Kuwait Court of Cassation principle number 359

Summary: - Penalty clause. An obligation accessory to the principal obligation. Its nature. An agreement on the sanction for breach of the principal obligation. Its implication. The lapse of the principal obligation entails the lapse of the penalty clause. Its effect. The compensation prescribed pursuant thereto is disregarded. The judge may assess compensation, if due to the creditor, according to the general rules placing the burden of proving damage, its occurrence and its amount upon him. The challenged judgment’s ruling rescinding the investment contract and requiring the appellant company to pay the value of the penalty clause contained in the aforementioned contract despite its lapse in examining the elements of liability. An error in applying the law requiring its cassation. Rule: It is established in the jurisprudence of this Court that a penalty clause is an obligation accessory to the principal obligation, as it is an agreement on the sanction for breach of that obligation. If the principal obligation lapses, the penalty clause lapses with it, and the compensation prescribed pursuant thereto is disregarded. If compensation is due to the creditor, the judge assesses it according to the general rules placing the burden of proving damage, its occurrence and its amount upon the creditor. That being so, the challenged judgment upheld the first-instance judgment rescinding the investment contract at issue, and the cessation of the contract entails the lapse of the penalty clause. Since the challenged judgment required the appellant company to pay the value of the penalty clause contained in the investment contract at issue despite its lapse in examining the elements of liability, it is defective by reason of error in applying the law, requiring its partial cassation in this respect.