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Liquidated Damages

Legal

A sum specified in a contract as the agreed penalty for breach of a specific term, typically for late delivery.

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Sources

No body defines this term, and that is the answer rather than a gap. A clause of this kind means what the contract says it means, read under the governing law the parties chose. There is no standards body, regulator or treaty that settles it in the way the ICC settles Incoterms or the WTO settles rules of origin. Model wordings exist from several organisations, and they differ. Treat the description above as an orientation to the usual shape of the clause, and the contract in front of you — with advice under its governing law — as the only authority that matters.

Common questions

What liquidated damages should I include in India-EU supply contracts?

Standard liquidated damages (LD) in India-EU supply contracts: (1) For late delivery: 0.5-1% of the value of undelivered goods per week of delay, capped at 5-10% of total contract value, (2) For quality non-conformance: replacement cost + consequential losses capped at contract value, (3) For IP breach: liquidated damages + injunctive relief. Always include a cap on total liability (typically 100% of contract value) to avoid unlimited exposure.

Related terms

From the AJG lexicon archive (July 2026).

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