Back أضرار ناجمة Arabic Liquidated damages German परिसमापन क्षति Hindi 違約金 Japanese 확정적 손해배상 Korean 違約金 Chinese
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Liquidated damages, also referred to as liquidated and ascertained damages (LADs),[1] are damages whose amount the parties designate during the formation of a contract[2] for the injured party to collect as compensation upon a specific breach (e.g., late performance).[3] This is most applicable where the damages are intangible.
An average of the likely costs which may be incurred in dealing with a breach may be used. Authority for the proposition that averaging is the appropriate approach may be taken from the case of English Hop Growers v Dering, 2 KB 174, CA (1928).[4]
When damages are not predetermined/assessed in advance, then the amount recoverable is said to be "at large" (to be agreed or determined by a court or tribunal in the event of breach).
The purpose of a liquidated damages clause is to increase certainty and avoid the legal costs of determining actual damages later if the contract is breached. Thus, they are most appropriate when (a) the parties can agree in advance on reasonable compensation for breach, but (b) the court would have a difficult time determining fair compensation at the time of breach. Under the common law, liquidated damages may not be set so high that they are penalty clauses rather than fair compensation.
- ^ Barker, C., Construction: Law: Liquidated Ascertained Damages (LADs), published 14 August 2018, accessed 15 May 2020.
- ^ Lehman, Jeffrey; Phelps, Shirelle (2005). West's Encyclopedia of American Law, Vol. 3 (2 ed.). Detroit: Thomson/Gale. p. 180. ISBN 9780787663674.
- ^ Lehman, Jeffrey; Phelps, Shirelle (2005). West's Encyclopedia of American Law, Vol. 7 (2 ed.). Detroit: Thomson/Gale. p. 58. ISBN 9780787663742.
- ^ Office of Fair Trading, "Calculating fair default charges in credit card contracts: A statement of the OFT's position", published April 2006, accessed 15 May 2020.