February 2026
A Brief Analysis of Excessive Liquidated Damages for Delay in Construction Projects and the Factors Considered for Reduction (Taiwan)
I. Introduction
In negotiating a construction contract, the parties must not only clearly define the scope of work, cost structure, and payment and settlement mechanisms, but also carefully address the project schedule, which significantly affects the overall performance outcome. To ensure that the contractor completes the work within the agreed timeframe, it is common practice in the construction industry to stipulate a completion deadline and provide for liquidated damages for delay, thereby incentivizing timely performance and expeditious completion. Accordingly, prior to contract formation, both the employer and the contractor bear the important responsibility of prudently assessing the reasonableness of the project schedule and the related contractual provisions.
Under current construction contracts, a definite completion period and schedule are typically specified, together with a mechanism imposing delay penalties for late completion. However, what is the legal nature of such delay penalties? Where the agreed amount is manifestly excessive, may the contractor seek a reduction? Against this backdrop, this article, focusing on construction contracts, examines the legal characterization of liquidated damages for delay, the scope of judicial reduction, and the standards adopted by Taiwanese courts in practice.
II. The Nature and Types of Common Delay Damages in Construction Projects
In construction practice, in order to effectively control project progress, contracts commonly provide for clauses such as “daily delay damages [1] ,” “compensation for breach [2] ,” and “a cap on liquidated damages at a certain percentage of the contract price [3] .” Under the Civil Code, these delay-related payment provisions are characterized as contractual liquidated damages.
Pursuant to Article 250 of the Civil Code and prevailing judicial interpretations, liquidated damages may be categorized into two types based on their legal nature:
1.First Type: Liquidated Damages
Liquidated damages refer to an amount agreed upon in advance by the parties as compensation for losses arising from non-performance. Once non-performance occurs, the creditor [4] is, in principle, not required to prove the existence or quantum of damages caused by the breach, and may demand payment in accordance with the agreed liquidated damages clause. However, where no damage has been sustained, no claim may be made [5] .
Under this situation, once the employer has claimed delay liquidated damages in accordance with the contract, they may not additionally seek separate compensation from the contractor for damages arising from the same delay.
By way of example, under the Public Construction Commission’s (PCC) Standard Form Design-Build Contract [6] , Article 18, Paragraph 4 provides:
“Delay liquidated damages are agreed as liquidated damages. The total amount (including damages for failure to cure delay) shall be capped at 10% of the total contract price (or, where justified by special circumstances, a higher percentage not exceeding 20%, as specified in the tender documents), and shall not be included in the cap on liability under Article 19, Paragraph 8).”
From its wording, the clause expressly characterizes delay damages as liquidated damages.
The determination of the nature of liquidated damages depends on the parties’ intent. However, where the contract does not clearly specify the nature of the liquidated damages and the parties’ intent cannot be ascertained, Article 250, Paragraph 2 of the Civil Code provides that such damages are, in principle, presumed to be liquidated damages [7] .
2. Second Type: Penalty Damages
Penalty liquidated damages primarily serve to compel performance and are sanctionary or coercive in nature. Accordingly, upon non-performance, the creditor may claim such damages regardless of whether an actual loss has been suffered. Moreover, if additional damage exists, the creditor may claim both the penalty liquidated damages and separate compensation for further losses [8] . Under this characterization, penalty liquidated damages do not preclude claims for other damages arising from delay.
For example, under the PCC Standard Form Construction Contract [9] , Article 11, Paragraph 10, Subparagraph 2 provides:
“Where the inspection result is graded ‘C’ and the deficiency is attributable to the contractor, in addition to actions taken pursuant to the ‘Regulations Governing the Operation of the Construction Quality Inspection Team,’ a penalty liquidated damages amount for quality deficiencies shall be imposed, calculated in accordance with the preceding subparagraph plus ___% of the project quality control expenses (to be specified by the procuring entity in the tender documents; if not specified, 1%).”
