The System of Rules on the Adjustment of Liquidated Damages-Taking Article 65 of the Interpretation of the General Provisions of the Contract Law in the Civil Code as the Starting Point
Article 65 of the Interpretation by the Supreme People's Court of the Gener-al Provisions of the Contract Law in the Civil Code(hereinafter referred to as"the Interpreta-tion")specifically provides for the judicial discretionary rules on the reduction of liquidated damages.Although the issue of judicial augmentation of liquidated damages is not stipulated in the Interpretation,Article 65 of the Interpretation should be applied by analogy in accordance with Article 585 of the Civil Code and the logic of reverse thinking in dealing with related cases.Meanwhile,courts should properly handle the relationship between judicial augmentation of liq-uidated damages and damages for breach of contract in accordance with the requirements of the"principle of compensation"and the"principle of autonomy of will",so as to achieve fair and reasonable remedies for the non-breaching party.When dealing with cases involving judicial re-duction of liquidated damages,the relationship between different discretionary rules for adjus-ting liquidated damages under different forms of breach of contract and the difference between liquidated damages and specific performance should also be considered.As far as the applicable relationship between liquidated damages and continued performance is concerned,it should be analyzed concretely by distinguishing the different purposes of the establishment of liquidated damages clauses.If the liquidated damages clauses are set for breach of contract resulting from delay in performance,the liquidated damages should be limited only to the liability for compen-sation for the loss arising from the delay in the performance of contract.If the liquidated damage clauses are set for non-performance or fundamental breach of the contract,the non-defaulting party has the right to claim liquidated damages as well as the right to claim specific performance when such performance is possible,and the liquidated damages should be limited to the liability for compensation for the loss arising from the delay in performance.If there is no special agree-ment between the parties,the non-breaching party may claim liquidated damages and specific performance from the breaching party based on the same default of the contract.If a specific performance cannot recoup all the loss,the non-breaching party may claim liquidated damages as compensation for the loss.The non-breaching party may claim liquidated damages and specif-ic performance from the breaching party based on different acts of breach of contract,but the to-tal amount should not exceed the benefit that the non-breaching party would have obtained if the contract were normally performed and it should also be subject to the limitation of the foresee-ability rule.As for the case of impossibility of performance,it does not mean the direct applica-tion of the liability for liquidated damages,but the circumstances of the case should be taken in-to consideration accordingly.
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