On The Judicial Adjustment Of Penalty

With the rapid development of economy, contracts play a more and more important role in the market economy. Penalty, an important relief system of the contract parties, possesses incomparable advantages in maintaining stable economic order and promoting economic efficiency.However, penalty, specified on the basis of the client’s will, leads to a large gap between the agreed liquidated damages and the actual default loss, which deviates from the objective of fairness and justice the penalty system pursues. Therefore, law is required to interfere with party autonomy for judicial adjustment of inappropriate penalty. This thesis, concerned with the judicial adjustment of penalty focuses on how China applies the system reasonably.In addition to the introduction and conclusion, the thesis is divided into3parts.The first part analyzes the system value that the judicial adjustment of penalty holds. The main difference of the nature of liquidated damages between countries like Germany and France and those of Britain and America lies whether to admit punitive penalty.Penalty should have both compensatory and punitive nature. The judicial adjustment is to revise the deviation from the fair value of penalty and places restrictions on the doer’s "unlimited freedom", returning the value of fairness and justice, so the system is justified.The second part discusses the status quo of judicial adjustment of penalty in China. Firstly, the penalty judicial adjustment start-up shall be borne by the parties to the judicial authority; in terms of the allocation of the burden of proof, the situation whether the parties request to increase the penalty or reduce the penalty should be distinguished. Moreover, the allocation of the burden of proof varies according to different requests. The core of identifying penalty adjustment is "the default loss", which consists of factors like subjective default, contract implementation, case nature, substitute transaction cost, interest balance behind default behavior, etc. The major problem of penalty judicial adjustment system exists in China is that the relevant legal provisions are too mechanical and lack flexibility and some important procedures, causing the loss of justice in the trial. In addition, the adjustment standards lay too much emphasis on principles that are not conducive to the judge’s discretion.The third part proposes suggestions to perfect the penalty system of China. Punitive liquidated damages should be stated clearly in legal provisions,which helps the parties reach a rational agreement when preparing a contract; reducing liquidated damages in deliberate default should not be requested; liquidated damages not to be paid based on the actual damage, whether damages occur or not, the parties must pay penalty. In applying the entry condition of penalty judicial adjustment and duration of the law, it is essential to cohere with the parties’requests In the first instance proof period; the burden of proof of the parties should distinguished and distributed in the light of different situations; judge’s interpretation right scope and conditions should be limited strictly and applied conditionally.Possible innovations of this article:as a judge, the author mainly analyzes the judicial adjustment of penalty from the perspective of judicial practice and the situation in China.The author states that penalty, which arouses huge controversy among academic field, is in nature both compensatory and punitive and also supplies an analysis of its superiority. Finally, relevant suggestions are put forward.The shortcomings of this research are that it fails to give an incisive analysis of how to apply the penalty judicial adjustment in practice and the theoretical analysis is not detailed.