This precedent has been authored by Dr. Gordon Hughes, Principal, Davies Collison Cave Law.

Introductory note

Liquidated damages represent a pre-estimate of loss likely to be suffered by one party if a specified breach is caused by the other. The arrangement has the advantage of avoiding expensive and time-consuming negotiation over damages incurred by a party once the breach has occurred.

Care must be taken in stipulating the liquidated damages amount. If the figure is set too low, the plaintiff may not be adequately compensated for their loss, if the figure is set too high, there is a risk that the clause will be ruled unenforceable on the grounds that it constitutes a “penalty”. (See Andrews v Australia and New Zealand Banking Group Ltd (2012) 86 ALJR 1002; [2012] HCA 30; BC201206622; Paciocco v Australia and New Zealand Banking Group Ltd (2016) 90 ALJR 835; [2016] HCA 28; BC201606134.)

It is important to clarify whether, in the event a party claims liquidated damages, it retains the right to pursue further damages before the courts if its actual losses are higher, or whether, in the interests of certainty, the plaintiff is denied the right to take further action over and above recovery of the stipulated liquidated damages amount.