A key benefit of a liquidated damages regime is that it gives
both parties certainty about what happens if a contractual
obligation is not met, such as failing to deliver goods by a
certain date. However, it is often this contractual certainty that
is challenged when it is time to pay damages.
There are some common challenges to a liquidated damages regime
and key steps you can take to ensure your regime is
enforceable.
Penalties
There has been a question mark over the enforceability of many
commonly used contractual performance incentives since the High
Court's decision in Andrews v Australia and New Zealand
Banking Group Limited (Andrews).
Despite the uncertainty created by the Andrews
decision, it appears that one principle remains clear-if the amount
of the liquidated damages is a genuine pre-estimate of loss it will
not be penal and, therefore, will be enforceable.
