Under the Conventional Penalties Act of 1962, criminal clauses are legally applicable, but the court has the power to reduce compensation. The court is required to compare the sentence with the actual harm or harm suffered and to decide whether the sentence is disproportionate to the damages suffered. Therefore, you must ensure that the sanction in the clause is not insolent. In addition, you can only claim a penalty or damages for the same act, but not both. A sanction clause in a contract is a provision that requires the defaulting party to award some kind of compensation to the innocent party in the event of an infringement. Compensation for violations can sometimes be a difficult process that requires costly and laborious litigation. To minimize load and costs, you can include a penalty in your contract. However, they should be aware that a sanction clause cannot be applicable if it does not meet certain requirements. Therefore, you should put yourself on notice when designing one. In 2015, Supreme Court Justices Lord Neuberger and Lord Sumption tested the penalty clauses as follows: cases involving penalty clauses use the interchangeable words “nullity” and “non-applicable.” In the UDC Finance Ltd/Austin decision, Mason and Wilson JJ stated: “At least since the advent of the judicial system, a criminal provision has been considered unenforceable or, perhaps null, ab initio.” (Added highlight) The court found that the sanctions rule had been activated, but ParkingEye had a legitimate interest and, in the circumstances, it was proportionate to the objectives of connecting a person who had exceeded $85.00. You should therefore review your contractual provisions to ensure that they are outside the framework of the sanctions rule and amend all necessary provisions to reflect the change in the law.
The criminal doctrine applies not only to “classic” liquidation clauses that provide for the payment of a sum of money in the event of a breach of contract, but may also apply to other clauses which provide: previously, the criminal test was made a total distinction between what was and was an authentic estimate of the damage.