Liquidated Damages Clause

Remedial Mechanism

The parties agree on a daily or weekly penalty rate at the time the contract is signed. For instance, a liquidated damages clause might specify a one percent reduction in the total invoice value for every week a shipment of flax is late. This amount is deducted directly from the final payment.

It applies regardless of the reason for the delay, unless a force majeure event is proven. The sum must be a genuine pre-estimate of the likely loss rather than a penalty designed to punish the breaker. If the amount is found to be excessive, a judge might set it aside.

This mechanism simplifies the settlement process for both parties.

Risk Allocation

Suppliers use this certainty to price their risk more effectively. This liquidated damages clause protects the mill from downstream losses caused by a lack of raw material. It ensures that the buyer is compensated for disrupted production schedules.