remedies2 (liquidated damages & penalties) Flashcards
What is the definition of a liquidated damages clause?
It stipulates a certain sum which is to be payable on a particular breach of contract.
What are the benefits of having a liquidated damage clause?
advantageous because it fixes amount that will be due for breach as a debt arising under contract without C having to deal with the uncertainty of establishing its case for damages
Can the court intervene in relation to liquidated damages clauses?
yes, where breaching party is paying an amount so excessive that it becomes a penalty.
Define a penalty clause.
A liquidated damages clause which requires the party in breach to pay an excessive sum, such that it becomes a penalty, and so clause will not be upheld.
Which 2 cases set out the law and test for differentiating between a liquidated damages and a penalty clause?
1- Cavendish v Makdessi
2- Parking Eye v Beavis
What is the test for penalty clauses?
1- is clause secondary or primary obligation?
primary = furthers commercial objective of contract
secondary = if it’s an obligation triggered by breach of contract to compensate innocent party
2- If secondary, clause will be a penalty if it imposes a detriment out of all proportion to any legitimate interest of the innocent party in performance of primary obligation.
*Consider-
- any legitimate business interest is served & protected by clause
- Is detriment imposed to protect that interest extravagant, exorbitant or unconscionable?
What happens if a court finds that a liquidated damages clause is a penalty?
liquidated damages clause will be struck down and C will be entitled to unliquidated damages assessed by the court using normal rules of contract law
Apart from damages, what other remedies are available for a breach of a contract?
- prohibitory injunctions
- orders for specific performance
Define negative and positive terms.
negative= requires a party to do something.
positive= requires a party NOT to do something.
Define specific performance.
issued by court to D, requiring it to carry out its obligations under a positive term of the contract.
Define a prohibitory injunction.
a court order restraining a party from breaching a negative term.
When is an order for prohibitory injunction and specific performance available?
Where an order for damages is not appropriate.
- damages are default remedy for breach
Both specific performance and prohibitory injunction are discretionary and equitable, what does this mean?
discretionary= can consider all relevant circumstances and there are no clear criteria which, if satisfied, entitle a party to an injunction.
equitable= originate from the courts of equity, and equitable principles apply, including:
- court will take into account conduct of C
- action must be brought within reasonable promptness
When will a specific performance not be awarded?
- where it would cause undue hardship on D
- a promise given for no consideration
- for breach of contracts of employment
- obligation to perform a series of acts which would need constant supervision of the court
- for breaches of contracts not binding on both parties
Define a guarantee.
promise by a party to ensure that another party carries out its obligations, or a promise to fulfil those obligations itself if that other party does not do so.
