Penal damages
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Penalty clause
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Penal damages are
compensatory damages, making them invalid under common law. While liquidated damage clauses set a pre-agreed value on the expected loss to one party if the other party were to breach the contract, penal damages go further and seek to penalise the breaching party beyond the reasonable losses from the breach.[1] Many clauses which are found to be penal (i.e. "penalty clauses") are expressed as liquidated damages clauses but have been seen by courts as excessive and thus invalid.[2]
The judicial approach to penal damages is conceptually important as it is one of the few examples of judicial
dried eggs to the Federal Surplus Commodities Corporation to be supplied as aid to Russia in 1942 (Priebe & Sons, Inc. v. United States) held that a provision in the contract for liquidated damages to be paid for late inspection and certification of the product constituted an unenforceable penalty clause.[3]
A wholesale review of the
UK Supreme Court in the 2015 judgment in Cavendish Square Holding BV v Talal El Makdessi.[4]
As distinguished from other types of damages
Penal damages are to be distinguished from punitive damages, which are awarded in certain types of tort actions for actions which caused harm to the plaintiff. Penal damages are also different from treble damages, which are generally set by statute for certain violations of competition law and related laws.
See also
References
- ^ Esanda Finance Corporation Ltd v Plessnig [1989] HCA 7, (1989) 166 CLR 131, High Court (Australia).
- ^ Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1 at [4], House of Lords (UK).
- US Supreme Court, Priebe & Sons., Inc. v. United States, 332 U.S. 407 (1947), decided 17 November 1947, accessed 6 April 2023
- ^ Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67, Supreme Court (UK), a case joined with ParkingEye Ltd v Beavis for the purposes of the Supreme Court judgment.
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