Berg successfully defends penalty claim: liquidated damages and penalty clauses
By Rob Cruise
Two high-profile cases have provided further guidance for parties who wish to rely on or challenge contractual ‘liquidated damages’ (LD) clauses.
As we have reported in previous updates, many commercial agreements in sectors as diverse as sports, advertising, construction and energy contain LD clauses that state that a specified amount of cash will be paid by party A to party B, where there has been a specific breach of contract by party A.
However, an LD clause may be deemed by the court to be an unenforceable ‘penalty clause’ if the specified sum is not a genuine pre-estimate of the loss that party B would expect to suffer, or if the intention of the LD clause is to ‘terrorise’ party A into performance of the contract (rather than to compensate party B)…
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