Corporation and Contract Law

This article discusses the concept of liquidated damages and penalty clauses in contract law. It explains the difference between the two and explores their enforceability. The article also provides examples and case studies to illustrate the application of these concepts. Overall, it provides a comprehensive understanding of the topic.

Running head: QUESTION 0
CORPORATION AND CONTRACT LAW
MAY 23, 2019
STUDENT DETAILS:

QUESTION 1
The contract contains the offer, acceptance, consideration and legal intention. At the time
when the valid contracts are conducted, in that case it is required by the contractual persons
to comply with a contract. One of the terms, which is usually constructed part of a contract, is
an expression of probable damage and remedy. They are also known as the liquidated
damages or else pre-determined amounts, which are required to made a payment by
defaulting contracting person to aggrieved person within the matter related to the violation of
contract. The damages refer to the financial claims through, or ordered to made payment to
the people as the compensation for the injuries or losses occurred by them. The damage is
referred at the time of the violation of a contract. For an example, when one contracting
person does not succeed to perform the contract’s terms t to which that person is compelled,
in this case that contracting person has to render the compensation to other contracting person
who got the losses. The major objective of the compensation is to reinstate the post of the
offended contracting person to the financial condition this will have been in a case when the
contract was not violated (Bell & Manly 2016, p. 2012).
The liquidated damages are considered as the amount contractually predetermined as the
proper assessment of the actual damage to be improved by one contracting person in a case
when the other contracting person violates the contract. Previous to taking entry in the
contract, the contracting person specify a sum of money that is required to be provided by a
person who has violated a contract towards other contracting person who has aggrieved and
this sum of money is considered as the liquidated damages. In the addition of this, the penalty
clause is contractual terms that are required to implement the duty to make payment of the
sum of money in an event while any contracting person violate the terms of contract. A
penalty amounts normally exceed the damage amounts, which can be persistent through the
contracting person. Because of this reason, in various areas, the penalty clause is not

QUESTION 2
enforceable because of the public policy as if this is enforced then contracting persons may
profit from a violation of contract by other contracting person.
In other terms, the pre contractual remedies are considered as amount, which are openly
determined through contracting persons before the construction of the contract. In this way,
these damages may entitle by a contracting person to a contract in occurrence of violation of
a contract, such as they are clearly determined through contractual persons. In this way, the
courts should honour these clauses, as they are completed part of the individual document
and wherever clauses are constructed part of a contract through related purpose. It was
required by the court to make the payment of liquidated damages even while these damages
are strict on one contracting person as they were determined jointly by the both the persons.
Additionally, in a contract, the penalty is utilised to protect the contract’s performance whose
major claim is to make sure the payment that is précised to discourage a contracting person
from getting wrong. As well where the loss to be recovered is more than pre-determined
losses, in that case it amounts to the penalties. While the liquidated damages are
compensatory in nature and are pre-estimated damages, an objective of the liquidated
damages is to encourage particularly in the business area. As a result, a main query is that
wherever people have pre-determined the due amounts as damage in occurrence of the
violation of contract, the damages must be due as the contractual rights. Moreover, a reply is
not at all (Seiler 2017, pp. 204-230).
In the contract law, the people who made contract give consent in advance the damage
amounts, which must be paid in a case when the specific contractual obligations are afterward
violated, for an example the liquidated damage clause. Wherever liquidated damage clause is
in operations, contractual obligations, which have been violated is considered as the key duty,
and the payment compulsion in liquidated damage clause is regarded as a secondary

QUESTION 3
compulsion. However, Contract law does not identify enforceability of penalty clauses, for an
example the disadvantages imposed by the related provision is excessively extreme in
comparison the legal interest of a blameless contracting person in putting into effect these
provisions (Welmans & Naughton 2019, p. 157).
Also, at the time of dealing with a authority of the condition of liquidated damages, the court
proceeds over potential or ex-ante or initially appear method and, in a case when the court
has view that a compensation is pre-determined at a time of contract is the real pre-estimate
of damages that can occur in respect of the violation, the court would provide the decided
amounts and would not decrease the similar still if the exposition or ex-post or subsequent
look considered after a violation discloses that the damages amounts initially pre-determined
through the contracting persons at a period of the contract is high in comparison of what the
proof has discovered at the examination. Only while it is considered by a court that an
amount initially fixed is completely uneven to the damages occurred and is through a manner
of penalties, a court would provide proper damages as disclosed at the time of assessment.
Further in 2012, in case of Andrews v Australia and New Zealand Banking Group Pty Ltd
[2012][2], the judgement given by High court of Australia that has determined a condition
where liquidated damage that is usually entitled by contracting person as the right may not be
held enforceable majorly while they are considered as penalty. Therefore, a question arises as
to while liquidated damage is regarded as penalty to create them non-applicable in laws (Yip
& Goh 2017, pp. 61-68)
It can say that when the liquidated damages that are jointly determined by the contracting
persons at a period of creation of a contract are considered to be ' unconscionable as well as
extravagant' while comparison makes between what was expected by the parties and these
liquidated damages are required to be regarded as penalties. In matter of Dunlop Pneumatic

