Webster V. Bosanquet

[Privy Council.]

Present: Lord MacNaghten, Lord Shaw, Lord Mersey, and Lord Robson.

WEBSTER v. BOSANQUET.

D. C. Colombo, 26,132.

Liquidated damages-Penalty-Breach of contract.

In deciding whether a stipulated payment in respect of the breach of a contract should be regarded as liquidated damages fixing once for all the sum to be paid, or merely as a penalty covering the damages though not assessing them, whatever be the expression used in the contract in describing the payment, the question must always be whether the construction contended for renders the agreement unconscionable and extravagant, and one which no Court ought to allow to be enforced.

It is impossible to lay down any abstract rule as to what it may or may not be extravagant or unconscionable to insist upon, without reference to the particular facts and circumstances which are established in the individual case.

The consideration must be whether it is extravagant, exorbitant, or unconscionable at the time when the stipulation is made-that is to say, in regard to any possible amount of damages which may be conceived to have been within the contemplation of the parties when they made the contract.

THE facts are stated in full in the judgment of the Supreme Court reported in 13 N- L. R. 47.

Grant, K.C. (with him Owen Thompson), for appellant. Upjohn, K.C., and F. H. M. Corbet, for the respondent. February 21, 1912. Delivered by Lord Mersey: -

This is an appeal from a judgment of the Supreme Court of Ceylon, dated December 21, 1909, reversing a judgment of the District Court of Colombo, dated March 1, 1909. The question raised by the appeal is whether a payment stipulated by deed to be made by the defendant to the plaintiff is to be regarded as a payment by way of liquidated damages or merely as a penalty.

The Court of First Instance held that the stipulation was for a payment by way of liquidated damages; the. Supreme Court took a different view, and held that the stipulation was for a penalty only.

There is no dispute about the facts of the case, and they are as follows: -

In 1891 the plaintiff and the defendant entered into partnership for the purpose of exporting and selling Ceylon tea, and particularly tea grown upon certain estates in the Island belonging to the defendant, and known as the Palamcotta and Marawilla estates. The part of the plaintiff in connection with the enterprise was to travel for the purpose of pushing the sale of the tea, and this he did so successfully that by the year 1895 he had established a valuable trade. In that year the partnership was dissolved, the plaintiff buying the defendant's interest in the goodwill for a sum of £3,500, and taking over the assets at a valuation. The dissolution was effected by a deed dated February 14, 1895, which contained among other things a provision that the defendant should for a period of ten years after July 30, 1896, sell the whole or any part of the crops of the Marawilla and Palamcotta estates to the plaintiff at a valuation so long as the plaintiff should pay to the defendant yearly a sum of £75 for the use of the names of the two estates, and should express his intention of purchasing the whole or any part of the said crops. The deed then provided as follows: -

" And the said Bosanquet shall not be at liberty to sell during the period aforesaid the whole or any part of the tea crops of the Marawilla and/or Paramcotta estates to any person other than the said Webster without first. offering to the said Webster the option of buying the same, so long as Webster shall pay to Bosanquet the yearly payment of £75; and if the said Bosanquet shall fail, neglect, or refuse to sell the whole or any part of the crop of the Marawilla and/or Palamcotta estates as hereinbefore provided to the said Webster, he shall pay to Webster the sum of £500 as liquidated damages and not as a penalty."

The plaintiff duly performed his part of this agreement,

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