Invalidity of punitive clauses
Original: Wang Gang, Australia, lawer Australian Law Pioneer, 2017 / 08 / 13
Definition of punitive clauses
If a contract stipulates that the amount to be paid by the defaulting party is exaggerated in quantity and contrary to the maximum loss that may result from the breach, the clause is a punitive clause.
Punitive clause null and void
In the contract, if a clause is characterized as a punitive clause, the clause will lose its effect and cannot be enforced. For the non-defaulting party, the loss of economic will not be guaranteed directly. For the defaulting party, if punitive provisions have been imposed, such as deductions, the default can recover damages through law or rights, which would not have been deprive.
Cases that may be punitive
1. In addition to asking the defaulting party to compensate for reasonable losses, plus other economic compensation.
2. In addition to requesting reasonable damages from the defaulting party, additional penalties shall be added to the contract.
3. Could have been reimbursed with money, but deprive defaulting party's other contract rights.
4. Punish the defaulting party with a specific amount, which is not an estimated actual loss.
5. Punish the defaulting party with a specific amount, which is not proportionate to the losses that may result from any breach in the contract.
6. Punish the defaulting party with a specific amount, which is a purely defaulting threat, regardless of the possible loss caused by the default.
How to avoid the above punitive clause
1. Only reasonable damages are required, and no other punitive damages are added.
2. Compensation mechanisms are established only within the scope of the contract, and compensation unrelated to the contract is not imposed.
3. Those who can compensate with money are only compensated by money, and do not cancel any other contract of the defaulting party, rights.
4. Explain the reasonableness of compensation in the contract.
5. If multiple violations are involved in the contract, a compensation is set for each breach.
6. Do not set a compensation clause solely for the purpose of securing performance.
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Wang Gang, lawer, Herald Legal, law Consulting vx: heraldlegal3 for Chinese in Australia