By its wording, this clause clearly characterizes the amount as penalty liquidated damages.
III. Standards for Judicial Reduction of Excessive Liquidated Damages
Where project delays occur and substantial delay liquidated damages accumulate, the contractor should first seek to negotiate with the employer for a reduction. If negotiations fail, the contractor may consider, pursuant to Article 252 of the Civil Code, initiating litigation or arbitration to request that the court or arbitral tribunal reduce the liquidated damages [10] . However, where the contractor voluntarily pays delay liquidated damages of its own free will, such payment is deemed voluntary performance in accordance with the contract. In such circumstances, the contractor may neither demand restitution from the employer nor subsequently petition the court for a reduction. [11]
Article 252 of the Civil Code provides: “If the agreed penalty is disproportionately high, the court may reduce it to a reasonable amount.” The provision does not distinguish between different types of liquidated damages. According to the majority view in judicial practice, based on the principles of contractual fairness and equivalence of consideration, courts may, ex officio, reduce liquidated damages regardless of whether they are punitive in nature or constitute a pre-estimate of total damages [12] .
In determining whether a reduction is warranted, courts first assess whether the agreed liquidated damages are excessive; if so, they then proceed to consider the appropriate extent of reduction in light of the circumstances of the case [13] .
1. Determining Whether Liquidated Damages Are Excessive
In determining whether penalty damages are excessive, courts, in practice, consider not only the actual damages suffered by the creditor, but also all circumstances existing at the time of the debtor’s breach [14] .
With respect to liquidated damages, since their purpose is to compensate the creditor for the damages suffered due to the non-realization of the claim, the court shall take into account general objective facts, socio-economic conditions, the circumstances of the damages suffered by the parties, and all benefits that the creditor could have enjoyed had the debtor performed in accordance with the contract as the standard of assessment. Where there has been partial performance of the obligation, the amount may also be reduced in proportion to the benefits received by the creditor. In particular, consideration shall be given to the creditor’s actual direct losses and indirect losses in determining whether the agreed liquidated damages are excessive [15] .
2. Factors Considered When Reducing Liquidated Damages [16]
With respect to whether liquidated damages should be reduced, courts examine the specific circumstances of each individual case and comprehensively consider all factors that may affect the reasonableness of the liquidated damages, rather than being confined to particular categories of standards; this determination is highly case-specific. The following analyzes the factors considered by courts in past cases when reducing liquidated damages, including but not limited to:
A. The Socio-Economic Conditions of the Parties
Courts assess the overall changes in the parties’ economic interests before and after the breach, in particular whether the creditor has already obtained substantial economic benefits through disposition of the subject matter or other transactions. If the creditor claims to have suffered damage due to the breach, but its financial condition has not substantially deteriorated and it even continues to enjoy significant economic benefits, the court may find that claiming the full amount of liquidated damages would result in unjust enrichment, and may reduce the amount in accordance with the principle of equity [17] .
B. Market Trends of the Subject Matter
In joint development or real estate-related construction cases, courts refer to housing market conditions, rental levels, and market development trends in the area where the subject matter is located, in order to evaluate the substantive impact of the breach on the creditor’s usage interests and economic expectations. If market conditions have risen, such that the creditor has not suffered substantial disadvantage due to delayed completion, the court may determine that the originally agreed liquidated damages are manifestly excessive and reduce them proportionally [18] .
C. Shortage of Labor and Raw Materials
Where the contractor argues that delay in performance was caused by labor shortages or shortages of raw materials, courts do not uniformly regard such circumstances as grounds for exemption from liability, but instead distinguish based on their imputability, foreseeability, and the contractor’s efforts in response. If the shortage constitutes a global or structural supply imbalance and the contractor has made reasonable efforts to perform, the court, after considering that the actual damages are minor and the proportion of performance completed, is more inclined to find the liquidated damages overly harsh and reduce them [19] . Conversely, if the contractor fails to present concrete evidence, such arguments may not be accepted.
