Liquidated Damages v. Penalties in Korean contracts

As a NY attorney, it’s a bit strange for me to read a Korean contract and see how the word “penalty” is used.  In the United States (as well as other common law jurisdictions), when a contract contains a “penalty,” the clause is, often, invalidated. Korea, however, allows some “penalties” in contracts. Cutting to the chase, this is merely an issue of confusing and overlapping terminology.  But since its confusing, it is worth explaining. To start with, a bit of background on liquidated damages.  Liquidated damages refer to damages, the amount of which, the parties designate during formation of a contract as compensation for non-breaching parties in the event of breach.   In the US and other common law jurisdictions, liquidated damages clauses are invalidated if the purpose is to punish the breaching party, rather than to compensate the injured party.  These clauses are referred to by the court as “penalties.”

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