Courts can award liquidated or unliquidated damages.

Courts can make awards of either liquidated or unliquidated damages. This essay will examine the different factors taken into account by the courts when making either type of award and assess whether the application of these factors leads to a fair outcome.

🚀 Introduction
Damages are the usual remedy for breach of contract. If the parties have not specified in the contract terms what the measure of damages will be in the event of breach (liquidated damages), the courts will assess and award unliquidated damages with the aim of restoring the parties to the position they would have been in if the contract had been performed.

🚀 Liquidated Damages vs. Penalties
Liquidated damages are specific sums agreed upon by the parties in advance in the contract as an estimate of the loss likely to be suffered in the event of breach. On the other hand, penalties are designed to punish the breaching party, rather than compensate the innocent party for their losses. The distinction between liquidated damages and penalties was clarified in the case of 🌟Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd🌟, where the court outlined that genuine pre💥estimates of loss are enforceable while penalties are not.

🚀 Courts Approach to Awarding Liquidated Damages
When deciding whether to award the predetermined sum as liquidated damages or make an unliquidated award, courts consider the genuineness of the pre💥estimate of loss and whether the sum is extravagant and unconscionable compared to the actual loss suffered. The recent Supreme Court cases of 🌟Cavendish Square Holding v Talal El Makdessi🌟 and 🌟Parking Eye Ltd v Beavis🌟 introduced a new test for determining whether the clause constitutes a penalty. The test requires assessing whether the remedy for breach is out of proportion to the innocent party's legitimate interest in enforcing the counterparty's obligations under the contract.

🚀 Factors Influencing Unliquidated Damages Awards
Courts consider various factors when making unliquidated damages awards. These include causation, remoteness, and mitigation. In 🌟County Limited v Girozentrale Securities🌟, the court emphasized the need for a clear causal link between the breach of contract and the loss suffered by the innocent party. In cases such as 🌟Hadley v Baxendale🌟, 🌟Victoria Laundry v Newman Industries🌟, and 🌟The Heron II🌟, the principle of remoteness sets limits on the types of losses that can be recovered, based on what was reasonably foreseeable at the time of contracting.

🚀 Mitigation and Unliquidated Damages
The principle of mitigation requires the innocent party to take reasonable steps to mitigate their loss following a breach of contract. Failure to mitigate may result in a reduction of the damages recoverable. Cases like 🌟Pilkington v Wood🌟 and 🌟Brace v Calder🌟 highlight the importance of mitigation in loss recovery.

🚀 Conclusion
In conclusion, courts consider various factors when making awards of either liquidated or unliquidated damages to ensure a fair outcome. The recent developments in the law, such as the new test for penalty clauses, provide a more flexible approach, enhancing fairness in the assessment and award of damages in breach of contract cases. By analyzing the limitations and considerations involved in both types of damages, the judicial system strives to uphold the principles of fairness and proportionality in contractual disputes.