Discuss What is a penalty clause and why do the courts in England refuse to enforce such clauses? What is the impact of the decision of the Supreme Court in Cavendish Square Holdings? What are the tests that the courts apply when deciding whether or not a clause is a penalty? Does the penalty clause rule only apply to sums payable on a breach of contract? If so, why? And most important, arguments in support of the decision to retain the penalty clause.

What should be included: What is a penalty clause and why do the courts England in England refuse to enforce such clauses? What is the impact of the decision of the Supreme Court in Cavendish Square Holdings? What are the tests that the courts apply when deciding whether or not a clause is a penalty? Does the penalty clause rule only apply to sums payable on a breach of contract? If so, why? And most important, arguments in support of the decision to retain the penalty clause.