D. Whether the Damages Are Commensurate
Courts consider that although liquidated damages have both compensatory and punitive functions, their amount must still bear a reasonable relationship to the creditor’s actual damages. If the creditor fails to prove the existence of significant direct or indirect damages, or if the extent of such damages is clearly lower than the agreed liquidated damages, the court may find the liquidated damages manifestly disproportionate and reduce them accordingly [20] .
E. Damages Caused by Re-tendering
Where a construction contract is terminated due to the contractor’s breach and the project is re-tendered, courts specifically compare the actual construction costs after re-tendering with the original contract price. If the result shows that the owner’s actual expenditure has instead decreased, courts often find that the high liquidated damages have lost their compensatory function, and thus determine them to be excessive and reduce them [21] .
F. Assessment of the Benefits Obtainable from the Subject Matter
When reviewing whether to reduce liquidated damages, courts take as an important reference the benefits that the creditor could reasonably expect upon completion of the project. If, due to delayed performance, the creditor has lost significant usage or revenue benefits, and such damages exceed the amount of agreed liquidated damages, the court may determine that the liquidated damages remain reasonable and decline to reduce them [22] .
G. Harm to Public Interest
In cases involving public works, courts generally adopt a stricter stance. Judgments frequently hold that project delays affect not only the government agency itself, but also harm the overall public interest, such as traffic safety, public health, or post-disaster reconstruction efficiency. In light of the high need to safeguard public interests, even if the amount of liquidated damages is substantial, courts will usually not reduce it so long as it is not manifestly disproportionate, in order to strengthen the warning effect on the contractor’s performance [23] .
H. Benefits Derived from Partial Performance
In determining whether partial performance is sufficient as a basis for reducing liquidated damages, the key issue is whether the subject of performance is divisible. If the construction results can be used in stages and the creditor has obtained substantial benefits from partial performance, courts tend to reduce liquidated damages proportionally. Conversely, if the project is integral in nature or characterized by one-time delivery, such that it cannot be practically used prior to full completion, courts will not use the superficial completion ratio as a basis for reduction [24] .
IV. Burden of Proof for the Reduction of Liquidated Damages
Regarding the allocation of the burden of proof on whether liquidated damages should be reduced, prevailing practice holds that, although Article 252 of the Civil Code allows the court to reduce liquidated damages either upon the parties’ request or ex officio, the initiation of the reduction mechanism is, in principle, premised on a concrete claim by the party [25] . In other words, courts generally will not initiate a review of reduction on their own when the parties do not contest that the liquidated damages are excessive; rather, the proceedings are triggered by a party’s petition or defense.
Further, the party seeking a reduction of liquidated damages typically bears the burden of proof, and must specifically demonstrate that the originally agreed liquidated damages are manifestly unfair in relation to the actual damages, economic benefits, or overall objective circumstances. In practice, courts place particular emphasis on whether the party has presented concrete evidence regarding the degree of actual damages, proportion of performance, benefits obtainable, socio-economic conditions, or market trends. Abstract or generalized claims are usually insufficient to undermine the contractual liquidated damages provisions.
However, once the party has presented a certain factual basis and relevant evidence, the court is no longer constrained by the reduction amount claimed by the party. The court may, ex officio, consider the entirety of the case, applying principles of fairness and proportionality to determine whether to adjust the liquidated damages to a reasonable amount. This operational approach shows that, although the burden of proof for reducing liquidated damages rests with the party requesting reduction, the final decision on whether to reduce and by how much remains a matter of judicial discretion based on substantive fairness.
V. Conclusion
Based on recent Taiwanese court practice in construction contracts, liquidated damages for project delays are a common contractual tool for risk allocation and performance management. In accordance with the principles of private autonomy and freedom of contract, courts generally respect the amount of liquidated damages agreed upon by the parties. Unless the amount is excessive and manifestly disproportionate, it should be binding.
