Jobson v Johnson  1 WLR 1926
Company law – Contract terms – Penalty clauses – Jurisdiction
The plaintiff owned 44.9% of the share capital of a football club and contracted to sell the shares to the defendant, by way of the defendant’s nominee for £40,000 with further instalments of £311,698 to be paid at later dates. The contract held that if the instalments were not paid, the shares could be transferred back to the plaintiff for £40,000. The defendant defaulted on the payments and the plaintiff brought an action to transfer the shares. The defendant argued that the clause was a penalty clause and counter-claimed against having to forfeit the shares. The trial judge held that the clause requiring the transfer of the shares was a penalty but was enforceable. The defendant’s counterclaim did fall under the judge’s discretion, but did not succeed on the basis that it had not complied with required undertakings. The defendant appealed this decision.
There were two clear issues for the court to clarify. The first was whether the clause in the contract was considered as a penalty clause, which could be restricted by the court and the second was whether the defendant could counterclaim for relief from the forfeiture of the shares.
The court found that the clause was a penalty clause that punished the defendant for defaulting in paying in the defendant, particularly as the re-purchase price was less than the amount the defendant had paid in total. It was not a genuine measurement of the plaintiff’s loss. However, as the counter-claim had been struck out, there could not be relief for a time extension to pay the balance. The court allowed there to be specific performance to the extent that the penalty did not exceed the plaintiff’s loss.