Liquidated damages Definition

GLOSSARY

/ˈlɪkwɪdeɪt/ /ˈdamɪdʒ/

Published by a ��Ӱ�� Commercial expert

What does Liquidated damages mean?

A liquidated damages clause is a clause whereby the parties to a contract fix in advance a sum of money to be paid by the defaulting party to the innocent party in the event of a breach.

Such clauses avoid the expense and difficulty of having to prove the actual damage suffered as a result of the breach. Liquidated damages clauses are only enforceable if they represent a ‘genuine pre-estimate of loss’. The parties to a contract may agree at the time of contracting that, in the event of a breach, the party in default must pay a stipulated sum of money to the other. Alternatively, parties can agree that in the event of a breach the party in default will forfeit a sum already paid to the other. In both cases, if this sum is a genuine pre-estimate of the loss that is likely to flow from the breach, it will represent agreed damages, called liquidated damages, and will be recoverable without the need to prove the actual loss suffered.

Commercial

A liquidated damages clause is a clause

View the related checklists about Liquidated damages

MVNO agreement—checklist

MVNO agreement—checklist This Checklist covers some of the main provisions to be included in a mobile virtual network operator (MVNO) agreement under which a mobile network operator supplier will provide wholesale access services to an MVNO for resale to its own retail customers. It covers some of the main provisions that are specific to an agreement of this kind. See also the Precedent: MVNO agreement. In this Checklist, the following definitions are used: • Agreement—means the MVNO agreement between the MVNO and the Supplier for the provision of the Services • End-User—means a customer of the MVNO • IPR—means intellectual property rights • MVNO—means mobile virtual network operator, the customer in the Agreement • Services—means the wholesale network services being provided to the MVNO by the Supplier • Supplier—means the mobile network operator providing network services to the MVNO The third column can be used to record observations or comments as the Checklist is worked through. Checklist Further information Notes (if any) General terms and conditions ☐ Consider duration....

Equipment hire agreement—checklist

Equipment hire agreement—checklist Scope and purpose This Checklist sets out the key considerations when drafting, reviewing or negotiating an equipment hire agreement. Equipment hire agreements may also be referred to as equipment leases, equipment rental, operating leases or finance leases. This Checklist uses the term equipment hire agreement for ease of reference. It is drafted from the perspective of the hiring customer under the lease. See also accompanying Precedents: Equipment hire agreement—pro-customer and Equipment hire agreement—pro-supplier. This Checklist seeks to present issues that are aimed to protect the hiring customer’s (or lessee) interests in relation to an equipment hire agreement which has been drawn up by the supplier (or lessor) (as is usually the case with equipment hire agreements). Terms such as ‘lessor’, ‘lessee’, ‘hirer’ and similar do seem to cause a lot of confusion within these types of arrangement. In this Checklist the ‘hiring customer’ or ‘lessee’ is the party who is taking the equipment on lease and the ‘supplier’ or ‘lessor’ is the party who supplies the equipment...

Liquidated damages v penalty clause—checklist

Liquidated damages v penalty clause—checklist As seen in Practice Note: Contract interpretation—distinguishing between liquidated damages and penalty clauses, the task of determining whether or not a liquidated damages clause may be held to be unenforceable as a penalty is not always an easy one. While it will be a matter of construction for the courts in each case, there are a number of factors to consider when analysing the scope of an alleged liquidated damages clause and whether or not it may be susceptible to challenge as a penalty. If drafting a liquidated damages clause, it is essential that you keep these factors in mind in drafting the clause (and its relationship with related clauses). See: • Drafting and negotiating a liquidated damages clause—checklist • Precedent: Liquidated damages clause For specific consideration of how clauses in commercial contracts which provide for ‘default interest’ have been considered in the authorities, see: • Penalty interest rates in commercial contracts • Contract interpretation—distinguishing between liquidated damages and penalty clauses—When might default interest be...

Liquidated damages process under JCT Standard Building Contract 2011 and 2016—flowchart

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Contract interpretation—distinguishing between liquidated damages and penalty clauses

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System development and systems integration agreements

System development and systems integration agreements System development agreements govern a wide range of projects from the straightforward to the large, complex and costly. The objective is usually simple: to create an IT system meeting the customer’s needs in a trouble-free way, by an agreed time and for an agreed price. However, this simple ambition often masks a mass of complexity reflecting the underlying complexity of IT systems themselves. Practical matters, including the methodology for the project, the components of the system and how the system should work in real-life conditions, fundamentally affect the issues that a development agreement must address. Without a clear working knowledge of the commercial and technical issues, there is a good chance that lawyers will produce contracts which are divorced from reality and inadequately address the risks. In addition, development contracts contain a mixture of contract, intellectual property and commercial issues which can look standard to the uninitiated but in fact vary widely in order to accommodate specific project requirements. This Practice Note...

