Kuwait Court of Cassation principle number 80

Summary: - A penalty clause. An obligation accessory to the principal obligation. Its nature: an agreement on the penalty for breach of the principal obligation. Its import: the lapse of the principal obligation entails the lapse of the penalty clause. Its effect: the compensation stipulated thereunder is disregarded. The judge may assess compensation, if due to the creditor, in accordance with the general rules that place upon him the burden of proving the damage, its occurrence, and its amount. The challenged judgment's ruling rescinding the investment contract and requiring the appellant company to pay the amount of the penalty clause contained in the aforementioned contract despite its lapse in examining the elements of liability. An error in the application of 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 penalty for breach of that obligation. If the principal obligation lapses, the penalty clause lapses with it, and the compensation stipulated thereunder is disregarded. If compensation is due to the creditor, the judge undertakes its assessment in accordance with the general rules that place upon the creditor the burden of proving the damage, its occurrence, and its amount. That being so, the challenged judgment upheld the first-instance judgment rescinding the investment contract at issue, and the termination of the contract entails the lapse of the penalty clause. Since the challenged judgment required the appellant company to pay the amount 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 an error in the application of the law, requiring its partial cassation in this respect.