|
At the first level, in China a pre-set sum of money or a method for calculation of damages will generally be regarded as liquidated damage at the outset. It is a valid clause unless at the request of the other party the court finds that this liquidated damages are indeed excessive, compared with the actual loss from breach of contract. To the contrary, English counterpart normally presumes a pre-set sum of money or a method for calculation of damages within a contract as a penalty clause. Then, its validity must be subject to further evaluation in terms of the principle of proportionality.
At the second level when evaluating proportionality of “penalty clause”, the major criterion for Chinese courts is to compare the sum of penalty clause with the actual loss. If it is far higher than the actual loss, then this penalty clause will be regarded excessive and accordingly void. Herein, 30% of the amount of actual loss by breach of contract is the crucial line.
Nevertheless, there is one more condition for a valid liquidated damage in England that the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages.
The result of such difference may be summarized as follows. With regard to the power to reduce the excessive amount of penalty conferred upon Chinese courts, the courts must not reduce such amount to the extent of the actual loss. Such modified damage is certainly higher than the actual loss, as long as it does not exceed 30% of the amount of actual loss. Nevertheless, there would be no doubt that an English court will adjust the excessive amount of a penalty clause to the amount of the actual loss, neither more nor less.
2. Similarity
In terms of the different presumption and legal conditions in the two jurisdictions, it seems more difficult for a penalty clause to be enforced in England than in China. However, if we look into the substantive side of the English judgements I referred to in the above, we would find that there even exists similarity between English courts and Chinese courts in the sense of analyzing whether a penalty clause is proportionate to the actual loss or not.
|
