# Liquidated Damages Clause

Source: https://contracko.com/clause-library/liquidated-damages

# Liquidated Damages Clause

Fixes in advance the sum payable on a specified breach, sparing the parties from proving actual loss.

## What it is

A liquidated damages (or penalty) clause sets a predetermined amount payable if a defined breach occurs, commonly late delivery or breach of confidentiality. In Dutch law this is the boetebeding, which can serve as compensation, as a penalty, or both.

## Why it matters

It gives certainty and a strong incentive to perform without the cost of proving loss. But a court may mitigate an excessive penalty under BW 6:94, so the amount should be a genuine pre-estimate, not punitive.

## How to apply it

- Tie the sum to a realistic estimate of likely loss to reduce mitigation risk.
- State whether the penalty replaces or supplements actual damages.
- Specify the exact breach that triggers the penalty and any cap or per-day rate.
- Clarify whether a notice of default is required before the penalty is due.

## Negotiation tips

- • The paying party should cap the aggregate penalty and demand a default-notice trigger.
- • The receiving party should exclude the court's power to mitigate where lawfully possible.

## Common pitfalls

- • Setting a punitive amount unconnected to loss, risking mitigation under BW 6:94.
- • Failing to state whether the penalty excludes a separate damages claim.

### How Contracko helps

Contracko's AI review flags liquidated-damages clauses across your contracts and highlights missing caps, absent notice-of-default requirements and amounts that appear disproportionate to contract value. Penalty trigger dates, such as agreed delivery deadlines, are tracked as contract milestones with reminders, so your operations team can act before a breach accumulates an avoidable penalty.

## Legal references

- [BW 6:91 Penalty clause (boetebeding) Dutch law](https://wetten.overheid.nl/BWBR0005289)
- [BW 6:94 Judicial mitigation of a penalty Dutch law](https://wetten.overheid.nl/BWBR0005289)

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.

## Relevant for

[Construction](https://contracko.com/industries/construction-industry)[Logistics & Distribution](https://contracko.com/industries/logistics)[Manufacturing](https://contracko.com/industries/manufacturing)[Engineering & Architecture](https://contracko.com/industries/engineering)[Event Management](https://contracko.com/industries/event-management)

## Related clauses

- [Payment Terms Clause](https://contracko.com/clause-library/payment-terms)
- [Termination for Cause Clause](https://contracko.com/clause-library/termination-for-cause)
- [Confidentiality Clause](https://contracko.com/clause-library/confidentiality)

## Related terms

- [Liquidated damages](https://contracko.com/glossary/liquidated-damages)
- [Breach of contract](https://contracko.com/glossary/breach-of-contract)
- [Liability](https://contracko.com/glossary/liability)

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## Frequently asked questions

Common questions about this clause.

- **Q:** Can a Dutch court reduce a contractual penalty?
  **A:** Yes. Under BW 6:94 a court may mitigate a penalty if fairness manifestly requires it, even where the parties agreed the amount.

- **Q:** Can I also claim actual damages on top of a penalty?
  **A:** Only if the clause says so. By default the penalty replaces statutory damages, so state expressly whether both are recoverable.

- **Q:** Is a notice of default always required before a penalty is due?
  **A:** Not if a hard deadline has passed automatically; otherwise, Dutch law generally requires putting the debtor in default first. The clause should state this clearly to avoid uncertainty.

- **Q:** How should the penalty amount be set to reduce the risk of judicial mitigation?
  **A:** It should represent a genuine pre-estimate of the likely loss at the time of contracting, not a punitive sum. Documenting the rationale at the time of drafting strengthens enforceability.

- **Q:** Can a penalty clause accrue indefinitely?
  **A:** Only if there is no aggregate cap. Most well-drafted clauses set a maximum total amount or a per-day rate with a ceiling to limit exposure for both parties.

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