Remedies 2 Flashcards
What is a liquidated damages clause?
A clause which stipulates a certain sum is to be payable on a particular breach of contract?
What are the advantages of having a liquidated damages clause?
Mitigates the uncertainty of damages
Makes it clear what is at stake if there is a failure to comply.
When will the court strike a liquidated damages clause out?
When it requires the party in breach to pay an excessive sum.
What is the skeleton test for whether a clause is a valid liquidated damages clause vs penalty clause?
1) Is the clause a primary or secondary obligation?
- Primary: Part of the primary commercial obligations of the contract
- Secondary: Obligation triggered by a breach of contract to compensate the innocent party
Valid if PRIMARY
2) Does the clause impose a detriment out of all proportion to any legitimate interest of the innocent party?
- Does it protect any legitimate business interests?
- Is the detriment imposed to protect that interest extravagant / exorbitant / unconscionable?
Where does the burden of proof lie if someone is claiming a clause is a penalty?
Person alleging that a clause is a penalty.
How do courts approach striking down a clause?
Not invoked lightly in a bargain of equal power
What did Makdessi show us about how courts will approach the second limb of the test?
A party can sometimes have a legitimate interest in enforcing performance which goes beyond simply being compensated for losses. Financially disproportionate clauses can be upheld.
When, if a clause is secondary, will it not be a penalty?
If it protects a legitimate business interest - e.g. £85 in Parking Eye to deter poor behaviour in a car park.
In what circumstance is a court very unlikely to strike a penalty down?
If contract has been commercially negotiated with lawyers.
What is a positive term in a contract?
One which requires a party to do something
What is a negative term in a contract?
One which requires a party not to do something.
What is an order of specific performance?
Requiring a defendant to carry out their positive obligations under a contract
Why is an order of specific performance better than a breach of contract claim?
Penalties are far more severe: breach of an order of SP is far more severe and can lead to jail
What is a prohibitory injunction?
Restraining a party from breaching a negative term
When will an order for SP / PI be granted?
Only when damages are NOT an appropriate and adequate remedy.
Subject matter of contract is unique / irreplaceable. E.g. sale / lease of land.
What type of remedy are SP / PI and what implications does this have?
Equitable - clean hands, no delay
When will SP not be enforced?
If it causes undue hardship on the defendant
It is a promise given for no consideration even if done in a deed.
Not awarded for breach of contracts of employment.
Or for services if there has been a breakdown of trust and confidence or if the court would have to consider subjective opinions.
If the court would have to constantly supervise
SP can’t be awarded if the contract is voidable at one party’s behest
When are PI’s likely to be granted?
Only where just and convenient - must be reasonable in light of the circumstances of the case.
Can a guarantee and an indemnity be given at the same time?
yes
What is a guarantee?
A promise by a party to ensure that another party carries out its obligations, or a promise to fulfil those obligations itself if that other party does not do so.
What is an indemnity?
A promise to reimburse someone in the event that they suffer a stated loss
What are the key differences of a guarantee vs an indemnity?
If a contract is set aside: indemnity remains, guarantee dissolves.
If a contract is varied: Guarantee dissolves, indemnity remains.
Guarantee must be in writing + signed by the guarantor - no need for an indemnity.
