Reviewing Judicial Adjustments To Agreed Liquidated Damages

Liquidated Damages refers to a certain amount of compensations that a party of the contract agrees to pay to the aggrieved party in the event of breach of the contract.The agreement on the amount of liquidated damages reflects the free will of parties,and embodies the pursuit for the value of freedom of the law.Compared to other forms of compensation regarding breach of contract,the liquidated damages system will exempt the observant party from the burden of proof when contract is breached,and will reduce the difficulty in verifying the extent of the damage.The liquidated damages system can directly be applied in order to quickly and efficiently compensate for the observant party.To avoid the liability of breaching the contract,parties of contract would usually take initiative to fulfill their respective obligations.The trade order in the market is hence maintained.According to The Contract Law and The Judicial Interpretation II of The Contract Law in China,liquidated damages are associated with the actual damage.Clear and specific as the laws may seem,there may still be a large discrepancy between the pre-set liability and the actual damage.In both theory and judicial practices,there has always been a controversy about the way courts and arbitral authorities understand the laws and regulations regarding the adjustments to the amount of liquidated damages agreed by both parties.This thesis,in a practical perspective,will explore the approaches,methods and the extent of the judicial adjustments to liquidated damages based on the legitimacy and appropriateness.The humble suggestions will be brought up to the standard and methods of liquidated damages adjustments in judicial practices.The thesis consists of five main sections.The first section summaries some common questions that courts have encountered concerning liquidated damages adjustments through analyzing some particular cases.The second section discusses the theoretical foundation of liquidated damages,which includes its concept,features,properties,and the relationship between liquidated damages and compensations,deposit as well as continued performance of contract.The comparison of various adjustment systems of liquidated damages will be discussed in Section 3.With the reference to the civil law system,the common law system as well as the relevant laws and regulations in Taiwan,this section examines the legitimacy of liquidated damages adjustments applied by courts.Section 4 focuses on the issues regarding liquidated damages adjustments in judicial practices.For example,undefined liquidated damages may prevent courts from making appropriate adjustments;what standard should be applied to calculate the actual damage;both parties may have already agreed to waive the terms regarding liquidated damages in their contract;whether courts should adjust liquidated damages in the first place;and some other factors that may affect judicial adjustments.Some suggestions are proposed against the aforementioned issues in Section 5.The adjustments of liquidated damages should adhere to the principle of appropriateness.In substantive law,liquidated damages are clearly defined,as this determines whether liquidated damages or other forms of compensations should be applied in breach of contract.The adjustment standards and rules for the agreed liquidated damages in different cases should be summarized.In procedure law,burden of proof should be clarified for both parties.Besides,whether judges are authorized to make adjustments to liquidated damages should be justified.Furthermore,deadlines for the application for liquidated damages adjustments need to be clearly set.