Agreements on Damages in the Common Law "When these ghosts from the past stand in the path of justice clanking their medieval chains, the proper course for the judge is to pass through them undeterred." Atkin LJ

This sentence is what a prominent English judge has said about the power of judges in dealing with cases in English law. An example of this power can be found in contractual terms for damages called Penalties and Liquidated Damages.
As it is expected, contracts are basically made to be performed and not to be avoided according to the whims of market fluctuation. However, the adherence to freedom of contract does not mean leaving the parties totally unattended, but providing adequate legislation and rules for the support and protection of the weak, and then allowing the market to work in their interest freely.
The study of agreed damages clauses in English law reveals that Penalty and Liquidated Damages Doctrine will work somewhat different from what is said above. What has persuaded some English judges to adhere to this doctrine, besides their general concern for justice, was the angle that they used to see and construe agreed damages amounts in contracts. They always considered this amount as an estimated compensation for the loss suffered through a breach.
In this article I will try to explain the above theory and its development in English law, which later affected the laws of all other common law countries. I will show how an agreement on damages are construed by judges and on what basis they will find it either enforceable or avoidable, and what happens if they adhere to the latter.
I also will attempt to show how traditional policy of intervening in agreed damages clauses has affected the legal character of these clauses in English law.