Contract

A clause providing for liquidated damages was enforceable if it did not exceed a genuine attempt to estimate in advance the loss which a claimant would be likely to suffer from a breach of the obligation in question. It was for the court to construe the clause to find out whether the payment stipulated was in truth a penalty or liquidated damages.

The authorities suggested various tests such as: if the sum stipulated for was for an extravagant and unconscionable amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach, it was likely to be a penalty. It was no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach were such as to make precise pre-estimation almost impossible.