How Extravagant Are Your Liquidated Damages?

Liquidated damages are a powerful tool to both encourage contractual compliance and to provide financial protection to a party where the other party breaches the contract. In the recent case of GT Corporation Pty Ltd v Amare Safety Pty Ltd (No 2) [2008] VSC 223, one of the parties was able to enforce a generous liquidated penalties clause. The Court considered that even where a liquidated damages clause may appear extravagant, it can still be relied upon where it constitutes a genuine pre-estimate of loss.

Background

Amare Safety Pty Ltd (Amare) is a Melbourne based company which sells and distributes personal protective equipment. While Amare's sole Managing Director, Mr Geoff Pizzey, was on an overseas holiday, his then General Manager, Mr Ron Williams, entered into an agency agreement (agreement) with GT Corporation Ltd (GT) for the sale and distribution of personal protective equipment.