A fixed or determined sum agreed by the parties to a contract to be payable on breach of a warranty by one of the parties. Care must be taken when drafting a liquidated damages clause to ensure that it is characterised as a liquidated damages clause and not a penalty, because a penalty will be unenforceable. This may be achieved by ensuring that the liquidated damages sum does not impose a consequence "out of all proportion to the legitimate interest of the innocent party in performance of the primary obligation" under the contract (127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53 at [56]).

The term also describes sums expressly payable as liquidated damages under statute. In all other cases where the court quantifies or assesses damages or loss, whether pecuniary or non-pecuniary, the damages are known as unliquidated damages.