‘Take-or-pay’ a penalty?

M and J Polymers Ltd v Imerys Minerals Ltd QBD TLR 2 April

The parties entered into a contract containing a take-or-pay clause requiring the buyers to pay for a minimum quantity of the products, even if they had not ordered the indicated quantities during the relevant monthly period. The claimants countered the defendants’ argument that this was a penalty clause by saying it was a simple claim in debt for the price of goods. That argument was too simplistic. It was clear that, for example, a minimum payment clause in a hire-purchase agreement could be held to be a penalty, even though expressed as a claim in debt. As a matter of principle, the rule against penalties might apply. It was certainly not the ordinary candidate for such a rule, however. On the facts, the present case did not offend against the rule against penalties and the claimant was entitled to recover the price of the short-fall pursuant to the take-or-pay provision in the contract.