QUESTION 4
Tyre Co Ltd v New Garage and Motor Co Ltd [1915][3], it was held by the court that when
damages of severe nature in contrasting of small damages, in that case these are not
considered as the liquidated. Somewhat, the similar should be cover into the category of
penalties that may not be asked by contracting person as per subject of rights. In the addition,
in recent times, it is acknowledged by the court that in some situations, there can be the
commercial justifications for these provisions even where an amount to be paid seems penal
(Thomas 2016, p. 37). In the famous matter of Cavendish Square Holding BV v Makdessi,
the Supreme Court said that it is essential to consider the penalty rules. The same facts were
established in the milestone case ParkingEye Ltd v Beavis (Consumers’ Association
intervening). An actual assessment to decide the penalty clause is whether the provisions go
beyond the legal interest of related party. It is stated by the court that a question of whether
this is enforceable must based on whether the sources through which actions of contracting
person is to be impacted are not conscionable. It is also stated by the court that the actual
examination is whether the impugned provisions are the secondary compulsion that
implements the disadvantage over contract-violator beyond the proportion to the legal
interests of a blameless contracting person in an enforcement of first compulsion. A
blameless contracting person may have no appropriate interest in merely giving the
punishment to a person who made default. Examples of legal interest, which the owner of
brand may desire to secure, are intangible such as image of brands, secret data, and secret
related to business, customer’s faithfulness, goodwill and worker and licensee relations
(Singh 2016, p. 61).
In this way, a contract in the case Cavendish Square Holding BV v Makdessi was the big
business selling transactions amid complicated and well-suggested corporations. It is sated by
the Supreme Court that wherever the contract is bargained among appropriately advised
contracting persons of equivalent negotiating powers there is the tough presumption that

QUESTION 5
contracting persons are the best judges of what must be in a contract and a court must not
obstruct (Giancaspro 2017, pp. 825-835)
The same facts have been mentioned in a famous case of Ringrow Pty Ltd v BP Australia
Pty Ltd (2005)[4].There are two important factors, which are required to be taken into
consideration in creating the liquidated damages in the penalty. These two significant factors
include the degree of differences, which presented between the damage that is pre-determined
through people and the damages, which are really writhed by aggrieved contracting person
(Bryan et. al, 2017, pp. 500-518). For the consideration of the relationship, which is shared
between the contracting persons, which is, existence of negotiating the power of contracting
persons, while pre-determined damages were forecasted through contracting persons?
Additionally, in a popular case of Ringrow Pty Ltd v BP Australia Pty Ltd (2005)[4], this
was stated by a court that the contractual relations to buy the service’s station. In this case, it
is required by the Ringrow Pty Ltd to purchase the fuel by BP Australia Pty Ltd entirely
(Marsh 2017, pp. 65-70). Therefore, it would permit the BP Australia Pty Ltd to purchase
again a service’s station in a case where the contract is violated (according to the collateral
contract). It can say that the contractual violation as per a role of Ringrow Pty Ltd as this
purchased and on-sold fuel from some other dealer. Due to this action of Ringrow Pty Ltd,
BP Australia Pty Ltd took actions in opposition to Ringrow Pty Ltd. The Ringrow Pty Ltd
also submitted that the pre-determined damage which is constructed part of contract must not
be prescribed like the case of rights because it is in a practice of penalty and therefore is not
enforceable according to the nature (Atkins et. al, 2017). The court made a decision that pre-
determined damages, which are determined through the contracting persons are always
enforceable except and until damages are out of part taking facts and situations into
consideration and the loss suffered by a aggrieved person. In a case where the real damages

QUESTION 6
are excessive, in that case this extent to the penalties and is not applicable. A responsibility to
prove that it is required to consider the liquidated damages as the penalty rests on contracting
person who is rejecting the liquidated damages (Shiffrin 2015, p.407).
Moreover, in a case where the pre-determined damages are decided through the contracting
person state the sincerely on the part of them, in that case the clauses are not required to be
consider as enforceable. These facts have been mentioned in a milestone matter of Esanda
Finance Corporation v Plessnig (1989)[6]. Additionally, in a matter of Andrews v Australia
and New Zealand Banking Group Pty Ltd, it was held by the high court that in a case where
the pre-determined damage causes is regarded to be enforceable only in a case where they
don’t cover in types of penalties. Due to a reason the actual damages are hard to show and
establish or difficult would not create them penalty in a nature. Actual damage bears should
be overgenerous out of a part to create them penalty and creating them not enforceable in
rules, regulations and laws. In this way, if the liquidated damages are found to be out of
amount they are penal in nature. In this way, may not be entitled the subject of rights. Hence,
it is also not enforceable in a law’s court and similar may be challenged through the people
who are affected. It is possible to measure liquidated damages as the cap over common
damage while clauses are particularly established as the only remedies for a contract’s
violation (Schwartz & Scott 2016, p 1523).
Moreover, it is also stated by the court that the rules against penalty are concerned only with
the secondary obligations to make the payment of damages as the remedies for violation of
the fundamental primary duty, and is not related to the first compulsion itself. It means that
an implementation of rule related to penalty rule can base on how the appropriate obligations
are made in the instruments. In this way, wherever the contract covers the obligations over
one contracting person to execute the function, and renders that, in a case of non-performance
of contract, then it will require to make the payment to others the particular sum of money,

