How have the courts interpreted the term “as liquidated damages” in the context of a contract?

British Columbia, Canada


The following excerpt is from Mitchell v. Paddington Homes Ltd., 1977 CanLII 373 (BC SC):

In Gisvold v. Hill, at pp. 551 and 552, Aikins J. deals with the meaning of the words “liquidated”, “liquidated damages” and “as liquidated damages”. He says: “I now turn to the first question. The word ‘liquidated’ is defined in Earl Jowitt’s Dictionary of English Law (at p. 1099) as: “ ‘A sum is said to be liquidated when it is fixed or ascertained. The term is usually employed with reference to damages.’ “In the same dictionary, the words ‘liquidated damages’ are defined (at pp. 1099-1100) as follows: “ ‘The amount agreed upon by a party to a contract to be paid as compensation for the breach of it, and intended to be recovered whether the actual damages sustained by the breach are more or less, in contradistinction to a penalty.’ “The parties in their agreement have used the words ‘as liquidated damages’. These words cannot be ignored; if possible, they must be given meaning. I cannot think of any reason why the parties would have used these words if it had not been their intent by agreement to fix or liquidate the damages. Parties to a contract are free to agree in advance on the amount of damages that will be paid in the event of a breach and, granted that the sum agreed upon is not found to be penal in character, the parties will be bound by such agreement. Where such agreement is made and the parties are bound thereby, the result is that, regardless of the amount of the actual loss, the defaulting party’s liability to pay damages is limited to the amount agreed upon, and the aggrieved party may not recover more than that amount. There would, in my opinion, have been no point whatsoever in the parties to the interim agreement agreeing that the amount paid by way of deposit would be forfeited as liquidated damages if their intention really was that the damages would, notwithstanding the use of these words, be unascertained or at large, that the plaintiffs could recover their actual loss and that the defendants would have to pay the actual loss in whatever amount it might be. My conclusion is that the parties, by using the particular words, ‘as liquidated damages,’ by agreement fixed or liquidated the damages and that they are bound thereby unless, as is argued for the plaintiffs, the sum of one dollar agreed upon is to be considered a penalty against the plaintiffs and they are entitled to relief.” (The italics are mine.)

In Glendening v. Cedarhurst Properties Ltd., Meredith J., after referring to the clause I have referred to above, said: “If I were confined to a consideration of those words I would hold that the plaintiffs are limited in their claim to the liquidated damages, that is to say, damages fixed in advance by both parties. (The italics are mine.)

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