Chitty- Penalties
Page1
Chitty on Contracts 30th Ed.
Volume 1 - General Principles
Part 8 - Remedies for Breach of Contract
Chapter 26 - Damages1
Section 7 - Penalty or Liquidated Damages650
Damages Fixed By the Parties
26-125
Where the parties to a contract agree that, in the event of a breach, the contract-breaker shall pay to the other a specified sum of money, the sum fixed may be classified by the courts either as a penalty (which is irrecoverable) or as liquidated damages (which are recoverable).651 The clause is enforceable if it does not exceed a genuine attempt to estimate in advance the loss which the claimant would be likely to suffer from a breach of the obligation in question652: it is enforceable irrespective of the loss actually suffered. The purpose653 of the parties in fixing a sum is to facilitate recovery of damages without the difficulty and expense of proving actual damage654; or to avoid the risk of under-compensation, where the rules on remoteness of damage might not cover consequential, indirect or idiosyncratic loss655; or to give the promisee an assurance that he may safely rely on the fulfilment of the promise.656 Often the parties to a contract fix a sum as liquidated damages in the event of one specific breach, and leave the claimant to sue for unliquidated damages in the ordinary way if other types of breach occur.657 Where there is provision for liquidated damages, the claimant may nevertheless, in appropriate cases, elect to ask for an injunction instead of enforcing the liquidated damages.658
Reluctance to Find Clause Penal
26-126
The Privy Council659 has cited with approval660 the view of Dickson J. in the Supreme Court of
Canada that:
“ … the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression.”661
Therefore,
Chitty on Contracts 30th Ed.
Volume 1 - General Principles
Part 8 - Remedies for Breach of Contract
Chapter 26 - Damages1
Section 7 - Penalty or Liquidated Damages650
Damages Fixed By the Parties
26-125
Where the parties to a contract agree that, in the event of a breach, the contract-breaker shall pay to the other a specified sum of money, the sum fixed may be classified by the courts either as a penalty (which is irrecoverable) or as liquidated damages (which are recoverable).651 The clause is enforceable if it does not exceed a genuine attempt to estimate in advance the loss which the claimant would be likely to suffer from a breach of the obligation in question652: it is enforceable irrespective of the loss actually suffered. The purpose653 of the parties in fixing a sum is to facilitate recovery of damages without the difficulty and expense of proving actual damage654; or to avoid the risk of under-compensation, where the rules on remoteness of damage might not cover consequential, indirect or idiosyncratic loss655; or to give the promisee an assurance that he may safely rely on the fulfilment of the promise.656 Often the parties to a contract fix a sum as liquidated damages in the event of one specific breach, and leave the claimant to sue for unliquidated damages in the ordinary way if other types of breach occur.657 Where there is provision for liquidated damages, the claimant may nevertheless, in appropriate cases, elect to ask for an injunction instead of enforcing the liquidated damages.658
Reluctance to Find Clause Penal
26-126
The Privy Council659 has cited with approval660 the view of Dickson J. in the Supreme Court of
Canada that:
“ … the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression.”661
Therefore,