Regarding whether liquidated damages are excessive, courts conduct a substantive, case-by-case review, considering factors such as the parties’ economic conditions, market trends, the degree of project completion, the severity of the breach, whether the owner has suffered actual damages, and the public interest. Courts may, either on their own initiative or upon the parties’ request, reduce the liquidated damages to a reasonable amount.
When a project is nearly complete, the breach has not affected the contractual purpose or practical use, and no substantial economic loss has occurred, courts are particularly inclined to intervene and adjust the liquidated damages. Therefore, when owners and contractors stipulate delay liquidated damages in construction contracts, they should, in addition to performance management considerations, carefully assess the reasonable proportion between the liquidated damages and foreseeable damages to minimize the risk of future disputes.
[1] See Civil Judgment of the Taiwan High Court, Taichung Branch, 99 Jian-Shang-Geng (II) No. 75.
[2] See Civil Judgment of the Taiwan High Court, 109 Zhong-Shang-Geng (I) No. 31.
[3] See Civil Judgment of the Taiwan High Court, Taichung Branch, 99 Jian-Shang-Geng (II) No. 75.
[4] In a construction contract, the “creditor” refers to the employer, and the “debtor” refers to the contractor.
[5] See Civil Judgment of the Supreme Court, 83 Tai-Shang No. 2879.
[6] See Public Construction Commission, Executive Yuan, Standard Form Contract for Design-Build Procurement.
[7] See Civil Judgment of the Supreme Court, 86 Tai-Shang No. 1620.
[8] See Civil Judgment of the Supreme Court, 83 Tai-Shang No. 2879.
[9] See Public Construction Commission, Executive Yuan, Standard Form Contract for Design-Build Procurement.
[10] See Civil Judgment of the Supreme Court, 89 Tai-Shang No. 1021.
[11] See Civil Judgment of the Supreme Court, 79 Tai-Shang No. 1915.
[12] See Civil Judgment of the Supreme Court, 89 Tai-Shang No. 2824.
[13] See Civil Judgment of the Supreme Court, 109 Tai-Shang No. 497.
[14] See Civil Judgment of the Supreme Court, 107 Tai-Shang No. 764.
[15] See Civil Judgment of the Supreme Court, 113 Tai-Shang No. 2161; see Civil Judgment of the Supreme Court, 109 Tai-Shang No. 497.
[16] See Wang, Chun-wen, Wang, Chun-Wen (2025), An Analysis of Judicial Discretion in the Reduction of Liquidated Damages in Construction Cases, pp. 80–89, Master’s Thesis, In-Service Master’s Program, Department of Law, National Chung Cheng University.
[17] See Civil Judgment of the Taiwan High Court, 112 Chong-Shang-Zi No. 89; Civil Ruling of the Supreme Court, 113 Tai-Shang-Zi No. 647.
[18] See Civil Judgment of the Supreme Court, 110 Chong-Shang-Zi No. 244; Civil Judgment of the Supreme Court, 111 Tai-Shang-Zi No. 2777.
[19] See Civil Judgment of the Supreme Court, 111 Tai-Shang-Zi No. 2777.
[20] See Civil Ruling of the Supreme Court, 108 Tai-Shang-Zi No. 1431; Civil Judgment of the Taiwan High Court, 109 Chong-Shang-Geng-Yi-Zi No. 31.
[21] See Civil Judgment of the Taiwan High Court, Tainan Branch, 107 Chong-Shang-Geng-Er-Zi No. 8; Civil Judgment of the Supreme Court, 108 Tai-Shang-Zi No. 1275.
[22] See Civil Judgment of the Supreme Court, 107 Tai-Shang-Zi No. 764.
[23] See Civil Judgment of the Taiwan High Court, 111 Chong-Shang-Zi No. 918; Civil Ruling of the Supreme Court, 112 Tai-Shang-Zi No. 1814; Civil Judgment of the Taiwan High Court, Kaohsiung Branch, 109 Jian-Shang-Geng-Yi-Zi No. 4.
