Damages
Liquidated- agreed in contract that if a breach of contract arises, the innocent party is
eligible automatically for damages. Upheld by the courts.
Unliquidated- damages assessed by the courts because the parties have not produced a
liquidated damages clauses in the contract or the clause is rendered unenforceable.
Liquidated
Regardless of the actual loss suffered by the claimant, the party that has breached
the contract, only has to pay damages agreed in the contract regardless is this is less
that what they court receive through unliquidated damages.
Balance of risks; liquid v unliquidated
If the courts find that the liquidated damages clause in the contract is a penalty, then
the courts ignore the clause and assess compensation in the usual way .
- Liquidated clauses may use the word or be described as a “penalty.” If the courts
find that the clause is a liquidated damages clause still, then it is upheld.
Substance of clause not the label
Dunlop Pneumatic Tyres v New Garage and Motor Co LTD 1915
- Set down guidelines as to whether a clause was a penalty or a genuine liquidated
damages clause.
- Dunlop guidelines
Is it a penalty intended to frighten offending party or a genuine pre-
estimated of likely loss.
Judged at time of contracting.
If the penalty is extravagant in comparison to the greatest conceivable
loss
If the penalty is a non-payment breach and liquidated damages exceeds
the amount of debt
The penalty is payable for different breeches.
Look at substance of clause not the labels.
Makdessi v Cavendish Square Holdings 2015 SC
- Makdessi was a shareholder- sold part of his shareholding of a group company to
Cavendish.
- Price payable in instalments
- Restrictive covenants agreed, if breached
Final payments not received.
Option to buy remaining shares at net asset value (no goodwill) would be
triggered.
- Lord Dunedins (Dunlop;) ‘quasi-statutory code’ too rigidly applied and never
suggested that they would be applicable to ever case.
- The test: whether the clause imposes detriment on the contract breaker out of
all proportion to any legitimate interest of the innocent party in enforcement of
the primary obligation.
- The clauses were justifiable, and the appeal was allowed.
Liquidated- agreed in contract that if a breach of contract arises, the innocent party is
eligible automatically for damages. Upheld by the courts.
Unliquidated- damages assessed by the courts because the parties have not produced a
liquidated damages clauses in the contract or the clause is rendered unenforceable.
Liquidated
Regardless of the actual loss suffered by the claimant, the party that has breached
the contract, only has to pay damages agreed in the contract regardless is this is less
that what they court receive through unliquidated damages.
Balance of risks; liquid v unliquidated
If the courts find that the liquidated damages clause in the contract is a penalty, then
the courts ignore the clause and assess compensation in the usual way .
- Liquidated clauses may use the word or be described as a “penalty.” If the courts
find that the clause is a liquidated damages clause still, then it is upheld.
Substance of clause not the label
Dunlop Pneumatic Tyres v New Garage and Motor Co LTD 1915
- Set down guidelines as to whether a clause was a penalty or a genuine liquidated
damages clause.
- Dunlop guidelines
Is it a penalty intended to frighten offending party or a genuine pre-
estimated of likely loss.
Judged at time of contracting.
If the penalty is extravagant in comparison to the greatest conceivable
loss
If the penalty is a non-payment breach and liquidated damages exceeds
the amount of debt
The penalty is payable for different breeches.
Look at substance of clause not the labels.
Makdessi v Cavendish Square Holdings 2015 SC
- Makdessi was a shareholder- sold part of his shareholding of a group company to
Cavendish.
- Price payable in instalments
- Restrictive covenants agreed, if breached
Final payments not received.
Option to buy remaining shares at net asset value (no goodwill) would be
triggered.
- Lord Dunedins (Dunlop;) ‘quasi-statutory code’ too rigidly applied and never
suggested that they would be applicable to ever case.
- The test: whether the clause imposes detriment on the contract breaker out of
all proportion to any legitimate interest of the innocent party in enforcement of
the primary obligation.
- The clauses were justifiable, and the appeal was allowed.
