Theoretical and practical aspects of liquidated damages and application under the law of the Republic of Lithuania

Abstract

Research limitations – in this article the research is limited to the analysis of theoretical and practical aspects of liquidated damages in the contemporary legal relationships between commercial parties that of relatively equal bargaining power. The author analyzes and evaluates potential application of liquidated damages under the law of Lithuanian Republic, only when liquidated damages are integral with the commercial justification test. Practical implications – the article initiates a discussion whether adopting a similar test to commercial justification that would apply to penalties under the CC would enhance the legal certainty and parties’ autonomy in contractual relationships in Lithuanian Republic, or perhaps a more radical solution is required, such as establishing liquidated damages as a separate form of liability, with additional grounds for voiding the liquidated damages clause, based on the unreasonableness of the agreed amount and/or unfairness of the contract process. Originality – there are only few scholars that analyzed the concept of liquidated damages and dealt with some aspects concerned with the application of liquidated damages under the law of Lithuanian Republic. Meškys (2012) separated liquidated damages from penalties and considered that the Supreme Court of Lithuania established liquidated damages as an independent form of security of obligations under CC 6.70(1), whereas Bublienė and Truskaitė-Paškevičienė (2013) disagreed with this position by concluding that deterrence of the breach and securing contract performance is incompatible with the purpose of liquidated damages and that under the Article 6.256(2) of the CC liquidated damages may only function as a penalty. Nevertheless, the questions, such as whether liquidated damages together with the commercial justification test meet the needs of today’s commercial world in terms of legal certainty and parties’ autonomy [...]