Pencil Hill Ltd and Italian Serie A club, Palermo FC, entered into contracts for the sale of the registration rights of the now Juventus player, Paulo Dybala. One clause provided that should Palermo fail to pay, all remaining amounts would immediately become due and, as an expressly stated penalty, Palermo would be obliged to pay double the amount outstanding. Palermo failed to pay and Pencil Hill succeeded in its arbitration claim to the Court of Arbitration for Sport in Lausanne. Palermo then failed before the Swiss appeal courts. Pencil Hill sought and obtained an order permitting enforcement of the award in England and Wales. Palermo applied to set that order aside. Section 103 of the Arbitration Act 1996 requires English courts to enforce an arbitral award subject to stated exceptions, one being where “it would be contrary to public policy to recognise or enforce the award”. Under English law penalty clauses are not enforceable and the roots of this rule in public policy was recently shown by the Supreme Court in Makdessi [2015]UKSC67.

The High Court considered, however, that the countervailing policy of upholding international arbitration awards should prevail in these circumstances, principally because the arbitral tribunal had already partially adjusted the offending clause in accordance with Swiss law which governed the contract.

To view a copy of the judgment click here


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