Thursday 30 July 2020

Difference between Liquidated and unliquidated damages

1) Contracts generally include a provision for the one party to pay liquidated damages (or liquidated and ascertained damages, ) to the other party in the event that the contract is breached. Liquidated damages are a pre-agreed amount of money that is set out in advance in the contract, that fixes the sum payable as damages if the one party breaches the contract - typically by failing to perform contract.

Unliquidated damages are damages that are payable for a breach, the exact amount of which has not been pre-agreed. The sum to be paid as compensation is said to be ‘at large’ and is determined after the breach occurs by a court.

2) One of the advantages of a liquidated damages is that there is no need to prove the actual loss since the clause provides a pre-estimation of the damages to be paid. In addition to helping recover damages, this helps to provide certainty to the parties.

The advantage of unliquidated damages is that it allows for recovery of losses which may have been impossible to foresee or to estimate with any certainty before the breach.

3) If the contract contains an liquidated damages clause, aggrieved party is generally not permitted to disregard and claim unliquidated damages instead.

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