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A liquidated damages clause describes the quantum of damages due and payable upon breach of a commercial agreement. This can be a devilish feature of non-disclosure and confidentiality agreements (“NDA(s)”) which typically set out the terms upon which a “receiving party” will be permitted to use or share confidential information provided by a “disclosing party”.

The inclusion of such clauses serve to deter the receiving party from breaching the terms of an agreement by creating some degree of certainty as to the quantification of loss suffered by the disclosing party. This has utility in the context of an NDA whereby it is often difficult to establish and prove the extent of the damages suffered in consequence of an unauthorised disclosure of confidential information.

It is also important to note that there is a legislative safeguard against disproportionate liquidated damages clauses. The Conventional Penalties Act 15 of 1962 makes specific reference to these clauses and empowers a competent court to reduce excessive damages on an “equitable basis”.[1]

Nevertheless, liquidated damages are capable of being enforced.[2] If you are concluding an NDA, it is prudent to be aware of the implications associated with clauses to this effect.

We trust that you found this article informative, please email for assistance in the drafting or review of non-disclosure and confidentiality agreements, if you may be transacting or looking to conduct business where sensitive information will be shared.

This article is provided for informational purposes only and should not be substituted for legal advice on any specific matter. Any opinions expressed herein are subject to the law as at the time of writing and will change in accordance with any change in the law. We recommend that you contact HJW Attorneys at directly for advice applicable to your specific matter.

[1] S1(1) & S 3 of the Conventional Penalties Act 15 of 1962.

[2] S1(1) of the Conventional Penalties Act 15 of 1962.