Analyse the liquidated damages clause

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Reference no: EM133450953

Case Study: Nadia is a baker who owns her own cake shop. She obtains a fixed quantity of rare and premium cake ingredients (which are not available elsewhere) from Cake Supply Company

("CSC") each month, and delivery is scheduled regularly on the 1st day of each month.

Recently, CSC had been late in delivering the supplies to Nadia. This is unacceptable to Nadia because for each day that CSC is late in delivering the supplies, Nadia would not be able to operate her business, and her estimated loss of profits for each day is about $1,000.

To address CSC's tardiness in delivery, Nadia decided to add a liquidated damages clause into their contract. CSC agreed to this as Nadia is one of their important clients. This clause states as follows:

"Cake Supply Company (CSC) shall deliver the ordered quantities of ingredients on

the 1st day of each month. If CSC is late in its delivery, CSC shall pay Nadia liquidated damages of $1,000 per day (i.e. for each day that CSC is late) until delivery is made. This represents the estimated loss of profits for Nadia arising from CSC's late delivery."

Questions:

a)Analyse the liquidated damages clause in the above scenario with reference to the guidelines (on the enforceability of liquidated damages clauses) in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915), and conclude whether the clause is likely to be enforceable by Nadia in the event that CSC is late in delivering the supplies.

b)Assume that there is no liquidated damages clause in the contract between Nadia and CSC, and CSC has failed to deliver the supplies to Nadia on the date stated in the contract. CSC also did not respond to Nadia's calls, causing Nadia to be very concerned. Discuss whether Nadia is likely to succeed in obtaining a court order for specific performance to require CSC to carry out the delivery.

Reference no: EM133450953

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