Jobson v Johnson [1989] 1 WLR 1926
Company law – Contract terms – Penalty clauses – Jurisdiction
Facts
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.
Issue
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.
Decision/Outcome
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.
Updated 19 March 2026
This case summary remains broadly accurate as a description of the Court of Appeal’s decision in Jobson v Johnson [1989] 1 WLR 1026. However, readers should be aware of one important legal development: the law on penalty clauses in England and Wales was significantly reformulated by the Supreme Court in Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67. The traditional rule from Dunlop Pneumatic Tyre Co v New Garage and Motor Co [1915] AC 79 — that a clause is a penalty if it is not a genuine pre-estimate of loss — has been replaced by a broader test. A clause will now be a penalty only if it imposes a detriment on the party in breach that is out of all proportion to any legitimate interest of the innocent party in enforcement. The outcome of Jobson v Johnson would likely still be reached on the facts, but the legal reasoning described in the article, particularly the emphasis on whether the clause was a genuine pre-estimate of loss, no longer accurately reflects the current test applied by English courts. Students relying on this case for discussion of penalty clauses must engage with the Cavendish/ParkingEye reformulation.
