determination of a penalty clause was "a question that should be considered in broad and general terms". This may prompt future decisions to move towards Cavendish.
The key takeaways
The law on penalty remains as it has been for Hong Kong contracts.
Consider at the stage of negotiating a liquidated damages clause whether the amount stipulated in the clause is a genuine pre-estimate of the loss that is likely to occur.
Where a genuine pre-estimate is not possible, consider whether the amount can be commercially justified.
Be sure to maintain a record of all the negotiations (oral and written) and the commercial factors that the parties have considered which go to justifying the stipulate amount.
Where possible, avoid a single amount that is payable irrespective of whether the loss is minor or of a greater magnitude.
"This article first appeared on Asia Disputes Notes, Herbert Smith Freehill's free online blog page which covers the latest developments in Disputes across Asia. For more information, please go to http://hsf-asiadisputesnotes.com/."
Gareth Thomas Partner, Dispute Resolution
Gareth is a commercial and insurance litigator with wide-ranging experience in disputes, arbitration and mediation matters. His expertise in dispute matters covers banking, commercial contracts, defamation, employment, fraud, insolvency, negligence, product liability, restraint of trade and shareholders’ disputes, as well as cases involving bonds, structured products and other derivatives.
Dominic Geiser Partner, Dispute Resolution
Dominic specialises in general commercial litigation, and has extensive experience of advising banks, financial institutions, private equity firms, corporates and high net worth individuals on a range of contentious matters, often with a cross-border element.