Contracting parties who are concerned about their inability to predict the remedies that might be available in the event of the other party’s
breach of contract often attempt to stipulate the nature of those remedies within their contractual arrangements. Indeed, parties enjoying a strong hand in the negotiations may wish to strengthen the other party’s incentives for performance by stipulating the remedies for breach in a rather aggressive manner. As we have seen,202it is commonplace for parties to specifically provide in their agreement that, in the event of the other party’s breach of contract, that party will be obliged to pay damages in a specific amount or in accord with a particular formula. As we have also seen, courts have jealously guarded their ability to scrutinize such arrangements and will not enforce such clauses where they appear to have been inserted in the bargain by the stronger party with a view to imposing a severe penalty in the event of breach, thus increasing the pressure on the other party to perform. Such stipulated remedies clauses will be enforced only if they are considered to constitute a legitimate pre-estimate of damage. A distinction is thus drawn between "liquidated damages" clauses, that are enforceable, and "penalties," that are not. Here we consider the effect of an enforceable liquidated damages clause on the possibility of specific relief. If parties have negotiated and agreed to a clause stipulating that damages calculated in a particular fashion should be paid in the event of breach, it may be considered whether there is any room left by such an arrangement for the innocent party to seek redress in the form of an order of specific performance or an injunction. Here we also consider the treatment accorded contractual stipulations that provide for specific relief in some form. Typically, such clauses will acknowledge the unique value of the performance to be rendered by the promisor, concede that irreparable harm would be caused to the promisee by the promisor’s breach of contract and provide the promisor’s agreement that, in the event of breach, specific relief either in the form of a decree of specific performance or an injunction should be issued by a court.
The courts do not generally consider that the presence of an enforceable liquidated damages clause in an agreement constitutes an admission by the innocent party that damages are an adequate remedy. Accordingly, the...