Legal Perspective on Treatment of Delay Liquidated Damages and Penalty Clauses by Different Jurisdictions: Comparative Analysis

Abstract

The treatment of liquidated damages (LD) and penalty clauses depends on the applicable laws under which the contract is construed. Although many attempts have been contemplated to unify the enforceability standards of LD and penalty provisions, the discrepancies in the principles adopted under different jurisdictions rendered such an aim far from being reached. As such, this paper studies the enforceability of LD and penalty clauses under three jurisdictions: common law, civil law, and Islamic law. The authors reviewed the decision structure under these different jurisdictions, explored the principles governing the enforceability of LD, and compared the jurisdictions’ principles upon which the enforceability of LD and penalty clauses is decided. The findings indicated that many differences exist among these jurisdictions on various levels, including enforceability of these clauses, eligibility to make changes in the predetermined sum, burden of proof, and characteristics pertaining to the liquidated amount. The contribution of this research lies in enhancing the understanding of the considerations governing the levying of LD from a legal point of view rather than from a contractual perspective.