What it means
A liquidated damages clause fixes, in advance, the amount payable if a particular breach occurs — for example, a daily rate for late completion of building work. It saves the parties from having to prove their actual loss later. To be enforceable in Australia, the figure must be a genuine pre-estimate of the likely loss, not a punishment. If it is out of all proportion to the conceivable loss, a court may strike it down as a penalty clause and limit recovery to actual proven damages.
How it's used
The construction contract set liquidated damages of $1,000 for every day the project ran past the agreed completion date.