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UK Law Reference
Pob achos
Contract Law
House of Lords
1915

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd

[1915] AC 79

Ratio Decidendi

A clause in a contract providing for payment of a sum of money on breach is a penalty (and unenforceable) if it is extravagant and unconscionable in amount compared with the greatest loss that could result from the breach. If it is a genuine pre-estimate of loss, it is enforceable as liquidated damages.

Ffeithiau

Dunlop supplied tyres to New Garage under a contract providing that New Garage must not sell below list price. For each breach, New Garage was to pay £5 per tyre. New Garage sold tyres below the list price.

Crynodeb o'r dyfarniad

The House of Lords held the £5 clause was enforceable as liquidated damages, not a penalty. Lord Dunedin set out guidelines for distinguishing penalties from liquidated damages.

Dyfyniadau allweddol

"The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage."

— Lord Dunedin

Triniaeth ddilynol

Good law (qualified)

The test was reformulated in Cavendish Square Holding v Makdessi/ParkingEye v Beavis [2015] to focus on legitimate interest, but Dunlop remains cited.