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So far, the two legal conditions and the presumption with regard to liquidated damages are still dominant in English legal regime. Nevertheless, under the impact of the civil law system, the former unfriendly attitude against penalty clause by the common law system has been changed to some extent so far, although its hostile attitude does still not shift at all. The English judges began to reform its perception of penalty clause. On the one hand, a judgement called on the judge to “be slow to find terms agreed by the parties to be in terrorem (a terrorizing threat) rather than a genuine agreement providing for fixed formula of loss.” In particular, on the other, in his judgement Lord Woolf asserted that
“It will normally be insufficient to establish that a provision is objectionably penal to identify situations where the application of the provision could result in a larger sum being recovered by the injured party than his actual loss. Even in such situations, so long as the sum payable in the event of non–compliance with the contract is not extravagant, having regard to the range of losses that it could reasonably be anticipated it would have to cover at the time the contact was made, it can still be a genuine pre-estimate of the loss that would be suffered and so a perfectly valid liquidated damage provision.”
Although based on the two judgements we cannot say that England has abandoned the presumption of penalty clauses, we could however catch a signal that English court is inclined to reduce the strength of the link between a larger pre-set sum and penalty. To make it straightforward, as long as the sum payable can reasonably be anticipated it can still be a genuine pre-estimate of the loss. It can be seen that construction of liquidated damages are being preferred, though the judgement of Lord Woolf has been seriously criticized in England.
III. Comparative Study between Civil Law System and Common Law System
1. Difference
Looking into the practices of Chinese courts and English courts regarding penalty, we would draw a conclusion in no time that penalty is processed differently in the two legal systems.
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