A contract states that if the builder finishes late it will pay 2,000 per week of delay. The amount was set after considering the client's likely losses. What is the clause most likely to be?

Correct answer: A) An enforceable liquidated damages clause

Explanation

Under Cavendish Square Holding v Makdessi (with ParkingEye v Beavis), a clause requiring payment on breach is a penalty only if it imposes a detriment on the party in breach out of all proportion to any legitimate interest of the innocent party in performance of the primary obligation. A sum fixed by a genuine attempt to estimate the client's likely loss, the approach associated with Dunlop Pneumatic Tyre v New Garage, protects a legitimate interest and is clearly not out of all proportion, so it is enforceable as liquidated damages. The agreed sum is then recoverable whether actual loss turns out greater or smaller. The clause does not exclude liability and is not a condition precedent.