Breach of any contractual term allows the innocent party to claim damages. The claimant must prove that he has suffered loss or damage as a result of the defendant’s breach, and the loss or damage must not be too remote a consequence of the breach. The basis of awarding damages is to compensate the claimant for his loss and not to punish the defendant. The court determines the damages in the event of breach by putting the claimant in the position he would have been in had the contract been properly performed.

Liquidated damages are damages which are pre-agreed by the parties before a contract is formed and are designed to protect the injured party in case the contract is broken. These clauses are normally agreed in order to avoid potential specific breaches such as late delivery or termination of the contract. The parties to a contract are aware from the beginning about their likely liabilities upon a breach. Stating the amount of compensation also helps to provide certainty in the event of a breach. There is no need to prove the extent of the loss, only that the breach has occurred.

The claimant is entitled to receive damages as compensation. The judge does not have to determine a formal assessment of damages or loss as the rules of measure of damages do not apply. The pre-determined damages have to be a true estimate of the claimant’s loss. Such a clause is binding and the pre-agreed estimate limits the parties to that amount, even if the losses of the claimant are greater that the amount agreed.

In order to decide whether the liquidated damages clause is binding the court will look at:

1. Circumstances at the time of the contract not at the time of the breach
2. Whether the amount in the clause is extravagant or adequate in comparison to the potential loss
3. If the amount stated is greater, the clause will be treated as penalty
4. If the amount required, in the event of a breach, is a single lump sum for one or more breaches it is presumed to be a penalty. However, this presumption can be rebutted.
5. If the is impossible to precisely agree on the amount of loss in the clause which might be caused by the breach, it can still be treated as a liquidated damages clause.

The innocent party may want to prove that the clause is a penalty and not legally binding if his has suffered greater loss than the amount stated. A penalty can be defined as an attempt to put pressure on an innocent party to fulfil the contract terms. In these circumstances, the court is free to award the damages according to the usual principles of measure of damages for the total amount of the loss.

The defendant may also want to prove that the clause is a penalty in the circumstances where the amount stated is greater than the actual loss of the innocent party, and the purpose of it is to punish the defendant. If the court decides that the clause is a penalty in this situation, the innocent party would receive less than the sum in the contract.

The courts will not enforce the exaggerated contractual terms in order to avoid the unjust enrichment.

However, if parties to a contract wish to abide by the terms, the issue will not come before the court. The clauses should be drafted carefully to avoid ruling the clause a penalty:

1. The clause should state that the payment should be made instantly upon breach of a contract and that the payment can be made by instalments
2. There should be no mention of a specific amount of money payable upon a breach of a contract

In summary, liquidated damages and penalty clauses are very important in deciding contractual terms and parties’ obligations in the event of a breach. The parties should bear in mind that the courts are likely to take into consideration whether the predetermined amount is reasonable and not whether it is a genuine pre-estimate loss. However, it is still a good practice to calculate approximately any potential losses and make sure that the amount is only due on a serious breach of contract.

Those readers who are perhaps lawyers or familiar with law firms, may well have heard of Pannone. The firm, based in Manchester, has had exponential growth over the past 15 years, has made all the right moves and really is a leader of the medium size law firm market. Among the firm’s innovations has been a particularly smart move in creating loose association of practices around the country where cases are shared where a particular firm does not have expertise to deal with a client matter. This of course benefits Pannone which gets more than it’s share of the better work. The firm also uses it’s marketing and negotiating skills to save members of it’s group connect2law money on things like insurance, peripherals, utilities and so forth. Smart and joined up thinking.

So, when Pannone announces that revenues are down, other forms should certainly be concerned. The firm has announced a decrease in revenues of 4% in the last year, and this is before competitors such as Co-Op legal services enter the market.

It seems to us that Pannone will win through, it is simply too dynamic a firm not to continue to thrive, but this news demonstrates that firms that aren’t as dynamic and don’t take their own marketing and a creative approach to law seriously, are likely to be in real trouble. From what we see in the legal market, a lot of smaller firms are simply thinking that safety comes from mergers. Whilst this may save some firms, it is typical; rather outdated thinking by law firms. Instead, they need to think differently and invest in proper marketing and strategy. Just our take. What’s yours ?

