Jurisdiction(s):
United Kingdom

Key definition

Contract definition

What does Contract mean? In legal practice, a contract is the enforceable agreement by which parties set out promises and allocate risk, whether made orally, in writing or by conduct. The law of contract is principally case-law driven across England & Wales, Scotland, Northern Ireland and Ireland, with statutory interventions on formalities, construction and consumer protection. In England & Wales, Northern Ireland and Ireland, formation generally requires offer, acceptance, consideration and an intention to create legal relations. In Scotland, consideration is not required; a contract is formed by agreement (consensus in idem) with the necessary intention, with writing only needed in defined cases. Key features...

Distinguishing liquidated damages from penalties: the Makdessi/ParkingEye framework, default interest, acceleration, settlement agreements, and post-termination or partial performance issues

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Practice notes

This Practice Note explores what Liquidated Damages provisions are and, in brief, when they are used and in what manner. It then concentrates, in particular, on the judiciary’s method when assessing whether an alleged liquidated damages term is in truth a Penalty and thus unenforceable; following the authorities through to the approach now taken after the Supreme Court’s 2015 Makdessi/ParkingEye ruling and examining, specifically, matters such as when terms for accelerated payment, default interest, or positive inducements may amount to a penalty. Consideration is also given to whether liquidated damages endure following termination and to their connection with partial performance.

What is a liquidated damages clause?

A liquidated damages clause is a Contractual term by which the parties to an agreement fix, in advance, a specified sum of money to be paid by the defaulting party to the innocent party upon breach of contract. The sum payable constitutes agreed Damages (described as liquidated damages) and can be claimed without the innocent party needing to prove the actual loss sustained in fact. Accordingly, in practice, such provisions avoid the expense and difficulty associated with proving the extent of damage caused by the breach and are a means for the parties,...

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Web page updated on 21/05/2026

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