- Could deemed acceptance of goods following breach of a contractual deadline amount to a penalty? (European Film Bonds v Lotus Holdings)
- What are the practical implications of this case?
- Why is this judgment relevant to arbitration practitioners?
- What was the background?
- What did the court decide?
- The court’s decision on the meaning of ‘return’
- Whether the contractual scheme amounted to a penalty
- Case details
Commercial analysis: Mr Andrew Hockhauser QC, sitting as a deputy judge of the High Court in the Business List of the Chancery Division, considered a clause under which producers could object to perceived defects in a film. If they did, one of the steps they had to take was to ‘return’ the film within three business days. If the deadlines in the clause were missed, another clause provided that the film would be deemed ‘completed and delivered’, the contractual consequence being that the producers could no longer claim reimbursement of certain sums from the completion guarantors. A dispute arose as to whether ‘return’ in that clause referred to dispatch or to receipt. The High Court held it referred to receipt, not dispatch. The defendants objected that the consequence amounted to an unlawful penalty for a minor contractual breach. The judge rejected that submission, holding that the fact that missing deadlines in complex contracts may have serious consequences cannot render them penal and unenforceable. Written by Mark Wassouf, barrister, at 3 Verulam Buildings.
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