A liquidated damages clause based on commercial-economic logic will be enforced even if one of the parties entered liquidation proceedings

A car importer entered into a contract with the Better Place company for the provision of services for vehicles to be imported by it and set minimum quantities of vehicles to be handled each year and liquidated damages if the number falls below such annual quantities. When Better Place entered into liquidation proceedings the importer filed a debt claim, including in respect of the liquidated damages, which was rejected by the liquidators.
The Supreme Court held that the Courts customarily accept an agreed liquidated damages clause - a pre-determined clause that establishes the right to receive additional compensation without proof of damage in the event of non-compliance - but a Courts has the power to reduce the compensation "if it finds that the compensation was determined without any reasonable proportion to the damage that was foreseen at the time the contract was concluded as a probable result of the breach.” However, the use of such power will be in exceptional cases only, and even if the compensation is high, as long as the Court finds that there is a reasonable relation, even if farfetched, between the agreed liquidated damages and the damage objectively foreseen the time of execution of the contract, the Court will honor the agreed compensation and will not reduce it. Here, even if the forecast of purchases in the agreement is not binding, a commitment to minimum quantities is a commitment to liquidated damages and it is a reasoned mechanism between commercial parties and therefore the Court will not intervene.
When a company enters liquidation, the Court will examine whether the liquidated damages is intended to circumvent the principle of equality between creditors in liquidation or that such liquidated damages clause has a commercial-economic logic. Here the compensation clause is intended to ensure that the car importer has at least minimal compensation for the investments made for the purpose of the venture, and therefore has economic logic and will be enforced.