clause of $40,000 were plainly excessive,
when the damages flowing from a derogatory statement might only be
nominal.

Accordingly the repayment clause was a penalty and, whilst CMC Group
was free to bring a claim for the damages it had actually incurred,
it could not recover the $40,000 without proving it had incurred
that amount of loss.

The Court of Appeal has granted permission to appeal to the House of
Lords.

(copy pasted from Daniel Barnett's employment law newsletter)

amosworks

I think CAG may be more interested to know this, but this isn't really new TBH it's been discussed for quite some time. Thanks for posting it though

digp

who is CAG?

I should add that I posted this vis-a-vis bank charges!

oops_a_daisy

Consumer Action Group - formerly known as Bank Action Group