Whilst not very romantic, to put it mildly, there is a certain logic to insurance products being available for divorce.

An entrepreneur in the US is offering divorce insurance and has been quite creative – his company will need to have some good financial modelling  and good lawyers to draft the policy carefully, since, as we all know, divorce is statistically very common.

Whether the product turns out to be a gimmick or will take off remains to be seen but it seems that the cost for the insurance is calculated on quite a complicated formula incorporating :-

• units of coverage
• a unit will cost $16 per month and will equate to $1,250.00 in benefits
• additional units can be purchased up to an overall limit of $250,000.00
• a 4 year overall maturity
• a proportion of the payout based on legal separation as a prelude to divorce.

Ingeniously the website that has been set up for the product will also calculate your probability of getting divorced, incorporating factors including :-

• race
• religion
• Have your parents divorced
• If this marriage is the first, second, or a subsequent marriage.

Any opinions ?

The first confirmed prosecution under the Bribery Act has been announced and it’s not they type of prosecution many anticipated.

Most small business and individuals still believe that the Act isn’t likely to impact on them and that it is intended really to be a “stick” for big multinational businesses, with potential huge fines and even imprisonment.

However, if this first case is anything to go by, the above interpretation is wrong, although it is also possible that this first prosecution is a way of putting a marker down about the use of the Act relating to public servants.

The prosecution relates to a clerk at Redbridge Magistrates Court relating to alleged misconduct in the form of requesting and receiving a bribe in retrun for influencing a motorist’s prosecution in the court. The defendant has also been charged with other offences including attempting to pervert the course of justice.

A Partnership under the Partnership Act 1890 Act does not have the benefit of being a separate legal entity. The members are jointly liable for the debts, liabilities, negligence or obligations of the Partnership unlike in LLP’s. This is the case whether it is them or any of their partners who has made the negligent act or not.

As with LLP’s, Partners are held under an implied duty of good faith. This means they must act in the best interests of the firm at all times, be truthful in their actions with the other partners, account for any benefit derived personally out of the partnership and to disclose information to the other partners in relation to any misconduct.

The duty of good faith applies at all times during the partnership, this includes before, during and right through the dissolution procedure.

The duty of good faith will not apply after the retirement of a member, however, the retired party will continue to be liable for any negligent work carried out whilst he was still a partner.

A decision of the majority of the members will not be able to be made without the minority of the members being taken into account. The duty of good faith makes sure that the minority are not rode over roughshod by the majority.

The duty of good faith will also work in reverse for the minority partner who may be forced to offer his shares to the majority partners rather than dissolving the partnership as a whole.

Any actions which are seen to breach the duty of good faith are voidable and the usual remedy in that case would be restitution.

A dissolution can come about by:

• agreement

• order of the court

• the happening of an event such as death

The gloves are officially off – the investigation, recriminations, allegations and possible civil claims and criminal actions are perhaps some way off, but the battle lines are already drawn.

Rupert Murdoch has now come out in an interview with the wall Street Journal (one of his own publications) and made it clear that he believes the blame lies with his company lawyers, Harbottle & Lewis who in 2007 were asked to advise on whether a large number of emails in the possession of News International were indicative of a significant culture of hacking and law breaking in the News of the world. Whilst the lawyers said there wasn’t any evidence of a “culture” and this seems, subject to what they may have to say about the whole issue, to have been wrong, and the fact there is little sympathy for lawyers generally, this sidesteps the key issues.

The directors of a company are responsible for running it and for knowing what is going on within the company. The company knew there was an issue with hacking, whether widespread or otherwise, and yet it continued. The lawyers were not hackers, they were not facilitators, they are perhaps guilty of being “yes men”.

This story still clearly has a lot of legs, and the blame, recriminations and attempts to pass the buck have only just started…. a soap opera indeed.