What is the ratio in Cavendish v Makdessi?

The test for penalty clauses is whether the clause imposes a detriment on the contract-breaker that is out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.

What did the court decide in Cavendish v Makdessi?

The Supreme Court upheld both clauses and reformulated the penalty test, moving away from the rigid Dunlop approach to a more flexible proportionality assessment.

Why is Cavendish v Makdessi important for contract law?

It modernized penalty clause doctrine for the first time in a century, giving commercial parties greater freedom while maintaining protection against genuinely penal clauses.

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