Penal damages
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Penal damagesareliquidated damageswhich exceed reasonablecompensatory damages,making them invalid undercommon law.While liquidated damage clauses set a pre-agreed value on the expected loss to one party if the other party were tobreachthe 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 judicialpaternalismin contract law. Even if two parties genuinely and without coercion wish to consent to a contract which includes a penal clause, they are unable to. In theUnited States,a 1947legal caserelating to the contracted supply ofdried eggsto theFederal Surplus Commodities Corporationto be supplied as aid toRussiain 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 theEnglish law rule against penalty clauses(as opposed to penal damages) was conducted by theUK Supreme Courtin the 2015 judgment inCavendish Square Holding BV v Talal El Makdessi.[4]
As distinguished from other types of damages
[edit]Penal damages are to be distinguished frompunitive damages,which are awarded in certain types oftortactions for actions which caused harm to the plaintiff. Penal damages are also different fromtreble damages,which are generally set bystatutefor certain violations ofcompetition lawand related laws.
See also
[edit]References
[edit]- ^Esanda Finance Corporation Ltd v Plessnig[1989] HCA 7,(1989) 166CLR131,High Court(Australia).
- ^Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd[1914] UKHL 1at [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 withParkingEye Ltd v Beavisfor the purposes of the Supreme Court judgment.
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