Ringrow Pty Ltd V Bp Australia Case Analysis
The courts enforce a liquidated damages clause even if the final result of a case seem to be not fair for any of the parties. This is because of the set out they have agreed on in a contract. However, the courts will not enforce a bargain that leads to a penalty. The liability of proving that a clause is a penalty is dependent on the person trying to deny the liquidated damages application. Therefore, there are indicators and teste for a penalty in law. The test for penalty is known as the Dunlop test which was established in 1915 by Lord Dunedin. The test is to determine if stipulation in the contract is liquidated damages or a penalty. The indicators for the Dunlop test are where the liquidated damages are 'extravagant and unconscionable'
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The aspects are the connection or relationship between the contracting parties and the degree of imbalance between the loss suffered by plaintiff and the stipulated liquidated damages.
A good relevant case is Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 222 ALR 306. Ringeow and BP entered an agreement in 2005 to purchase a service station. The agreement required Ringrow to purchase fuel only from BP and allowed BP to buy the service station in case of reach of the agreement. After some time Ringrow decided to buy fuel from another supplier therefore, BP tried to use their option of the agreement. Thus, Ringrow claimed that BPs action was a penalty and therefore enforceable and void.
As a result, the court held that liquidated damages can be valid except if the amount was ‘out of proportion’ with the loss suffered. Also, the court decided that there must be an extravagant or unconscionable difference between the general damages and liquidated damages. The court decided there must be an extravagant or unconscionable alteration between the general damages and the liquidated damages. The difference would have been in the agreement to be paid on breach therefore to make a degree of disproportion that points to oppressiveness amounting to a penalty. The argument that was to terminate the contract for minor breaches was denied and did not reach the penalty
The aspects are the connection or relationship between the contracting parties and the degree of imbalance between the loss suffered by plaintiff and the stipulated liquidated damages.
A good relevant case is Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 222 ALR 306. Ringeow and BP entered an agreement in 2005 to purchase a service station. The agreement required Ringrow to purchase fuel only from BP and allowed BP to buy the service station in case of reach of the agreement. After some time Ringrow decided to buy fuel from another supplier therefore, BP tried to use their option of the agreement. Thus, Ringrow claimed that BPs action was a penalty and therefore enforceable and void.
As a result, the court held that liquidated damages can be valid except if the amount was ‘out of proportion’ with the loss suffered. Also, the court decided that there must be an extravagant or unconscionable difference between the general damages and liquidated damages. The court decided there must be an extravagant or unconscionable alteration between the general damages and the liquidated damages. The difference would have been in the agreement to be paid on breach therefore to make a degree of disproportion that points to oppressiveness amounting to a penalty. The argument that was to terminate the contract for minor breaches was denied and did not reach the penalty