Research On Punitive Liquidated Damages

With continuous economic development and proposal of diversifiedrequirements on contents of contract, the functions and roles of liquidated damagesare gradually stressed. In current liquidated damages system of China, liquidateddamages are divided into compensatory damages and punitive ones according to itsfunction. At present, the current legal compensatory damages system is perfect inChina and it is widely applicable. But punitive liquidated damages system is stillwithin semi-blank state, as laws have not expressly defined or distinguished punitiveliquidated damages from compensatory damages. So, it is a constraint and waste toone important function of liquidated damages.Liquidated damages are one of the important ways of remedy for breach ofcontract. Only by fully affirming the punitive property of liquidated damages andrunning punitive liquidated damages at the track of contract law with the identity of“liquidated damages in inherent sense”, it will play its roles of supervision andguarantee for performance of contract better. The “identity” can meet therequirements of king provision-honesty and credibility theoretically and it is also thedue meaning of rules abided by in contract. No matter any party of contract, theymust adhere to spirit of contract in concluding a contract, determine each term andcondition of contract kindly, cautiously and prohibitively and strictly execute them incontract-performing process. Punitive liquidated damages will deter parties involvedto strictly implement their respective obligations as specified in contract, imposesevere punishment to the conducts of violating contract and play an important role insafeguarding the spirit of contract.For safeguarding reasonable benefits of observant party or creditor, theimportant status of liquidated damages with punitive property as the main functionshall be determined. What is more, punitive liquidated damages shall be separatedfrom liquidated damages system, especially Clause2of Article114in Contract Lawon specifying the reduction of compensatory liquidated damages based on damage; so as to respect free will of the parties involved in concluding a contract and the spirit ofcontract based on expression of tree meanings.As for the agreement on the amount of punitive liquidated damages, parties ofcontract shall be respected in principle. As for the problems on whether the amount ofliquidated damages is too high and whether it needs to be reduced properly, the judgeshall take the fault of default party or debtor in contract-violating behaviors intoaccount instead of actual damage incurred-the basis of compensatory liquidateddamages. Punitive liquidated damages aim to punish improper behaviors of violatingcontract and contract spirit at will as a kind of private sanction. So, if morepunishment is imposed to contract-violating behavior without fault orcontract-violating behavior at a low fault degree, it will violate the original will ofliquidated damages to safeguard the sprit of contract. So, in the rules of reducing theamount of liquidated damages, fault degree of default party and actual situation shallbe taken into account to reduce it properly. The rule of20%to total amount of objectproposed in academic circle can be referred to in working out rules. While ensuringindependent right of claiming for punitive liquidated damages to be free frominterference of right of claiming for damages, it will increase the cost of breach ofcontract and supervise parties involved to perform contract actively if the amount ofliquidated damages at the rate of20%to total object is charged for punitive.With punitive property as the main function, punitive liquidated damages do nothave reserve function exempted from damages. With such design, an independentframe system can be built for punitive liquidated damages and the system cansupplement compensatory liquidated damages as well so as to provide a perfectframework system for generation of liquidated damages system. At the preconditionof civil law with compensation as the principle, punish contract-violating behaviorswith private way, limited regulations and penalty and safeguard equality and fairnesswhile realizing the freedom of contract.