Liquidated damages, or "LDs" clauses have long been a feature of construction contracts. They provide for a pre-determined sum to be paid by way of compensation in the event of a breach of a stipulated contract term. LDs have been recognised as commercially desirable by the courts, always providing that they do not fall foul of the law on penalties. Now, for the first time in a century, the Supreme Court has considered the "penalty rule”. Commenting that the rule is “an ancient, haphazardly constructed edifice which has not weathered well”, the Supreme Court handed down its judgment in relation to two conjoined appeals that turned on the penalty rule.
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