The doctrine of penalties and the 'absurd paradox' - does it really matter in 2003?

Hamish Lal

May 2003

A paper based on the second prize entry in the Hudson Prize Competition
2002 presented to the Society of Construction Law in London on 6th
May 2003.

The author examines the view that the doctrine of penalties has no
application to a clause which provides for the payment of an agreed
sum on the happening
of a specified event rather than upon a breach of contract (the principle).
This is a potential source of trouble (since relief is available for
penalties but not otherwise) - particularly when the principle is applied
to the exercise of an option to terminate a contract conditional upon
a breach of contract or on the occurrence of a specified event where
prevention of that event appears to be the responsibility/risk of the
payer. The paper considers cases where the principle has been applied
(Part A) and the judicial treatment of liquidated damages, and the
courts reluctance to interfere with the parties' freedom of contract
(Part B).

Introduction A. Sum must be payable only on a breach - Lord Denning's
'absurd paradox' - Judicial support for Lord Denning - B. The judicial
treatment of liquidated damages - Conclusion.

The author: Dr Hamish Lal is a solicitor at Freshfields Bruckhaus Deringer
in London.

Text 14 pages.
PDF file size: 97k