Glossary

Liquidated damages

Liquidated damages are a sum the contract sets in advance as the payment if a named breach happens, such as late delivery. In England and Wales they are enforceable where they protect a legitimate interest in performance and are not out of all proportion to that interest, following Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67.

Last updated 28 October 2026

A daily rate for delay, a cancellation sum, or a staged kill fee can all be liquidated damages if they are a secondary obligation that bites on breach. A genuine termination for convenience price is a primary obligation — the price of a right to cancel — and is analysed differently. The cancellation guide at /guides/client-cancels-freelance-deposit-uk walks through that split.

We would rather you name the sum in the signed paper than invent a “late fee” after the fact. Lex can put a delay rate or a cancellation scale next to the payment terms. Both sides edit it on one link, so the number is agreed before anyone is late.

Are liquidated damages the same as a penalty?

No. Liquidated damages stand; a penalty clause does not. Cavendish replaced the old “genuine pre-estimate of loss” as the only test. The question now is whether the clause is a secondary obligation whose detriment is out of all proportion to the innocent party’s legitimate interest in performance.

What is the Cavendish test?

Lord Neuberger and Lord Sumption in Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67 held that a clause is a penalty if it is a secondary obligation imposing a detriment out of all proportion to any legitimate interest in enforcing the primary obligation.

How do kill fees and cancellation sums fit?

If the client has a right to cancel for convenience, the sum is often the price of that right, not damages for breach. If the sum bites only when the client walks away in breach, it is a secondary obligation and Cavendish applies. Write which you mean. Credit any deposit so you are not charging the same money twice.

Should liquidated damages sit inside the liability cap?

Say so. If the delay rate can exceed the liability cap, the cap is ornamental for that breach. Many papers put liquidated damages inside the cap, or give them a separate sub-cap. Do not leave the two clauses silent on each other. The limitation of liability page is where that negotiation usually lives.

A worked example

A videography contract sets £250 per working day of delay after the agreed delivery date, capped at 20% of the fee, as liquidated damages for late delivery, inside the overall liability cap. It also sets a convenience-cancellation scale of 25% then 50%. When the cut is four days late, the studio invoices £1,000 under the delay line and does not add an invented extra “penalty”.

How it shows up in a contract

Sample wording · our own drafting

If the Supplier fails to deliver a Deliverable by the date in the Schedule, the Supplier will pay liquidated damages of [£250] per complete Business Day of delay, up to [20%] of the Fees for that Deliverable. The parties agree this sum is a genuine pre-estimate of the Client's loss and protects a legitimate interest in timely delivery. It is the Client's sole money remedy for that delay and sits inside the liability cap.

In Plain English

If a listed delivery is late, the supplier pays £250 for each full working day it is late, up to 20% of that delivery’s fee. Both sides agree that number matches the real cost of being late. It is the only extra money for that delay, and it counts towards the cap.

Common mistakes

  • Calling every extra charge “liquidated damages” when some are convenience-cancellation prices and some are penalties.
  • Setting a sum out of all proportion to the fee, which Cavendish will not save.
  • Leaving liquidated damages outside a small liability cap by accident.
  • Adding a delay rate in an invoice footer that was never in the signed contract.

What the legislation says

  • A clause is an unenforceable penalty if it is a secondary obligation that imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.

    Source: Cavendish Square Holding BV v Talal El Makdessi, [2015] UKSC 67Checked 28 October 2026Pending lawyer review

Sources

Frequently asked questions

What are liquidated damages?

A sum the contract sets in advance as the payment if a named breach happens. They stand where they protect a legitimate interest and are not out of all proportion to it (Cavendish [2015] UKSC 67).

Are they the same as a penalty?

No. Liquidated damages are enforceable; a penalty clause is not. The label in the paper does not decide it — the substance does. See /glossary/penalty-clause.

Is a kill fee liquidated damages?

Only if it bites on breach. A sum that is the price of a right to cancel for convenience is a primary obligation, analysed differently. See /glossary/kill-fee and /guides/client-cancels-freelance-deposit-uk.

Should the sum sit inside the liability cap?

Say so. If a delay rate can exceed the cap, the cap is ornamental for that breach. See /glossary/liability-cap.

Related

The legal wording governsLast reviewed 28 October 2026Pending lawyer review