The UK Supreme Court ruled on both cases together on 4 November 2015, updating the established legal rule on penalty clauses and replacing the test of whether or not a disputed clause is "a genuine pre-estimate of loss" with a test asking whether it imposed a proportionate detriment in relation to any "legitimate interest" of the innocent party.

The holding company's claim (for breach of fiduciary duty) was settled in October 2012 when it accepted a Part 36 payment of US$500,000 made by Mr El Makdessi.

The owner of the retail site and car park, British Airways Pension Fund (BAPF), had contracted ParkingEye Ltd, the respondent, to provide "a traffic space maximisation scheme".

In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect that Lord Dunedin's four tests would usually be perfectly adequate to determine its validity.

As Lord Woolf said, speaking for the Privy Council in Philips Hong Kong Ltd v Attorney General of Hong Kong (1993) 61 BLR 41, 59, "the court has to be careful not to set too stringent a standard and bear in mind that what the parties have agreed should normally be upheld", not least because "[a]ny other approach will lead to undesirable uncertainty especially in commercial contracts".

The notion that the bargaining position of the parties may be relevant is also supported by Lord Browne-Wilkinson giving the judgment of the Privy Council in Workers Bank.

In his judgment, he decided that, in contracts for sale of land, a clause providing for a forfeitable deposit of 10% of the purchase price was valid, although it was an anomalous exception to the penalty rule.

The effect of the Regulations was considered by the House of Lords in Director General of Fair Trading v First National Bank plc [2002] 1 AC 481.

Aziz was a reference from a Spanish court seeking guidance on the criteria for determining the fairness of three provisions in a loan agreement.

In its judgment, the Court of Justice drew heavily on the opinion of Advocate General Kokott, specifically endorsing her analysis at a number of points.

In the Advocate General's view, the requirement that the "significant imbalance" should be contrary to good faith was included in order to limit the Directive's inroads into the principle of freedom of contract.

"[I]t is recognised", she said, "that in many cases parties have a legitimate interest in organising their contractual relations in a manner which derogates from the [rules of national law]" (para AG73).

In determining whether the seller could reasonably assume that the consumer would have agreed to the relevant term in a negotiation, it is important to consider a number of matters.

ParkingEye had an interest in inducing him to observe the two-hour limit in order to enable customers of the retail outlets and other members of the public to use the available parking space.

This was fundamental to the contractual relationship created by Mr Beavis's acceptance of the terms of the notice, whose whole object was the efficient management of the car park.

The concept of a negotiated agreement to enter a car park is somewhat artificial, but it is perfectly workable provided that one bears in mind that the test, as Advocate General Kokott pointed out in Aziz at para AG75, is objective.

But although the terms, like all standard contracts, were presented to motorists on a take it or leave it basis, they could not have been briefer, simpler or more prominently proclaimed.

Overstaying penalties are, as we have mentioned, both a normal feature of parking contracts on public and on private land, and important for the efficient management of the space in the interests of the general body of users and the neighbouring outlets which they may frequent.

They are beneficial not just to ParkingEye, the landowner and the retail outlets, but to the motorists themselves, because they make parking space available to them which might otherwise be clogged up with commuters and other long-stay users.

In agreement with the opinion of Advocate General Kokott, the court held that the reference in article 3(1) to a "significant imbalance" in the parties' rights and obligations under the contract must be interpreted as requiring the court to evaluate to what extent the term places the consumer in a worse position than would have been the situation under the relevant national law in the absence of that term.

Applying that test, it follows that the £85 penalty clause created a significant imbalance within the meaning of the regulation, because it far exceeded any amount which was otherwise likely to be recoverable as damages for breach of contract or trespass.

As to whether the imbalance was contrary to the requirement of good faith, the court, at para 76 in agreement with the Advocate General held that "in order to assess whether the imbalance arises contrary to the requirement of good faith', it must be determined whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to the term concerned in individual contract negotiations."309.

The court was referred to a code of practice published by the British Parking Association which addresses some of these matters, but the significant fact is that it is not a contractual document.

A competent lawyer representing a user in individual negotiation might be expected, among other things, to argue that the supplier should at least commit to following the code of practice.

On the bare information which was placed before the court, I am not persuaded that ParkingEye has shown grounds for assuming that a party who was in a position to bargain individually, and who was advised by a competent lawyer, would have agreed to the penalty clause as it stood.

Mr Beavis's argument that the clause was a penalty at common law is more questionable, but in the circumstances nothing would be gained by discussing that matter further.Commentators on the decision have noted that "these cases provide some welcome clarification to the law in this area", and that going forward "it seems that where parties have negotiated a contract, on a level playing field and with the assistance of professional advisors, it will now be much harder for the party paying liquidated damages to challenge the validity of those provisions on the basis that they are a penalty.

"[2][4] Others have suggested that "in deciding to abandon the admittedly over-rigid categorisation of penalty clauses in Dunlop the Supreme Court has, in the course of explaining and updating the law in this fascinating decision, created some uncertainty in the commercial world.

"[5] In Shiloh Spinners Ltd v Harding, the House of Lords had held that the equitable remedy of relief from forfeiture was not "confined to any particular type of case".

[7] In Cavendish, the Supreme Court has extended relief to contractual provisions, such as forfeiture clauses, as noted by Lord Hodge:

The court risks no confusion if it asks first whether, as a matter of construction, the clause is a penalty and, if it answers that question in the negative, considers whether relief in equity should be granted having regard to the position of the parties after the breach.This can be construed to hold that relief is available to circumvent the effect of time bar provisions that exist in some contracts, which can contain onerous notice provisions.