Under the Conventional Penalties Act 1962, penalty clauses are enforceable by law, but the court has the power to reduce compensation. Indeed, the court is required to compare the penalty with the actual loss or inconvenience suffered and to determine whether or not the penalty is disproportionate to the harm suffered. Therefore, you must ensure that the sanction indicated in the clause is not insolent. In addition, you can only claim a penalty or damages for the same act, but not both. The conditions under which one of the two parties loses the amount are defined in the provisions of the penalty clause of the provisional sales contract. The judges called the penalty clause rule an « ancestral building, arbitrarily constructed, which did not hold up well, » but decided that the rule should not be abolished. This is due to the fact that the rule is a « long-standing principle of English law » that « plays a useful role in protecting individuals from certain categories of repressive negotiations »; especially where the parties are « unequal. Bargaining power « and there is `a risk of oppression`. » The borrower is also sentenced to a penalty of 2% for any late payment calculated on the amount of a principal and accrued interest whose payment to the lender is long overdue under this loan agreement and for which the lender delivered USD 500 on the first day of each month and the borrower does not pay this amount on time. The borrower (after receiving default notification from the lender) is held liable to the lender for a fine of USD 10 (i.e.
USD 500 x 2%) and to remedy the default, the borrower must pay the lender the depending CREDIT of USD 500, interest on depending loan assets and a penalty of USD 10. The Court held that the first clause was a principal obligation and could therefore be applied. The second clause was considered to be an ancillary obligation, since it depended on the fulfilment of the main obligations contained in the agreement. A whole law has been developed to deal with punitive clauses, so you have to be careful when creating such clauses and including them in your contracts. They should avoid considering penalty clauses separately, as other clauses in a contract relating to breach, damages, limitation of liability and termination are all relevant and interdependent. Are you about to sign a provisional sales contract and do you have any doubts? Problems with punitive clauses often arise when the agreement is concluded by persons with insufficient knowledge, who are therefore not in a position to assess the legal consequences. This is a condition imposed on a party, which states that it is a condition that the party fulfills the condition, because it is an essential condition of the contract that it be included in the agreement. . .