Liquidated damages

Liquidated damages fix in advance the amount payable if a specified breach occurs. In Swiss practice, such clauses are often analysed through the rules on contractual penalties unless they are clearly framed as a genuine pre-estimate of loss. Their function is evidentiary and risk-allocation: the creditor need not prove the exact amount of damage, while the debtor knows the financial exposure. If the clause is punitive or excessive, a court may treat it as a penalty and reduce it. Careful drafting matters, especially in international contracts.