Abstract
The new Civil Code of the People’s Republic of China (“the Code”), enacted by the National People’s Congress (“NPC”), is now the most authoritative statute in private law matters. The Code has three rules for liquidated damages. The first rule gives contracting parties the freedom to agree on this remedy and enjoy its convenience and clarity. It reduces the burden of proof, saves judicial resources, and respects freedom of contract. The second rule lets contracting parties request the courts to increase or reduce pre-set amounts that are disproportionate to the losses caused by breaches. This unique and flexible mechanism balances justice for both contracting sides, guarantees the validity of liquidated damages, advances respect for contractual freedom, makes this remedy more compensatory, and introduces benefits that other jurisdictions lack.
However, the third rule is defective, unjustifiably imposing different liabilities on those delaying contract performance compared to other breaches. This Article traces and analyzes the academic and historical roots of this problem, finding that the NPC has caused this defective rule to persist for over twenty years by mingling two contradictory academic assessment criteria and injecting confusion into black-letter laws. This Article proposes a solution through a slight amendment to this rule.
Furthermore, this Article identifies a gap in the Code regarding whether liquidated damages and contractual damages can concurrently apply. The NPC created this gap and let it exist for decades, causing nationwide contradictory judicial judgments, despite its significant impact on contracting parties. By examining the nature of two remedies, this Article proposes a reform to fill the gap.
This Article has academic value by further advancing the underpinnings of liquidated damages, tackling longstanding confusion, and filling current research gaps. It can also be a practical guide for utilizing this important remedy, both for China and its global trade partners. As the Code took effect recently, this analysis is also timely.
First Page
459
Repository Citation
Wei
Wen,
Liquidated Damages in the New Civil Code of China: Underpinnings, Confusion, and Reforms,
19
U. Pa. Asian L. Rev.
459
(2024).
Available at:
https://scholarship.law.upenn.edu/alr/vol19/iss3/3