How Much Compensation For Breach Of Contract?

Let’s begin by discussing the classification of liquidated damages. There are two primary types: statutory and agreed liquidated damages. Statutory Liquidated Damages are those set forth by law, where the consequences and specific amounts of a breach are predefined. On the other hand, Agreed Liquidated Damages are the result of negotiations between parties, crafted to suit the particularities of their contract, with the cap being 30% according to contract law.

Furthermore, we distinguish between compensatory and punitive liquidated damages. Compensatory liquidated damages are designed to offset actual losses suffered due to a breach of contract. Punitive liquidated damages, however, serve to encourage the fulfillment of contractual obligations and do not necessarily require the presence of an actual loss.

It’s essential to grasp that the primary purpose of liquidated damages is to compensate for losses. The punitive aspect is secondary but still significant, especially when the agreed liquidated damages exceed the actual loss incurred.

Now, let’s move on to the application of liquidated damages. This clause is integrally linked to the contract’s validity. If the main contract is not established, effective, invalid, or revoked, then the clause on liquidated damages does not come into effect. It is important to note, though, that a right to claim liquidated damages can still exist even after a contract has been terminated, provided that the clause was included and agreed upon.

One might ask, are liquidated damages predicated on actual loss? Generally, yes, considering their primarily compensatory nature. However, due to their punitive element, actual loss is not an absolute requirement.

A question often arises in legal practice: Can the agreed liquidated damages in a contract be adjusted? The answer is nuanced. Adjustments are indeed possible but must be approached judiciously. Courts or arbitration institutions may increase or decrease the amount based on actual losses, the extent of contract performance, the degree of fault, and the principles of fairness and good faith.

In judicial practice, a figure that is often referenced for “excessively higher” liquidated damages is one that exceeds the actual loss by thirty percent. However, this is not a hard and fast rule. Courts will thoroughly evaluate the circumstances, including the breach’s consequences, contract performance, and the expected benefits.

Finally, can liquidated damages and compensation for losses be claimed simultaneously? The answer is typically no. Since liquidated damages serve as a pre-estimate of compensation, claiming additional losses would be redundant.