[24] See Civil Judgment of the Taiwan High Court, 109 Shang-Zi No. 699; Civil Ruling of the Supreme Court, 110 Tai-Shang-Zi No. 2175; Civil Judgment of the Taiwan High Court, 108 Jian-Shang-Zi No. 80; Civil Judgment of the Taichung District Court, 109 Jian-Zi No. 95.
[25] See Civil Judgment of the Supreme Court, 92 Tai-Shang-Zi No. 2747; Civil Judgment of the Supreme Court, 109 Tai-Shang-Zi No. 497.
In negotiating a construction contract, the parties must not only clearly define the scope of work, cost structure, and payment and settlement mechanisms, but also carefully address the project schedule, which significantly affects the overall performance outcome. To ensure that the contractor completes the work within the agreed timeframe, it is common practice in the construction industry to stipulate a completion deadline and provide for liquidated damages for delay, thereby incentivizing timely performance and expeditious completion. Accordingly, prior to contract formation, both the employer and the contractor bear the important responsibility of prudently assessing the reasonableness of the project schedule and the related contractual provisions.
Under current construction contracts, a definite completion period and schedule are typically specified, together with a mechanism imposing delay penalties for late completion. However, what is the legal nature of such delay penalties? Where the agreed amount is manifestly excessive, may the contractor seek a reduction? Against this backdrop, this article, focusing on construction contracts, examines the legal characterization of liquidated damages for delay, the scope of judicial reduction, and the standards adopted by Taiwanese courts in practice.
II. The Nature and Types of Common Delay Damages in Construction Projects
In construction practice, in order to effectively control project progress, contracts commonly provide for clauses such as “daily delay damages [1] ,” “compensation for breach [2] ,” and “a cap on liquidated damages at a certain percentage of the contract price [3] .” Under the Civil Code, these delay-related payment provisions are characterized as contractual liquidated damages.
Pursuant to Article 250 of the Civil Code and prevailing judicial interpretations, liquidated damages may be categorized into two types based on their legal nature:
1.First Type: Liquidated Damages
Liquidated damages refer to an amount agreed upon in advance by the parties as compensation for losses arising from non-performance. Once non-performance occurs, the creditor [4] is, in principle, not required to prove the existence or quantum of damages caused by the breach, and may demand payment in accordance with the agreed liquidated damages clause. However, where no damage has been sustained, no claim may be made [5] .
Under this situation, once the employer has claimed delay liquidated damages in accordance with the contract, they may not additionally seek separate compensation from the contractor for damages arising from the same delay.
By way of example, under the Public Construction Commission’s (PCC) Standard Form Design-Build Contract [6] , Article 18, Paragraph 4 provides:
“Delay liquidated damages are agreed as liquidated damages. The total amount (including damages for failure to cure delay) shall be capped at 10% of the total contract price (or, where justified by special circumstances, a higher percentage not exceeding 20%, as specified in the tender documents), and shall not be included in the cap on liability under Article 19, Paragraph 8).”
From its wording, the clause expressly characterizes delay damages as liquidated damages.
The determination of the nature of liquidated damages depends on the parties’ intent. However, where the contract does not clearly specify the nature of the liquidated damages and the parties’ intent cannot be ascertained, Article 250, Paragraph 2 of the Civil Code provides that such damages are, in principle, presumed to be liquidated damages [7] .
2. Second Type: Penalty Damages
Penalty liquidated damages primarily serve to compel performance and are sanctionary or coercive in nature. Accordingly, upon non-performance, the creditor may claim such damages regardless of whether an actual loss has been suffered. Moreover, if additional damage exists, the creditor may claim both the penalty liquidated damages and separate compensation for further losses [8] . Under this characterization, penalty liquidated damages do not preclude claims for other damages arising from delay.
