Forfeiture, Buy-Out Provisions and Enforceability in English Law After the Makdessi Decision

One of the most important questions in English Law is whether forfeiture clauses can be enforced by English courts, primarily, because these clauses could be considered penal clauses. The penalty rule developed in the equity jurisdiction to relieve the defaulting parties of the consequences of their actions. Since then, there is a negative approach towards penalty clauses originated in the need to stop the enforcement of penal bonds in equity courts and it is now fully incorporated in the Common Law .
This chapter focuses on and explores the recent case law in England. In terms of developments relevant for the oil and gas industry, there has not been anything of significance – that is, until the decision in Makdessi. Therefore, our focus will be on the unenforceability of penalty clauses under English Law. It is also important to emphasise that a significant number of contracts in the oil and gas industry will choose English Law as the de facto standard for contracts and Joint Operating Agreements (JOAs) are no exception - that’s why an understanding of English Law on this matter is crucial.