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Editing Contracts/Liquidated damages
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Generally, at common law, a liquidated damages clause will not be enforced if its purpose is to punish the party in breach rather than to compensate the injured party<ref>{{cite BAILII |court=UKHL |year=1914 |num=1 |litigants=Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd |parallelcite=[1915] [[Appeal Cases Law Reports|AC]] 79}}.</ref><ref name="Amev-Udc">{{cite AustLII|HCA|63|1986|litigants=Amev-Udc Finance Ltd v Austin |parallelcite=(1986) 162 [[Commonwealth Law Reports|CLR]] 170 |courtname=auto |date=}}.</ref><ref name="Plessnig ">{{cite AustLII|HCA|7|1989|litigants=Esanda Finance Corp v Plessnig |parallelcite=(1989) 166 [[Commonwealth Law Reports|CLR]] 131 |courtname=auto |date=}}.</ref> (in which case it is referred to as a [[Contracts/Punitive damages|punitive or penalty clause]]).<ref name= "Liquidated damages, penalties and the Just Compensation rule: Some notes on an enforcement model and a theory of efficient breach" >{{Cite journal | title = Liquidated damages, penalties and the Just Compensation rule: Some notes on an enforcement model and a theory of efficient breach | journal = Columbia Law Review | volume = 77 | issue = 4 | pages = 554–594 |jstor = 1121823|last1 = Goetz|first1 = Charles J.| last2 = Scott | first2 = Robert E. | year = 1977 | doi = 10.2307/1121823 }}</ref> One reason for this is that the enforcement of the term would, in effect, require an equitable order of [[specific performance]]. However, courts sitting in [[Equity (law)|equity]] will seek to achieve a fair result and will not enforce a term that will lead to the [[unjust enrichment]] of the enforcing party.<ref>{{Citation | url = http://law.jrank.org/pages/8310/Liquidated-Damages.html | title = Liquidated Damages | journal = American Law Encyclopedia | volume = 6 | format = w | accessdate = 2009-04-07 }}</ref> | Generally, at common law, a liquidated damages clause will not be enforced if its purpose is to punish the party in breach rather than to compensate the injured party<ref>{{cite BAILII |court=UKHL |year=1914 |num=1 |litigants=Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd |parallelcite=[1915] [[Appeal Cases Law Reports|AC]] 79}}.</ref><ref name="Amev-Udc">{{cite AustLII|HCA|63|1986|litigants=Amev-Udc Finance Ltd v Austin |parallelcite=(1986) 162 [[Commonwealth Law Reports|CLR]] 170 |courtname=auto |date=}}.</ref><ref name="Plessnig ">{{cite AustLII|HCA|7|1989|litigants=Esanda Finance Corp v Plessnig |parallelcite=(1989) 166 [[Commonwealth Law Reports|CLR]] 131 |courtname=auto |date=}}.</ref> (in which case it is referred to as a [[Contracts/Punitive damages|punitive or penalty clause]]).<ref name= "Liquidated damages, penalties and the Just Compensation rule: Some notes on an enforcement model and a theory of efficient breach" >{{Cite journal | title = Liquidated damages, penalties and the Just Compensation rule: Some notes on an enforcement model and a theory of efficient breach | journal = Columbia Law Review | volume = 77 | issue = 4 | pages = 554–594 |jstor = 1121823|last1 = Goetz|first1 = Charles J.| last2 = Scott | first2 = Robert E. | year = 1977 | doi = 10.2307/1121823 }}</ref> One reason for this is that the enforcement of the term would, in effect, require an equitable order of [[specific performance]]. However, courts sitting in [[Equity (law)|equity]] will seek to achieve a fair result and will not enforce a term that will lead to the [[unjust enrichment]] of the enforcing party.<ref>{{Citation | url = http://law.jrank.org/pages/8310/Liquidated-Damages.html | title = Liquidated Damages | journal = American Law Encyclopedia | volume = 6 | format = w | accessdate = 2009-04-07 }}</ref> | ||
In order for a liquidated damages clause to be upheld, two conditions must be met. | In order for a [https://bibloteka.com/liquidated-damages-in-construction-contracts/ liquidated damages] clause to be upheld, two conditions must be met. | ||
* First, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term.<ref name= "Liquidated damages, penalties and the Just Compensation rule: Some notes on an enforcement model and a theory of efficient breach" /> | * First, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term.<ref name= "Liquidated damages, penalties and the Just Compensation rule: Some notes on an enforcement model and a theory of efficient breach" /> | ||
* Second, the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages. | * Second, the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages. |