Research On The Judicial Discretionary Reduction Rules For Liquidated Damages

The judicial discretionary rules of liquidated damages in China are based on Article 114 of the Contract Law,Article 29 of the Interpretation of Contract Law(II)and Part 2 of the Guiding Opinions Based on the theory and standard system of liability for breach of contract in China,the judicial discretionary reduction rules of liquidated damages have become an indispensable part of the liquidated damages system.In practice,disputes involving the discretionary reduction of liquidated damages amount are common.It is one of the most controversial focuses in private contract transactions.On the normalization level,with the entry into force and abolition of several basic laws,from being mentioned to neglected to reiterating,the judicial discretionary reduction rule of liquidated damages was finally formally established in the 1999 Contract Law,and then it has been continuously concerned by legislators,and further refined and perfected through judicial interpretation and judicial policy.However,the application of this rule in practice is unsatisfactory.There are some problems,such as the probabilistic reduction of liquidated damages,the uncontrolled application of the 30% standard,and the varying extent of the reduction.These problems arise from the misunderstanding of guiding ideology,the reversal of the order of application of discretion criteria,and the confusion of basic theories.Therefore,there is an urgent need for further research and discussion on the theoretical framework,applicable objects,judgment standards and measurement factors of the discretion rules.The limitation of liquidated damages originated from Roman law.After the confrontation of different opinions in different periods,the succession of systems and the refinement of judicial practice,it has developed into a judicial discretionary reduction rule of liquidated damages generally recognized and established by civil law countries.Private autonomy requires people to respect for the private agreement of liquidated damages,while arbitrary contractual freedom ignores the vulnerable groups.Therefore,the right basis of judicial discretionary reduction lies in balancing contractual freedom and contractual justice.This right has more advantages than other liquidated damages control means such as invalid fine,public order and good customs,honesty and credibility.The object of judicial discretion in our country's law is the liquidated damages,which need not be divided into punitive liquidated damages and compensatory liquidated damages,because the final effect of the remedy for breach of contract is the same,as long as the parties agreed and valid liquidated damages.The type or nature of liquidated damages,which has been debated by theory boundary,should be re-recognized on the function of liquidated damages.The liquidated damages have the dual functions of pressure and compensation.The proportion of the two functions is freely agreed upon by the parties according to their will in the contract.Judicial authority should actively explore the real intention of the parties and make judgments cautiously when discounting the liquidated damages.The liquidated damages paid or promised by the defaulting party shall not be subject to discretion.The essential element of judicial discretionary reduction is whether the amount of liquidated damages is excessively higher than the loss caused.The judgment criteria are divided into main criteria and auxiliary criteria.The main criteria include "loss caused" and "comprehensive measurement factor" when judging whether the amount of liquidated damages is excessively higher.The "comprehensive measuring factor" standard is adopted in judging the discretionary amplitude reduction.The auxiliary standard is "whether the amount of liquidated damages exceeds 30% of the losses caused".In the main criteria,excessive excess should be analyzed from both subjective and objective aspects.The losses caused include actual losses and loss of anticipated interests.Actual losses and losses caused in legal provisions should have the same meaning.The secondary status of the 30% standard should be clarified and judges should be prohibited from fleeing to the auxiliary standard when discounting liquidated damages.The comprehensive measurement factors include the performance of the contract,the degree of fault of the parties,the anticipated profit,the principle of fairness and the principle of good faith.Emphasizing the anticipated interests is helpful to determine the actual loss fairly and to prove the initial intention of the parties to agree on liquidated damages.In the case of partial performance of the contract,the reduction of the liquidated damages depends on the benefit of the observing party.The deferred performance of money and debt can be distinguished between loan contracts and other contracts.In loan contracts,attention should be paid to the relationship between the statutory interest limit rules and the discretionary reduction of liquidated damages.The fault degree of both the breaching party and the observing party should be taken into account,and can be evaluated comprehensively from both subjective and objective levels to measure whether the liquidated damages are too high.The principle of fairness can be divided into formal fairness and substantive fairness.Formal fairness requires respecting and guaranteeing the will of the parties and their realization.On the one hand,substantive fairness needs to examine the contracting status of the parties,and pay attention to the difference between commercial contracts and consumer contracts.On the other hand,it needs to take into account the economic situation of the debtor.The principle of good faith not only restricts the exercise of the rights of the parties,but also restricts the discretion of judges.In addition,it helps to consider the objective matters not reflected in the normalization level in the case of judicial discretionary reduction.Whether liquidated damages are discretionary should be judged after the end of the court debate in order to examine all factors of evaluation significance.