Proof of damage for a claim of liquidated damages:
It is noteworthy that for a claim of liquidated damages, the clause whether actual damage or loss is proved to have been caused thereby would not be dispensing with the establishment of proof in toto. This emanates from the understanding that the reasonable compensation agreed upon as liquidated damages in case of breach of contract is in respect of some loss or injury thus the existence of loss or injury is indispensable for such claim of liquidated damages. In such cases, the requirement to prove loss or injury or damage may be dispensed with if it is difficult or impossible to prove that the genuinely pre-estimated can be awarded.
Thus, it is expected that the stipulation for liquidated damages should be bona fide and a fair estimate of the damages arising from the breach and not done with a sole intent to penalize the other party. Courts have repeatedly required parties to draft clauses within the contracts which aren’t ambiguous.
Irrespective of stipulations in the form of liquidated damages, a plaintiff can recover damages to the extent of the claim being reasonable compensation for the injury sustained by him and not the entire sum laid down as liquidated damages thereby, erasing the difference between liquidated damages and unliquidated damages.
Thus, provision relating to liquidated damages are required to be drafted with clarity and it has to be proven that the amount was a genuine pre-estimate of the loss or damage likely to be suffered. It is pertinent to note that amount stipulate as liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation. Meanwhile, other factors like extent of mitigation of losses along with other facts and circumstances cannot be overlooked and warrant sufficient consideration
Cases: Union of india vs Raman Iron foundry and ONGC vs Saw Pipes