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Supreme Court of Justice |Penalty Clause | International Public Policy of the Portuguese State | Case #116

Supreme Court of Justice |Penalty Clause | International Public Policy of the Portuguese State | Case #116
Case nr. 2004/08.6TVLSB.L2.S1


I. Having determined that the stipulation of the parties is a penalty clause of a reparatory and coercive nature and upheld that the payment of the amount established therein, corresponding to 15.6% of the high value of the contract within which it is included (USD 160,000,000.00), it cannot be said that the stipulation is of a merely punitive nature or that it is quantified in the absence of any determination of damages.

II. Such an award does not contain a decision whose recognition leads to a result incompatible with the principles of public policy of the Portuguese State, nor does its recognition conflict with the principles of justice, proportionality, equity and equality.

III. Without prejudice to the possibility of reducing the specified damages when manifestly excessive, it is in the nature of a penalty clause itself to fix a certain quantum of compensation in advance, such that it’s payment can consequently be enforced without the need to allege and prove the existence of damages.

IV. The penalty clause cannot be equated with so-called punitive damages, which are specific to other legal systems (common law), and are intended to punish a party and not to compensate the damage or coerce the debtor to comply. 

V. The possible ruin of the debtor is not a legally justifiable ground for releasing him from his obligation towards the creditor.

Summary and headlines kindly prepared by Avani Agarwal (final year law student at NALSAR University of Law, Hyderabad, India). Avani Agarwal may be contacted by email:

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