问题：In relation to remedies for breach of contract, explain:
 
        (a) the difference between liquidated damages and penalty clauses;

　　答案：(a) Liquidated damages and penalty clauses

　　It is possible, and common in business contracts, for the parties to an agreement to make provisions for possible breach by stating in advance the amount of damages that will have to be paid in the event of any breach occurring. Damages under such a provision are known as liquidated damages. They will only be recognised by the court if they represent a genuine pre-estimate of loss, and are not intended to operate as a penalty against the party in breach. If the court considers the provision to be a penalty, it will not give it effect, but will award damages in the normal way.

　　In Dunlop v New Garage and Motor Co (1915), the plaintiffs supplied the defendants with tyres, under a contract designed to achieve resale price maintenance. The contract provided that the defendants had to pay Dunlop ?5 for every tyre they sold in breach of the resale price agreement. When the garage sold tyres at less than the agreed minimum price, they resisted Dunlop’s claim for ?5 per tyre, on the grounds that it represented a penalty clause. On the facts of the situation, the court decided that the provision was a genuine attempt to fi x damages, and was not a penalty. It was, therefore, enforceable.

　　In deciding the legality of such clauses, the courts will consider the effect, rather than the form, of the clause as is seen in Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd (1933). In that case, the contract expressly stated that damages for late payment would be paid by way of penalty at the rate of ?20 per week. In fact, the sum of ?20 was in no way excessive and represented a reasonable estimate of the likely loss. On that basis, the House of Lords enforced the clause in spite of its actual wording.

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