Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914]

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1 is a notable English contract law case addresses the extent to which damages may be sought for a contract breach when a sum is fixed in the contract. It emphasises the enforceability of liquidated damages unless the sum is considered unconscionable. Despite its historical significance, the case's legal standing has been superseded Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis [2015], where the Supreme Court revisited the law on penalties.

Dunlop sued New Garage, a tyre retailer, for breaching an agreement not to resell Dunlop tyres below a specified price. The contract stipulated that, in the event of a breach, New Garage would pay £5 per tyre by way of liquidated damages and not as a penalty.

Initially, the judge deemed the £5 sum as liquidated damages and enforceable. However, the Court of Appeal viewed it as a penalty, limiting Dunlop to nominal damages. The House of Lords ultimately ruled that the clause was not a penalty but a genuine pre-estimate of potential loss, allowing Dunlop to enforce the agreement. A number of principles were set out by Lord Dunedin:
  1. The sum stipulated is considered a penalty if it is extravagant and unconscionable compared to the greatest conceivable loss from the breach.
  2. If the breach involves only failing to pay a sum of money, and the stipulated sum is greater than the amount owed, it may be deemed a penalty.
  3. A presumption (though not conclusive) of a penalty arises when a single lump sum is payable for one or more events causing varying degrees of damage.
  4. It is not an obstacle to a genuine pre-estimate of damage if precise pre-estimation is challenging due to the complex nature of the breach's consequences.

The ruling's status as a leading case was superseded by the 2015 Supreme Court ruling in Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis. This decision acknowledged the deficiencies in the penalty rule and the challenges in applying outdated tests to complex situations. It signalled the need for a reconsideration of the penalty rule in England, advocating for a reconstruction or extension to better accommodate contemporary legal complexities.
Back to blog
UOLLB SQE Turbocharge

UOLLB SQE Turbocharge

Get ready for the SQE1 with high-performance SQE Study Guides developed by UOLLB, edited by lawyers, and published by UOL Press to revolutionise your study method and exam strategy.

Turbocharge SQE Performance

UOL Case Bank

Upon joining, you become a valuable UOL student and gain instant access to over 2,100 essential case summaries. UOL Case Bank is constantly expanding.
Speed up your revision with us now👇

Subscribe Now

Where are our students from?

Council of Europe
Crown Prosecution Service
Baker Mckenzie 
Yale University
University of Chicago
Columbia University
New York University
University of Michigan 
INSEAD
University of London
University College London (UCL)
London School of Economics (LSE)
King’s College London (KCL)
Royal Holloway, University of London 
Birkbeck, University of London
SOAS, University of London
University of Manchester
University of Zurich
University of York
Brandeis University
University of Exeter
University of Sheffield
Boston University
University of Washington
University of Leeds
University of Law
University of Kent
University of Hull
Queen’s University Belfast
Toronto Metropolitan University
Hong Kong University of Science and Technology
University of Buckingham
ESSEC Business School

  • Criminal Practice

    Diagrams and Charts

    Our carefully designed diagrams and charts will guide you through complex legal issues.

  • Criminal Law

    Clear and Succinct Definitions

    Key concepts are concisely defined to help you understand legal topics quickly.

  • Property Law

    Statutory Provisions

    Statutory provisions are provided side by side with legal concepts to help you swiftly locate the relevant legislation.

  • Public Law

    Case Summaries

    We have summarised important cases for you so that you don't need to read long and boring cases.

  • Evidence

    Rules and Exceptions

    Rules and exceptions are clearly listed so that you know when a rule applies and when it doesn't.

  • Company Law

    Terminology

    Legal terms and key concepts are explained at the beginning of each chapter to help you learn efficiently.

  • Case Law

    Case law is provided side by side with legal concepts so that you know how legal principles and precedents were established.

  • Law Exam Guide

    Law Essay Guide

    You will learn essential law exam skills and essay writing techniques that are not taught in class.

  • Law Exam Guide

    Problem Question Guide

    We will show you how to answer problem questions step by step to achieve first-class results.

  • Conflict of Laws

    Structured Explanations

    Complex legal concepts are broken down into concise and digestible bullet point explanations.

  • Legal System and Method

    Legal Research

    You will learn legal research techniques with our study guide and become a proficient legal researcher.

  • Jurisprudence and Legal Theory

    Exam-focused

    All essential concepts, principles, and case law are included so that you can answer exam questions quickly.