The UK courts have adopted a relatively permissive approach to penalty clauses in recent years and have generally not sought to interfere with commercially reasonable clauses agreed to by sophisticated parties who have had the benefit of legal advice.
In a very recent decision of the UK Court of Appeal in Makdessi v Cavendish Square Holdings, the court invalidated a provision in an acquisition agreement which provided (amongst other things) for the forfeiture of deferred consideration if the seller breached certain non-competition covenants the seller had given. This decision, which has come as a surprise to the UK market, seems to represent a departure from the permissive approach more recently adopted by the UK courts. Parties will therefore need to carefully consider provisions providing for forfeiture of deferred consideration triggered by breaches by the seller of its contractual obligations.
