Judicial Oversight of Remedy Stipulation

AuthorJamie Cassels
1) Remedy Stipulation and Liquidated Damages
It is not uncommon, in both tort and contract cases, to f‌ind that the
parties have sought in advance to specify an amount of damages for
breach of duty. Exclusion clauses and limitation clause s contained in
written agreements a nd in posted notices frequently seek to limit both
liability and the amount of damages that may be claimed for tort or
breach of contract. These clauses are i nserted for the benef‌it of the
breaching party. Conversely, contracts sometimes contain “liquidated
damages” provisions th at specify a f‌ixed amount of damages for breach
and are generally included for the benef‌it of the plaintif f. Other clauses,
such as “acceleration clauses” and clauses prov iding for forfeitures of
deposits, also ser ve to stipulate the remedy. The essential question in
any case is whether or not the courts w ill enforce the stipulated rem-
edy at the suit of the plaintiff upon breach. E xclusion clauses are con-
trolled by the substantive law of contract rega rding notice of terms and
unconscionability. As such, they will not be dealt with here. Instead,
this chapter is concerned with stipulated damages provi sions, gener-
ally called “liquidated dam ages.”
Judicial Over sight of Remedy Stipulation 521
2) The Advantages and Disadvantages of Stipulated
There are many advantages to perm itting parties to stipulate t he dam-
ages upon breach of contract. In situations where damages will be dif-
f‌icult to prove, they provide a form of insurance to the part ies that in
the event of breach their losses w ill be fully recompensed. They reduce
“judicial risk,” reduce the diff‌iculty and cost of provi ng damages, and
achieve savings for both the par ties and the judicial system. The prin-
ciple of freedom of contract weighs in favour of permitting a w ide scope
for liquidated damages clause s. The parties know best what is at stake
in the trans action and how to arrange their affairs. Each enters into
the agreement with her eyes open, k nowing what the consequence of
breach will be.
Despite these arguments in favour of stipulated damages, there
are competing principles at play, including the law’s desire to protect
weaker parties a nd its dislike of pena lties and punitive dam ages. These
considerations suggest that courts should police stipulated damages
clauses caref ully. Stipulated damages provisions will often appe ar to
be punitive or coercive. The law of contract rarely permits punitive
damages or specif‌ic per formance, and the question is whether the par-
ties should be permitted to agree between themselves to a result that a
court would not consider appropriate. Moreover, such clauses may be
an indication of overbearing by one party and thus raise t he issue of
1) Basic Concepts
The most common way of stipulating a remedy is to include in a con-
tract a clause requir ing that a f‌ixed sum be payable for breach. Histor-
ically, such provisions, aimed at securing per formance of a contract,
took the form of penal bonds and pena l clauses.1 Penal bonds were
instruments under which one party promised to pay the other a sum
of money. The bond would be void only if the promisee performed a cer-
tain act. Penal clause s were included in the contractual instru ment itself.
Courts of equity, however, provided relief against bonds and forfeitures,
1 SM Waddam s, The Law of Damages, 2d ed, loose-leaf (Aurora, ON: Can ada Law
Book, 1991–) at para 8.40.

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