Under English law, what is the effect of a valid liquidated damages clause?

Correct answer: A) The innocent party recovers the agreed sum on breach, regardless of whether actual loss is higher or lower

Explanation

A liquidated damages clause fixes in advance the sum payable on breach. If valid, the agreed sum is recoverable whether actual loss turns out to be greater or smaller, and the innocent party need not prove its loss. Following Cavendish Square Holding v Makdessi (2015), a clause is an unenforceable penalty only if it imposes a detriment out of all proportion to any legitimate interest of the innocent party in performance; it no longer has to be a strict genuine pre-estimate of loss.