Penalty clauses within different legal systems

Abstract

Research limitations: in the light of the civil law system terms of liquidated damages and penalty clause are used interchangeably, since both are enforceable. However, a distinction between the two can be made on the basis that a liquidated damages clause is used to estimate damages in case of breach, provided that there has been an actual harm to the plaintiff, whereas a penalty clauses is used to establish a penalty to be paid in case of breach with the intent to encourage performance. The latter also does not require proof of any real damage. Practical implications: the article initiates a discussion on the importance of ensuring the legal certainty in contractual relations, particularly in the field of enforceability of penalty clauses, not only on the national but also on the international level. Originality/Value: in the law of contracts the clash of common law and civil law in respect of the treatment of penalty clauses has drawn a lot of attention of scientists and researchers; however, the question of this article, i.e. how to eliminate the clash between two different legal systems and to achieve binding uniform regulation that would control the enforceability of penalty clauses, remains of high importance.