Discover our 334 Practice Notes on Liquidated damages

Systems integration agreement—pro-supplier

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MVNO agreement

MVNO agreement This Agreement is made on [insert date] Parties 1 [insert name] a company incorporated in [England and Wales] under number [insert registered number] whose registered office is at [insert address] (Supplier); and 2 [insert name] a company incorporated in [England and Wales] under number [insert registered number] whose registered office is at [insert address] (MVNO) (each of the Supplier and the MVNO being a party and together the Supplier and the MVNO are the parties). Background (A) The Supplier is a mobile network operator in the Territory. (B) The MVNO is a mobile virtual network operator in the Territory. (C) The Supplier has agreed to provide wholesale mobile electronic communications services to the MVNO for resale [on a pre-pay basis OR on a post-pay basis OR on a pre-pay and post-pay basis] in the Territory in accordance with the terms and conditions of this Agreement. The parties agree: 1 Definitions and interpretation 1.1 In this Agreement: Account Manager • means the primary point...

Dive into our 62 Precedents related to Liquidated damages

Could a clause requiring consultants to pay back any shortfall in their billing target be treated as a penalty clause?

Could a clause requiring consultants to pay back any shortfall in their billing target be treated as a penalty clause? This Q&A examines liquidated damages and penalty clauses in the context of the following example scenario: The NHS pays a dental practice a set amount per year for the treatments it provides. If the practice doesn't meet its target, it must pay the shortfall to the NHS. Under the relevant dental consultancy agreement, dentists have an annual treatment target and get paid for each treatment performed. If the contract is terminated early, there is a clause which provides that the practice may require the consultant to pay back any shortfall in their pro-rated treatment target, to the extent that the shortfall has not been performed by any other consultant as at the date of termination. The question is, could a clause requiring consultants to pay back any shortfall in their billing target be treated as a penalty clause? Contractual liquidated damages clauses (a clause where the...

Which remedies are available to a business customer whose supplier has installed incorrect items B, under a contract which specified the requirement for item A, but mistakenly included prices for item B?

Which remedies are available to a business customer whose supplier has installed incorrect items B, under a contract which specified the requirement for item A, but mistakenly included prices for item B? Formation of contract—What have the parties contractually agreed? It is first necessary to identify what the supplier and customer have contractually agreed will be supplied and installed. As such one must first consider all of the communications and discussions between the parties comprising the offer and acceptance process. This will include, without limitation, the detail of the invitation to tender document, the quotation, confirmation of acceptance, invoices and other emails, telephone calls and discussions between the parties relating to the subject matter. Included within those considerations any terms on which quotations and tender documents are purported to be made. A legally binding contract must, among other things, comprise both an offer and acceptance. Practice Note: Forming enforceable contracts—offer analyses the requirements for a legally binding offer, and considers what we mean by 'offer', how...

See the 61 Q&As about Liquidated damages

Singapore High Court declines to set aside award for breach of natural justice (DHZ v DHY)

Arbitration analysis: On 16 September 2024, the Singapore High Court rendered its judgment in DHZ v DHY, dismissing an application by DHZ to set aside various findings and orders in an award made by a sole arbitrator against it. In dismissing the application, Chua Lee Ming J emphasised that the threshold for setting aside for breach of natural justice is a high one, and that the applicant must establish not only that there was such a breach, but also that such breach occasioned prejudice to the rights of the applicant. Chua J further emphasised that applications for setting aside are not appeals of the merits of arbitral awards, and that awards will not be set aside merely on the basis of submissions that the tribunal was wrong. Written by Nathaniel Lai, independent advocate at Duxton Hill Chambers (Singapore Group Practice).

Arbitral award vitiated at its root by misreading/misunderstanding of the basic contractual framework (Trans Engineers India v Otsuka Chemicals)

Arbitration analysis: The case involved a challenge to a decision by an arbitral tribunal which had rendered a ‘nil’ award in a set of claims and counterclaims concerning an expansion of a plant at a project site in Rajasthan. The application for setting aside the arbitral award was granted and the court provided helpful guidance on the importance of reading/understanding the basic contractual framework between the parties to avoid an arbitral award being vulnerable to challenge. The decision signifies the importance of arbitrators to fundamentally understand the nature of the relationship/framework between the parties before engaging in the merits of the dispute. The judge referred to five decisions of the Supreme Court of India, including the recent decision of DMRC Ltd v Delhi Airport Metro Express, to re-iterate that an interference with an arbitral award is justified if the interpretation accorded to the contract is unreasonable and ignores the specific terms of the contract. Written by Muizz Drabu, associate at Stewarts.

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