Makdessi vs. Cavendish

bazster

Since the Beavis case has now been tacked onto this one I thought I'd have a look to see what it was about.

A Mr. Makdessi agreed to sell his advertising business to a company, Cavendish. The agreed price was to be paid in instalments, and the agreement contained certain restrictive covenants binding Mr. Makdessi (for example, preventing him from competing with the business he had just sold).

There were further clauses effective if Mr. Makdessi breached any of the covenants. These clauses provided that any outstanding payment instalments would be forfeit, and if Makdessi still owned any shares in the company, Cavendish would then have an option to purchase them at their net asset value (likely to be considerably lower than their market value).

Makdessi now argues that these clauses constitute penalties and hence are unenforceable. Cavendish disagrees, and argued in the Court of Appeal that (i) the clauses were negotiated by legally-represented parties of equal standing and (ii) there is commercial justification for them.

The Court of Appeal came down emphatically in favour of Makdessi. The Court found that the clauses did not constitute a GPEOL because the cost to Makdessi would be identical whether a breach were trifling or major i.e. there was no connection between the nature of Makdessi's breach and what he would need to pay to Cavendish (familiar-sounding argument, eh?).

Having concluded that the clause were penal the court considered whether there was commercial justification for them, and concluded there was insufficient commercial justification and that the primary purpose of the clauses was deterrence of breach. The clauses were therefore unenforceable.

It seems to me that in this case the CoA stuck rigidly to the established legal position: contractual penalties are unenforceable, unless (in a commercial contract) there is commercial justification and the primary purpose is not deterrence.

Compare this to the contortions performed by the CoA in Beavis. Virtually ignoring that this was a consumer contract, decidedly not negotiated by legally-represented parties of equal standing, the Court turned legal somersaults to find against Beavis, inventing new law and basing their conclusion on this bizarre notion of "extravagant and unconscionable".

Surely, after listening to Makdessi for two days where the arguments will doubtless turn upon the same clear principles of law as considered by the Court of Appeal in Makdessi, the bizarreness of the CoA's conclusions in Beavis will be as plain as a pikestaff to their Lordships? Not to mention the stark contrast between the Makdessi case, involving millions, and the Beavis case, involving a consumer contract worth 85 quid and for the like of which there has never been a precedent for "commercial justification"?

Gryphon005

Thanks for your concise summary of this case bazster. I set out to read the CoA judgement recently, but found it such dry reading matter that my interest was easily diverted elsewhere.

Hopefully, sense will prevail in the Supreme Court, with the bizarre verdict of the CoA in the PE v Beavis case being reversed.

bargepole

Apparently, Cavendish's main points of argument to the Supreme Court, are that the doctrine of penalties in contracts should be abandoned altogether, or alternatively, they should not apply to commercial cases where contracts have been drawn up by 'expert' lawyers.


Good luck with that one.

DCodd

bargepole wrote: »

Apparently, Cavendish's main points of argument to the Supreme Court, are that the doctrine of penalties in contracts should be abandoned altogether, or alternatively, they should not apply to commercial cases where contracts have been drawn up by 'expert' lawyers.


Good luck with that one.

So could Cavendish be dissmissed but Beavis be upheld or can the judges only dismiss or uphold both?

bargepole

DCodd wrote: »

So could Cavendish be dissmissed but Beavis be upheld or can the judges only dismiss or uphold both?

They are the Supreme Court. They can do anything they like.

The_Slithy_Tove

bargepole wrote: »

They are the Supreme Court. They can do anything they like.

The judges so far seem to have done so. They have made their judgment partially on pure conjecture on their own part, i.e. that there would be chaos in car parks if the PPCs could not issue charges amounting to penalties, despite the fact there is no evidence to support such a view. It just reinforces all those stereotypes of judges being divorced from reality ("Who are the Beatles?").

HO87

"What is a retail park?"

"M'lud, it is a location where a number of retail units are gathered together for the convenience of shoppers."

"I see, like Saville Row. Very good. Do carry on..."

esmerobbo

Hopefully their Lordships will decide on the issue of if it was a penalty or not, and not what would happen in unmanaged car parks. (in irony mode)

fatbelly

Thanks for this clear explanation.

I note that Parking Prankster outlined the procedure for the case (hearing commences at Supreme Court 21 July) on 29 June here

http://parking-prankster.blogspot.co.uk/2015/06/supreme-court-confirm-beavis-appeal-date.html

bazster

HO87 wrote: »

"What is a retail park?"

"M'lud, it is a location where a number of retail units are gathered together for the convenience of shoppers."

"I see, like Saville Row. Very good. Do carry on..."

:rotfl::rotfl::rotfl: