Study On The Reduction Rule Of Liquidated Damages

Reduction Rule of Liquidated Damages means to reduce the amount of liquidated damages appropriately based on the application of the parties or judge ex officio when such amount of liquidated damages agreed by the parties over-exceeds the damages caused by the default.In view of the planning and construction of such rule,there are many loopholes and contradictions in legislation and related theories of PRC.This paper takes the type of liquidated damages as the entry point,and studies on the related issues of the Reduction Rule of Liquidated Damages with the following three parts as below:Part 1: the basic theory of Reduction Rule of Liquidated Damages is mainly discussed in the following two aspects.First,the type distinction of liquidated damages: In terms of the nature and function of liquidated damages,the guarantee function of liquidated damages is not established.Even if it is recognized that it has a guarantee function,such function is only a general guarantee of debts,contributing little to the positive significance of the reduction rule.The statutory liquidated damages are not subject to the reduction rule.The discussion of liquidated damages is limited to the liquidated damages agreed by the parties.For the liquidated damages agreed by the parties,it shall adhere to the “damage preset” as the type of differentiation criteria,according to the intention and purpose of the liquidated damages clauses agreed by the parties.It is clarified that the compensatory liquidated damages are recognized as the damage preset.Second,the basic value for the reduction of liquidated damages: the reduction of liquidated damages could effectively resolve the conflicts between the profit prohibition and the predetermined attributes,balance the requirements of private law autonomy and individual justice,and respond to the big environment of civil and commercial integration by paying more attention to the efficiency effect of commercial activities by the liquidated damages.Part 2: the applicable basis of the reduction of liquidated damages,is mainly discussed from three aspects: First,the compensatory liquidated damages could be divided into scheduled compensation and non-scheduled compensation,with“whether the party has the meaning to prove the damages” as the distinctive criteria.In case of the scheduled compensation,the parties agree on the liquidated damages that may deviate from the damages.If there is a breach of contract,the debtor shall pay the liquidated damages without proving the damages by the parties.Such liquidated damages focus on efficiency and could be used in conjunction with commercial activities.For non-scheduled compensation,the parties have no intention to pay liquidated damages deviating excessively from damages.Therefore,the parties need to prove the damage and compare the amount of liquidated damages with the proved damages,which will result in the reduction of liquidated damages.Such liquidated damages are truly subject to the reduction rule.Punitive liquidated damages,due to the existence of punishment intentions,is not subject to reduction rule.Second,the reduction path construction under the type distinction: whether reduction is a kind of right,affects the structure of the reduction system.In the path with reduction as rights supported by the current theory,the right to defend,the right to claim,and the right of action of formation are not valid.When the object of reduction is targeted to non-scheduled compensation,reduction is not a right,but a judge duty with the nature of “public”.Reduction non-rights path establishment will also have a significant impact on specific issues in the reduction system,including the initiation party,initiation mode,and aufklarungsreckt of judges.Third,the applicable premise of the reduction of liquidated damages is that the liquidated damages agreement is valid,and the liquidated damages claim is effective and continues to exist.Part 3: the reduction rule is mainly discussed from three aspects: First,the mode of reduction: Under the reduction non-rights path,reduction shall be initiated by the judge ex officio.Such judge's ex officio does not deny the possibility of the parties' own application,and reduces the procedural requirements for the parties' application,as long as the parties indicate that the liquidated damages are too high or they do not accept the liquidated damages.Second,the aufklarungsreckt is a kind of authority innature and has certain discretionary space.In the reduction rule,there is no need for the judge to explain the application,but the proof rules need to be explained.Third,the comprehensive measurement of reductions: in the question of whether and how to reduce,“damages incurred” as the basis of measure,shall include damage and expected benefits and be limited to the scope of statutory damages.Reduction shall be combined with factors of the three stages to verify.With 30% as the auxiliary baseline,if the liquidated damages are higher than the damages by 30%,it shall be reduced,unless it is considered not to be reduced according to the comprehensive measurement;if the liquidated damage is less than the damages by 30%,it shall not be reduced,unless it is considered to be reduced according to the comprehensive measurement.