Kuwait Court of Cassation principle number 189

Summary: - A debtor’s failure to perform his contractual obligation is a fault giving rise to liability. The contracting parties’ determination of the amount of compensation in the event of rescission in respect of the liability ensuing from rescission of the contract. Its characterization as tortious liability. Reason: a penalty clause is not confined to contractual liability. Its inclusion in tortious liability. The lapse of the penalty clause contained in the contract upon its rescission. Effect: the compensation payable by the defaulting contracting party becomes a matter left to the court, and the judge has control over the clause under the tortious liability regime and assesses the damage sustained by the injured party and the profit he has lost. Rule: It is established that a debtor’s failure to perform his contractual obligations is a fault giving rise to liability, and that, where the contracting parties specify the amount of compensation in the event of rescission of the contract, the liability ensuing from rescission of the contract is tortious liability for which the contracting parties have specified the amount of compensation by a penalty clause. A penalty clause is not confined to contractual liability but may also apply to tortious liability. Once the penalty clause contained in the contract lapses upon its rescission, the compensation payable by the contracting party who has defaulted on his obligations becomes a matter left to the court, and the judge has control over the penalty clause within the scope of tortious liability. In that case, the judge assesses the damage sustained by the injured party and the profit he has lost.