QUESTION 7
the duty to make payment of the particular sum is the secondary compulsion that is able of
being the penalty; however in a case when the contract does not expressly or impliedly
implement the obligations to execute the action, however basically renders that, if one
contraction person does not make execution, it is required to make the payment to the other
contracting person particular sum, the obligations to make payment of the particular sum is
the provisional primary compulsion and may not be a penalty (Gerstenberg 2015, pp. 599-
621).
In this way, the contract law still does not maintain the penalty clause enforceable. Liquidated
damages clause, which is penal in nature, is necessarily required to term as the secondary
compulsion that only runs once the primary compulsion has violated. The liquidated
Damages clause is normally maintain through court, providing it does not comprise the
penalties (Meng & Fook 2016, pp. 3509-3513). This at the present completely depends on
how contracting persons draft the clauses to ease the negative consequences, which may
occur from accommodating the projected liquidated damages amounts as a court is presently
set to recognise the wide legal interest of a blameless contracting person in implementing
impugned clauses than simply requirement for financial reimbursement for losses. Wherever
legal interest is recognised, court may sustain enforceability of impugned clause, still the
stipulated amounts are in absence of these consequences a court will have considered clause
as the penalty clause and so unenforceable. In this way, this is not fair in making submission
that “Wherever the contracting persons have pre-determined payable amounts as the damage
into an event of the contract’s violation, the damage amounts must be due as the contractual
right. The statements are not correct in a case where the pre-determined damage is excessive
by way of the formerly are penal as per the nature and is not applicable in the law (Pargendler
2018, p. 143).

QUESTION 8

QUESTION 9
References
Atkins, K., De Lacey, S., Britton, B. & Ripperger, R. 2017. Ethics and law for Australian
nurses, Cambridge University Press, Cambridge.
Bell, M. & Manly, Q.C. 2016, ‘Liquidated Damages and the Doctrine of Penalities:
Rethinking the War on Terrorem’. ICLR, vol. 386, p. 2012.
Bryan, D., Rafferty, M., Toner, P. & Wright, S. 2017, ‘Financialisation and labour in the
Australian commercial construction industry’. The Economic and Labour Relations
Review, vol. 28, no. 1, pp. 500-518.
Gerstenberg, O. 2015, ‘Constitutional reasoning in private law: the role of the CJEU in
adjudicating unfair terms in consumer contracts’. European Law Journal, vol. 21, no. 5,
pp.599-621.
Giancaspro, M. 2017, Is a ‘smart contract’really a smart idea? Insights from a legal
perspective. Computer law & security review, vol. 33, no. 6, pp. 825-835.
Marsh, P. 2017, ‘Contract law’. In Contracting for Project Management, vol. 25, no. 2, pp.
65-80
Meng, T.P. & Fook, O.S. 2016, ‘Recovery of Liquidated Damages in Malaysia-Legal Pitfalls
and the Way Forward’. International Business Management, vol. 10, no. 16, pp.3509-3513.
Pargendler, M. 2018, ‘The Role of the State in Contract Law: The Common-Civil Law
Divide’. Yale J. Int'l L., vol. 43, p.143.
Schwartz, A. & Scott, R.E. 2016, ‘The Common Law of Contract and the Default Rule
Project’. Va. L. Rev., vol. 102, p.1523.

QUESTION 10
Seiler, M.J. 2017, ‘Do liquidated damages clauses affect strategic mortgage default morality?
A test of the disjunctive thesis’. Real Estate Economics, vol. 45, no. 1, pp. 204-230.
Shiffrin, S.V. 2015, ‘Remedial Clauses: The Overprivatization of Private Law’. Hastings
LJ, vol. 67, p. 407.
Singh, A. 2016,’Contract law: Text and cases [Book Review]’. Ethos: Official Publication of
the Law Society of the Australian Capital Territory, no. 242, p.61.
Thomas, D. 2016, ‘Penalties and Liquidated Damages in English Law: A Centenary Review
by the Supreme Court. Const’. L. Int'l, vol, 11, p.37.
Welmans, L. & Naughton, J. 2019, ‘The Interest Based Penalty Tests in Paciocco and
Cavendish/Parkingeye and the Law of Penalties and Damages in Australia and the United
Kingdom’. UW Austl. L. Rev., vol. 44, p.157.
Yip, M. & Goh, Y. 2017, ‘Convergence between Australian common law and English
common law: The rule against penalties in the age of freedom of contract’. Common Law
World Review, vol. 46, no. 1, pp. 61-68.