Song V Cliff

Song v Cliff

(a) Can the parties specify a compensation amount in their contract?

If Song decided to cancel the contract, Cliff was entitled to forfeit the deposit.

(b) Whether the amount is one of liquidated damages or a penalty?

In this case, deposit paid by Song at a reasonable daily rate was held to be liquidated damages even though the application of this formula could result in a larger compensation sum. (Philip Hong Kong Ltd. V Attorney Generall of Hong Kong.) A penalty is an excessive compensation amount which aims to deter the other party for breaching the contract. In this case, the sums agreed to be paid were payable on a single event on a specific date only, if the tour was reserved for Song on that day, but he cancelled before or on the specific date, Cliff, the tourist agency, must suffer loss due to Song cancelled the contract, therefore, the deposit to be regarded as liquidated damages, not as penalties.

(c) Deposits or part-payment?

Whether money paid in advance is recoverable by the party in default depends upon the construction of the contract. The intention of the two parties, whether they meant the advance payment to be a deposit or part payment, must be ascertained. (Mayson v Clouet). In this case, unknown information was the total price of attending this tour on that specified date and the deposit amount. Whether the deposit amount is a reasonable amount is also essential to make judgement. Where an agreement provided for the payment of a deposit, Cliff forfeiting the deposit must prove that it was reasonable in the circumstances. Cliff might return the deposit and sue for damages on the other hand.

Conclusion

If Song decided to cancel the contract, Cliff could forfeit Song's deposit as liquidated damages depends on whether the deposit to be forfeited is excessive in relation to the total price.