Penal damages are

liquidated damages Liquidated damages, also referred to as liquidated and ascertained damages (LADs), are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late ...

which exceed reasonable

compensatory damages At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at ...

, making them invalid under

common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipresen ...

. While liquidated damage clauses set a pre-agreed value on the expected loss to one party if the other party were to

breach Breach, Breached, or The Breach may refer to: Places * Breach, Kent, United Kingdom * Breach, West Sussex, United Kingdom * ''The Breach'', Great South Bay in the State of New York People * Breach (DJ), an Electronic/House music act * Miroslava ...

the contract, penal damages go further and seek to penalise the breaching party beyond the reasonable losses from the breach. Many clauses which are found to be penal are expressed as liquidated damages clauses but have been seen by courts as excessive and thus invalid. The judicial approach to penal damages is conceptually important as it is one of the few examples of judicial

paternalism Paternalism is action that limits a person's or group's liberty or autonomy and is intended to promote their own good. Paternalism can also imply that the behavior is against or regardless of the will of a person, or also that the behavior expres ...

in contract law. Even if two parties genuinely and without coercion wish to consent to a contract which includes a penal clause, they are unable to. So, for example, a person wishing to give up smoking cannot contract with a third party to be fined $100 each time they smoke as this figure does not represent the expectation loss of the contract. A wholesale review of the English law rule against penalty clauses (as opposed to penal damages) was conducted by the UK Supreme Court in the 2015 judgment in ''

Cavendish Square Holding BV v Talal El Makdessi , together with its companion case ''ParkingEye Ltd v Beavis'', are English contract law cases concerning the validity of penalty clauses and (in relation to ''ParkingEye Ltd v Beavis'') the application of the Unfair Terms in Consumer Contracts ...

''., a case joined with ''ParkingEye Ltd v Beavis'' for the purposes of the Supreme Court judgment.

As distinguished from other types of damages

Penal damages are to be distinguished from

punitive damages Punitive damages, or exemplary damages, are damages assessed in order to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. ...

, which are awarded in certain types of

tort A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...

actions for actions which caused harm to the plaintiff. Penal damages are also different from

treble damages In United States law, treble damages is a term that indicates that a statute permits a court to triple the amount of the actual/compensatory damages to be awarded to a prevailing plaintiff. Treble damages are a multiple of, and not an addition t ...

, which are generally set by

statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by le ...

for certain violations of

competition law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust l ...

and related laws.

References

Contract law {{contract-law-stub

As distinguished from other types of damages

See also

References