Discuss The Adjustment Of Liquidated Damages

Along with rapid development of economy,contract has been playing an increasingly important role in the market-oriented economy.As an important way of relief,liquidated damages have found wide applications in the field of civil affairs.However,because liquidated damages are based on involved parties' advance evaluation of losses incurred by breach of contract,this might result in a gap between liquidated damages and actual losses,which is deviated from pursuit of fairness and justice in the field of civil affairs.Under the condition,it is necessary to make necessary and proper intervention in involved parties' autonomy of will with the help of law.This paper studies the adjustment system of damages stipulated for breach of contract.The research focus is on exploring problems existing in China's liquidated damages adjustment system and how to ensure proper applications of the system.Excluding the introduction and conclusion part,this paper consists of four sections:Section 1 studies the adjustment status of damages stipulated for breach of contract in China.Principles for damages stipulated for breach of contract and adjustment of such damages have been provided in General Principles of the Civil Law of the People's Republic of China,Contract Law of the People's Republic of China,Judicial Interpretation(2)of Contract Law of the People's Republic of China,etc.Since China's legal provisions on the issue are mostly reflected as principles,courts in different regions and even upper and lower courts in the same region vary in terms of standards adopted by them to adjust liquidated damages.To be specific,the amount of damages stipulated for breach of contract is "too high";while some is "too low".As a result,cases of the same kind might be judged differently by different courts.Section 2 examines problems existing in adjustment of damages stipulated for breach of contract.The problems are analyzed from the legislative and judicial perspective.Though China has adopted the principle of compensation as primary and punishment as supplementary as to the nature of damages stipulated for breach of contract,the value of adjusting damages stipulated for breach of contract has not yet been fully realized and clarified in China.The upper limit of the punitive liquidated damages calls for further clarification.Besides,the burden of proof concerning actual losses involved in adjustment of liquidated damages has not been well distributed among involved parties.Meanwhile,puzzlements exist in how the judge should adjust the amount of damages stipulated for breach of contract under the condition that the actual losses are unclear.Finally,the limit of time for involved parties to request adjustment of damages stipulated for breach of contract is still ambiguous.Existence of all the above problems have made it hard to safeguard justice and fairness.Section 3 investigates adjustment of damages stipulated for breach of contract in extraterritorial countries,from which the following implications can be obtained.First,the adjustment interval of damages stipulated for breach of contract should be clarified in legislation so as to provide guidance for the judge's exercise of the discretionary power.Second,adjustment made to damages stipulated for breach of contract should not interfere terms regarding damages stipulated for breach of contract unless elsewise stipulated.Before adjustment,the following aspects should be taken into account:the difference between damages stipulated for breach of contract and the actual losses should reach a significant level;the part requiring adjustment and causes of adjustment should be illustrated by the judge to involved parties;full respect should be shown to involved parties' autonomy of will;and balance of interests together with fairness and justice should be safeguarded.Section 4 provides suggestions for improvement of adjustment of damages stipulated for breach of contract.First,the value pursuit of adjustment of damages stipulated for breach of contract should be defined as balancing interests and rights of contracted parties,contractual freedom and justice.Second,relevant regulations on deposit can be applied by analogy to adjustment of punitive damages stipulated for breach of contract,stipulating that the upper adjustment limit of punitive damages stipulated for breach of contract should be smaller than or equal to 20%of the target amount of the master contract.Third,two factors,including contractual position of involved parties and whether the model contract and terms are application,should be taken into consideration.Fourth,it should be stipulated that,when the party at fault thinks that the damages stipulated for breach of contract are too high,the party at fault should assume the preliminary burden of proof.If the proof provided by the party at fault is substantiated,the judge can distribute the burden of proof concerning actual losses to the contract-abiding side.Fifth,when it is impossible to identify the specific amount of actual losses,adjustment of non-monetary debts can take the total contract amount as a reference.In terms of monetary debts,reference can be made to the regulations of private loans on the interest rate of overdue repayments to better judge properness of adjustment.Sixth,the limit of time for exercise of the right to request adjustment of damages stipulated for breach of contract should be pinned down.If the limit of time has been clarified in the first instance,then the involved parties are not allowed to request adjustment of damages stipulated for breach of contract in the second instance.If not,the second instance can remand for retrial.