For example, under the PCC Standard Form Construction Contract [9] , Article 11, Paragraph 10, Subparagraph 2 provides:
“Where the inspection result is graded ‘C’ and the deficiency is attributable to the contractor, in addition to actions taken pursuant to the ‘Regulations Governing the Operation of the Construction Quality Inspection Team,’ a penalty liquidated damages amount for quality deficiencies shall be imposed, calculated in accordance with the preceding subparagraph plus ___% of the project quality control expenses (to be specified by the procuring entity in the tender documents; if not specified, 1%).”
By its wording, this clause clearly characterizes the amount as penalty liquidated damages.
III. Standards for Judicial Reduction of Excessive Liquidated Damages
Where project delays occur and substantial delay liquidated damages accumulate, the contractor should first seek to negotiate with the employer for a reduction. If negotiations fail, the contractor may consider, pursuant to Article 252 of the Civil Code, initiating litigation or arbitration to request that the court or arbitral tribunal reduce the liquidated damages [10] . However, where the contractor voluntarily pays delay liquidated damages of its own free will, such payment is deemed voluntary performance in accordance with the contract. In such circumstances, the contractor may neither demand restitution from the employer nor subsequently petition the court for a reduction. [11]
Article 252 of the Civil Code provides: “If the agreed penalty is disproportionately high, the court may reduce it to a reasonable amount.” The provision does not distinguish between different types of liquidated damages. According to the majority view in judicial practice, based on the principles of contractual fairness and equivalence of consideration, courts may, ex officio, reduce liquidated damages regardless of whether they are punitive in nature or constitute a pre-estimate of total damages [12] .
In determining whether a reduction is warranted, courts first assess whether the agreed liquidated damages are excessive; if so, they then proceed to consider the appropriate extent of reduction in light of the circumstances of the case [13] .
1. Determining Whether Liquidated Damages Are Excessive
In determining whether penalty damages are excessive, courts, in practice, consider not only the actual damages suffered by the creditor, but also all circumstances existing at the time of the debtor’s breach [14] .
With respect to liquidated damages, since their purpose is to compensate the creditor for the damages suffered due to the non-realization of the claim, the court shall take into account general objective facts, socio-economic conditions, the circumstances of the damages suffered by the parties, and all benefits that the creditor could have enjoyed had the debtor performed in accordance with the contract as the standard of assessment. Where there has been partial performance of the obligation, the amount may also be reduced in proportion to the benefits received by the creditor. In particular, consideration shall be given to the creditor’s actual direct losses and indirect losses in determining whether the agreed liquidated damages are excessive [15] .
2. Factors Considered When Reducing Liquidated Damages [16]
With respect to whether liquidated damages should be reduced, courts examine the specific circumstances of each individual case and comprehensively consider all factors that may affect the reasonableness of the liquidated damages, rather than being confined to particular categories of standards; this determination is highly case-specific. The following analyzes the factors considered by courts in past cases when reducing liquidated damages, including but not limited to:
A. The Socio-Economic Conditions of the Parties
Courts assess the overall changes in the parties’ economic interests before and after the breach, in particular whether the creditor has already obtained substantial economic benefits through disposition of the subject matter or other transactions. If the creditor claims to have suffered damage due to the breach, but its financial condition has not substantially deteriorated and it even continues to enjoy significant economic benefits, the court may find that claiming the full amount of liquidated damages would result in unjust enrichment, and may reduce the amount in accordance with the principle of equity [17] .
B. Market Trends of the Subject Matter
In joint development or real estate-related construction cases, courts refer to housing market conditions, rental levels, and market development trends in the area where the subject matter is located, in order to evaluate the substantive impact of the breach on the creditor’s usage interests and economic expectations. If market conditions have risen, such that the creditor has not suffered substantial disadvantage due to delayed completion, the court may determine that the originally agreed liquidated damages are manifestly excessive and reduce them proportionally [18] .
