On The Adjustment Of Liquidated Damages For Breach Of Contract

In Chinese Contract Law, the 114th provision stipulates that it is necessary to properly adjust when the amount of the agreed liquidated damages is excessively higher or lower than that of the losses caused by breach of contract. It is a significant progress to link the liquidated damages to the losses caused by breach of contract, and to endow the judge and arbitrator with discretionary power of adjusting the amount of the liquidated damages according to the application of the parties. But the legislation makes no clear or no perfect regulations on such questions as how to identify excessively higher or lower, how to adjust, and the reference standards, principles and procedure of adjustment, there are different understandings in the theory and judicial practice. This makes the courts or the arbitral institutions adopt different ways in dealing with the specific cases, leading to great difficulties for the accurate application of this provision, resulting in the confusion of the applicable law in the process of liquidated damages adjustment, going against actualize the judicial unification. Therefore, the adjustment of liquidated damages is not only necessary and reasonable, but also essential. The adjustment of liquidated damages has important theoretical significance and practical significance, and contributes to actualize the purposeful value and instrumental value. We must comply with certain principles, that is, sticking to the principle of equality, respecting the principle of autonomy of will of parties, taking consideration into the principle of goodwill, insisting on the principle of and the principle of recognizing the party's application as requisite. Meanwhile, the adjustment of liquidated damages must comply with certain applicable conditions such as the existence of the legal and valid liquidated damages provision, the existence of breaching contract, the amount of the agreed liquidated damages being excessively higher than or lower than that of the losses caused by breach of contract, the parties putting forward the application. In order to actualize the equality and justice, the adjustment of liquidated damages have to abide by some basis and procedures. The bases include reference standards and evaluating factors in the process of the liquidated damages adjustment. The procedures include the application and adducing evidence of the liquidated damages adjustment, and the interpretation exertion of the court and arbitration institution. In view of the blurred regulations in the criteria and extent of the liquidated damages adjustment, the unclear procedure problems of the liquidated damages adjustment, the arbitrary judicial discretion caused by the excessively abstract law regulation, it is essential for us to perfect and develop Chinese the system of liquidated damages. In the legislation and judicial practice in the future, it is necessary to make the criteria and extent of the liquidated damages adjustment clear, make the procedure of the liquidated damages detailed, properly control the discretionary right of the court and arbitration organization, restrict the time limit of the right of claim exerted by the parties. Constant improvement and development will be achieved to make a classification of the fuzzy understanding and falsity in the process of liquidated damages adjustment, unify the understandings, achieve the unification of the judicial application, realize judicial justice, and promote social harmony.