CMC Group Plc & Ors v Zhang

CMC Group Plc & Ors v Zhang

The provision requiring Mr Zhang to pay US$40,000 upon any breach of the settlement agreement is a penalty clause because it is a deterrent, not a genuine pre-estimate of loss, and is payable for breaches ranging from serious to trivial. Therefore, it is unenforceable and cannot be recovered by CMC.

Parties
Claimant/respondent: CMC Group PLC & Ors; Defendant/appellant: Michael Zhang
Jurisdiction
England and Wales
Judgment Date
14 March 2006
Procedural Posture
Civil Appeal / Appeal From High Court (queen's Bench Division) to Court of Appeal
Outcome
Appeal allowed
Legal Topics
Penalty Clauses, Default Judgment, Settlement Agreements, Damages Assessment
Contract Law Civil Procedure Penalty Clauses Default Judgment Settlement Agreements Damages Assessment

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Parties

CMC Group PLC & Ors

Claimant/respondent

Michael Zhang

Defendant/appellant

Procedural Posture

Civil Appeal / Appeal From High Court (queen's Bench Division) to Court of Appeal

Legal Issues

  1. 1 Whether the provision in the settlement agreement for payment of US$40,000 upon breach is a penalty clause and thus unenforceable
  2. 2 Whether the default judgment precluded raising the penalty issue on appeal

Ratio Decidendi

The provision requiring Mr Zhang to pay US$40,000 upon any breach of the settlement agreement is a penalty clause because it is a deterrent, not a genuine pre-estimate of loss, and is payable for breaches ranging from serious to trivial. Therefore, it is unenforceable and cannot be recovered by CMC.

Court Disposition

Appeal allowed

Orders

  • Judgment for US$40,000 set aside as penalty and unenforceable
  • Leave to appeal granted