Contract 10 Liquidated Damages, Penalties, Specific Performance and Inju

Liquidated Damages Clause

Stipulates a certain sum which is to be payable on a particular breach of contract

Penalty Clause

Requires a party in breach to pay an excessive sum and therefore the clause will not be upheld

Specific Performance

Used by a the court to require the defendant to carry out its obligations under a positive term of the contract

Prohibitory Injunction

Used by the court to restrain the defendant from breaching a negative term

When will the court intervene on a liquidated damages clause?

When it is a penalty clause

Cavendish v El Makdessi Test for Type of Clause

A. Clause is primary if it is part of the primary obligations in the commercial context of the contract B. Clause is secondary if it is an obligation triggered by a breach of contract to compensate the innocent party

Cavendish v El Makdessi Test for Penalty Clause

A. What legitimate business interest is served and protected by the clause? B. Is the detriment imposed to protect the interest extravagant, exorbitant or unconscionable?

ParkingEye Limited v Beavis

Illustrates definition of penalty clause more clearly

Specific Performance and Prohibitory Injunctions

Equitable remedies at the discretion of the court - not a right of the claimant

Adderly v Dixon

Specific Performance or Prohibitory Injunction will not be granted if damages are an appropriate and adequate remedy

Coatworth v Johnson

"He who comes to equity must come with clean hands"

Eads v Williams

An action must be brought with reasonable promptness as "delay defeats equities"

Patel v Ali

Specific performance will not be awarded where it would cause undue hardship on the defendant

CH Giles & Co v Morris

Specific Performance will not be awarded for breach of employment contracts, or for service contracts where there is a breakdown or trust and confidence or where the court would need to consider subjective opinions regarding performance

Co-Operative Insurance v Argyll Stores

Specific Performance will not be awarded for breach of an obligation to perform a series of acts which would need constant supervision of the court

Specific Performance where contract is not binding on both parties

Will not be granted ie minors' voidable contracts

S 37 Senior Courts Act 1981

Prohibitory Injunctions are only granted where just and convenient

William Robinson v Heuer

Court can restrict prohibitory injunctions to give adequate rather than excessive unfair protection

Sky Petroleum v VIP Petroleum

Court will look at the substance of the proposed remedy when deciding whether it would amount to an injunction or specific performance, not the wording of the injunction

Guarantee

A promise by a party to ensure that another party carries out its obligations, or a promise to fulfill those obligations itself if that other party does not do so

Indemnity

A promise to reimburse someone in the event that they suffer a stated loss

Elements to a Guarantee

If A's obligation ceases, C's obligation also ceases/ if there is a change to the contract between A&B, the guarantee will almost always be discharged/ A guarantee must be in writing and signed by the guarantor

Elements of an Indemnity

If A's obligation ceases, C's obligation remains in place/ If there is a change to the contract between A and B, the indemnity will remain/ Can arise in a two-party context