Contract law (2022): Remedies - Liquidated damages + Rescission

Liquidated damages, also referred to as liquidated and ascertained damages (LADs), 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 (for example, late performance). This is most applicable where the damages are intangible, such as a failure by the contractor on a public project to fulfill minority business subcontracting quotas.

An average of the likely costs which may be incurred in dealing with a breach may be used. Authority for the proposition that averaging is the appropriate approach may be taken from the case of English Hop Growers v Dering, (1928).

When damages are not predetermined/assessed in advance, then the amount recoverable is said to be "at large" (to be agreed or determined by a court or tribunal in the event of breach).

The purpose of a liquidated damages clause is to increase certainty and avoid the legal costs of determining actual damages later if the contract is breached. Thus, they are most appropriate when (a) the parties can agree in advance on reasonable compensation for breach, but (b) the court would have a difficult time determining fair compensation at the time of breach. Under the common law, liquidated damages may not be set so high that they are penalty clauses rather than fair compensation.

In contract law, rescission is an equitable remedy which allows a contractual party to cancel the contract. Parties may rescind if they are the victims of a vitiating factor, such as misrepresentation, mistake, duress, or undue influence. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract (the status quo ante).