Liquidated damages also referred to as liquidated and ascertained damages are damages whose amount the parties designate during the formation of a contract  for the injured party to collect as compensation upon a specific breach e.
However, courts sitting in equity will seek to achieve
Liquidating prior obligations fair result and will not enforce a term that will lead to the unjust enrichment of the enforcing party. Damages that are sufficiently uncertain may be referred to as unliquidated damagesand may be so categorized because they are not mathematically calculable or are subject to a contingency which makes the amount of damages uncertain.
For example, suppose Neal Townsend agrees to lease a store-front to Richard Smith, from which Richard intends to sell jewellery. If Townsend breaches the contract by refusing to lease the store-front at the appointed time, it will be difficult to determine what profits Smith will have lost because the success of newly created small businesses is highly uncertain.
This, therefore, would be an appropriate for Smith to insist upon a liquidated damages clause in case Townsend fails to perform. In the case of construction contracts, courts have occasionally refused to enforce liquidated damages provisions, choosing to follow the doctrine of concurrent delay when both parties have contributed to the overall delay of the project.
Contracts in the NEC3 family use the term 'low service damages' optional clause X. In Australia, the definition of liquidated damages applies to the situations where upon the failure of a primary stipulation, imposes a detriment to the first party or a benefit to the second party by a secondary stipulation collateral to Liquidating prior obligations primary stipulation i.
Consumers argued these charges were well beyond the cost of sending a computerised letter. In the Office of Fair Liquidating prior obligations investigated the charges being imposed on customers of credit card companies. In its report, the OFT claimed these charges were unlawful under UK law as they amounted to a penalty. The OFT said it would be up to a court to determine such an amount based on the established legal precedent that the only recoverable cost would be actual costs incurred.
The credit card companies did not produce evidence of their actual costs to the OFT, instead insisting their charges are in line with clear policy and information provided to customers. Receipt of liquidated damages and intimately linked with the purpose of the profit-making apparatus, is a capital receipt. The amount received by the assessee towards compensation for seterilization of the profit earning source is not in the ordinary course "Liquidating prior obligations" business. Hence, it is a capital receipt in the hands of the assessee.
In the Supreme Court ruled see Office of Fair Trading v Abbey National plc that terms in bank account contracts were not capable of being penal, bar those applicable to NatWest Bank customers between and Inthe High Court of
Liquidating prior obligations allowed an appeal against findings of the Federal Court of Australia that 'exception fees' imposed by the ANZ Bank could not constitute an unenforceable penalty. The High Court found that fees were not incapable of being characterised as penalties merely because they were not charged upon breach of contract.
While the decision is very fact specific, it represented a major setback other class actions based on penalties.
Paciocco appealed to the High Court. The last chapter of the bank fees saga took place in July where the High Court dismissed the appeal for leave and held that the full court was correct to Liquidating prior obligations the loss provision costs, regulatory capital costs and collection costs as affecting the legitimate interests of the Bank.
Further, neither the fact that the late payment fees were not genuine pre-estimates of damage nor the fact that the amounts charged were disproportionate to the actual loss suffered by itself rendered the late payment fees penalties.