Penalties

Question 1

Why might parties want to have agreed damages?

Answer 1

• Enable the parties to envisage the financial consequences of a breach
• Save the injured party the difficulty and legal costs of proving the loss suffered
• Limit the breaching party’s liability to a known amount in the event of a breach

Question 2

When do agreed damages become penal?

Answer 2

If an award of certain remedy would give innocent party a benefit beyond legitimate interest in performance.

Question 3

What is the downside of agreed damages?

Answer 3

If there are unequal bargaining powers it can cause an unjust result. Purpose of damages is to compensate not punish, and this should not be sacrificed.

Question 4

Are penalties enforceable?

Answer 4

No

Question 5

Are agreed damages enforceable?

Answer 5

Yes

Question 6

What is the test for whether agreed damages are penal?

Answer 6

Honey Bees adopted ParkingEye test into NZ
1. Is there a legitimate interest in performance
2. Are the damages out of all proportion to the legitimate interest?