Penalty Clauses And Enforcement Issues

Flynn & Anor v Breccia [2018] IECA 273; Sheehan v Breccia & Ors [2018] IECA 286

In the recent linked decisions of Sheehan v Breccia and Flynn and Benray v Breccia the Court of Appeal upheld the High Court's finding that a surcharge interest provision in a loan agreement was a penalty clause. In doing so it followed the established caselaw on what constitutes a penalty clause in this jurisdiction.

Penalty Clauses

If a clause in a contract provides for the payment of a sum of money in the case of a breach of that contract, the courts may deem that clause to be a penalty clause. In Ireland the test is whether the amount payable is a genuine pre-estimate of the probable loss of the innocent party caused by the breach of the contract. If it is not, the clause is a penalty and is unenforceable.

In 2015 the Supreme Court in the UK departed from the traditional test in the case of Cavendish Square Holding BV v Talal El Makdessi. The court in that...