In a diamond transaction, it would be particularly difficult to draft a liquidated damages clause that a court would view as a "good faith" attempt to preestimate damages. Often, at the time of contracting, the parties themselves are unable to accurately preestimate damages since the actual harm suffered by the promisee in the event of breach depends largely on business decisions made after entering into the contract. For example, even if at the time of contracting nonpayment would neither have bankrupted the promisee nor caused him to default on other obligations, if he subsequently made a large financial commitment in reliance on being paid and then was not, he might suffer tremendous financial and reputational harm, particularly if forced to go to court to obtain a judgment. Since at the time of contracting the magnitude of this harm could not have been predicted, liquidated damages clauses designed to compensate the promisee for this type of harm would run a serious risk of being invalidated as penalties.

Lisa Bernestein, Opting out of the Legal Sys…, loc. 160