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2H. Liquidated Damages and Related Situations.docx
2H._Liquidated_Damages_and_Related_Situations.docx
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2H. Liquidated Damages and Related Situations.docx...
2H._Liquidated_Damages_and_Related_Situations.docx-Liquidated Damages and Penal Clauses A
2H. Liquidated Damages and Related ...
2H._Liquidated_Damages_and_Related_Situations.docx-Liquidated Damages and Penal Clauses A
Page 5
shall be terminated for any other reason whatsoever, then the hirer…
shall thereupon pay to the company all rentals accrued due and also by
way of liquidated or agreed damages a sum equal to 50% of the total of
the rentals which would thereafter have become payable.”
-
Using this clause, P claimed 283p as loss in profit
Issues
-
The extent of damages recoverable
Law
-
A six stage test is to be applied
o
What damages was the plaintiff likely to suffer on breach of the
contract at the time it was entered into (according to Hadley).
o
What damages are allowed to be awarded under this clause?
o
Is the amount under the damages clause disproportionate to the
damages likely to be suffered?
o
If so, why is it disproportionate (the presumption is that if it is
disproportionate it is a penalty clause)? If not, the clause will
apply.
o
If it is a penalty clause, the damages under the first step will apply
(as arising from the common law).
o
This will apply so long as the second stage of
Hadley
is not
superseded by an appropriately drafted clause that allows for
recovery of extraordinary damage (see below) (only applicable
when we follow Diplock’s stance)
-
The onus lies upon the contract-breaker to show the clause is a penalty
clause and that it is inapplicable
-
P may show that a breach in special circumstances would cause far
greater loss than that recoverable under the first stage of
Hadley
, and
therefore that the clause’s extravagance is in fact an accurate estimate of
how great that loss might be
-
Therefore, the second stage of
Hadley
can be superseded by an
appropriately drafted clause and allow recovery for extraordinary
damage
-
In other words, If the party offers that $x is recoverable, and the other
party accepts it, and $x is a reasonable estimate that is not excessive, then
that will not be a penalty. The party accepting the clause does not have to
know of the special circumstances. The rule in Hadley is inapplicable to
bar losses when it arises under a liquidated damages clause.
Applicaon/In-class discussion
-
The judges disagreed on point 1 of the 6 stage test
o
The fact that P had too many units and couldn’t hire to D was not
communicated, therefore there was no likely loss to result
(Denning’s stage)
o
However, D nevertheless agreed to accept those damages
(Diplock’s stance)
Conclusion
-
This is not a penalty clause, therefore the liquidated damages clause
applies
-
Judges differed in their outcome but their approach was the same
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