Content
U-Turns Galore
Premises, Promises
Filing Bonus
RIP: 0% Rate
His and Hers
Party Spirit
State Of The Union
VAT's The Point?
Going Dutch
Away Win For Revenue
WIP-Round
The Best Land Plans
Tax Free Gizmos
Where Theres A Will
Do You Work Here?
Out Of The Shadows
Sacrifice Works
Home Sweet Office
Sauce For The Goose
Blissful Ignorance
PC Or Not PC?
Lost On Penalties
Worth The Paper
Carry The Can
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You draw up a contract which is crucial to your business. You make sure the other side knows how important it is. To emphasise the point, you put in a clause that says they will incur penalties if they don't deliver in accordance with the contract. They agree to this. Then they don't deliver. The nastiest shock is still to come - you can't enforce a penalty clause in a contract, even if the other party agreed to it. There is a difference in law between a "liquidated damages" clause, which tries to estimate how much it will actually cost you if the other party fails to meet the contract and sets an amount of compensation, and a penalty which is intended to punish them. You can claim under a damages clause, not under a penalty. So if you are going to put anything like that in a contract, you need to have some basis for the figures so you can show they are reasonable and in proportion to any losses you suffer. In a recent case, the Court of Appeal came to the rescue of some directors whose service contracts were terminated by their company. The High Court had held that a clause requiring the company to pay a year's salary - without taking any account of the possibility that the directors would find other work and so cut their losses - was a penalty clause, and could not be enforced. But the appeal judges thought that a penalty had to be obviously excessive - a year's pay might be too much, but it might not. It was a reasonable and proportional clause and it had been agreed between the parties, so it would stand. Remember - you can't punish people with penalties in contracts. They aren't enforceable. |
© Bayar Hughes & Co., 2010.