C. Shortage of Labor and Raw Materials
Where the contractor argues that delay in performance was caused by labor shortages or shortages of raw materials, courts do not uniformly regard such circumstances as grounds for exemption from liability, but instead distinguish based on their imputability, foreseeability, and the contractor’s efforts in response. If the shortage constitutes a global or structural supply imbalance and the contractor has made reasonable efforts to perform, the court, after considering that the actual damages are minor and the proportion of performance completed, is more inclined to find the liquidated damages overly harsh and reduce them [19] . Conversely, if the contractor fails to present concrete evidence, such arguments may not be accepted.
D. Whether the Damages Are Commensurate
Courts consider that although liquidated damages have both compensatory and punitive functions, their amount must still bear a reasonable relationship to the creditor’s actual damages. If the creditor fails to prove the existence of significant direct or indirect damages, or if the extent of such damages is clearly lower than the agreed liquidated damages, the court may find the liquidated damages manifestly disproportionate and reduce them accordingly [20] .
E. Damages Caused by Re-tendering
Where a construction contract is terminated due to the contractor’s breach and the project is re-tendered, courts specifically compare the actual construction costs after re-tendering with the original contract price. If the result shows that the owner’s actual expenditure has instead decreased, courts often find that the high liquidated damages have lost their compensatory function, and thus determine them to be excessive and reduce them [21] .
F. Assessment of the Benefits Obtainable from the Subject Matter
When reviewing whether to reduce liquidated damages, courts take as an important reference the benefits that the creditor could reasonably expect upon completion of the project. If, due to delayed performance, the creditor has lost significant usage or revenue benefits, and such damages exceed the amount of agreed liquidated damages, the court may determine that the liquidated damages remain reasonable and decline to reduce them [22] .
G. Harm to Public Interest
In cases involving public works, courts generally adopt a stricter stance. Judgments frequently hold that project delays affect not only the government agency itself, but also harm the overall public interest, such as traffic safety, public health, or post-disaster reconstruction efficiency. In light of the high need to safeguard public interests, even if the amount of liquidated damages is substantial, courts will usually not reduce it so long as it is not manifestly disproportionate, in order to strengthen the warning effect on the contractor’s performance [23] .
H. Benefits Derived from Partial Performance
In determining whether partial performance is sufficient as a basis for reducing liquidated damages, the key issue is whether the subject of performance is divisible. If the construction results can be used in stages and the creditor has obtained substantial benefits from partial performance, courts tend to reduce liquidated damages proportionally. Conversely, if the project is integral in nature or characterized by one-time delivery, such that it cannot be practically used prior to full completion, courts will not use the superficial completion ratio as a basis for reduction [24] .
IV. Burden of Proof for the Reduction of Liquidated Damages
Regarding the allocation of the burden of proof on whether liquidated damages should be reduced, prevailing practice holds that, although Article 252 of the Civil Code allows the court to reduce liquidated damages either upon the parties’ request or ex officio, the initiation of the reduction mechanism is, in principle, premised on a concrete claim by the party [25] . In other words, courts generally will not initiate a review of reduction on their own when the parties do not contest that the liquidated damages are excessive; rather, the proceedings are triggered by a party’s petition or defense.
Further, the party seeking a reduction of liquidated damages typically bears the burden of proof, and must specifically demonstrate that the originally agreed liquidated damages are manifestly unfair in relation to the actual damages, economic benefits, or overall objective circumstances. In practice, courts place particular emphasis on whether the party has presented concrete evidence regarding the degree of actual damages, proportion of performance, benefits obtainable, socio-economic conditions, or market trends. Abstract or generalized claims are usually insufficient to undermine the contractual liquidated damages provisions.
However, once the party has presented a certain factual basis and relevant evidence, the court is no longer constrained by the reduction amount claimed by the party. The court may, ex officio, consider the entirety of the case, applying principles of fairness and proportionality to determine whether to adjust the liquidated damages to a reasonable amount. This operational approach shows that, although the burden of proof for reducing liquidated damages rests with the party requesting reduction, the final decision on whether to reduce and by how much remains a matter of judicial discretion based on substantive fairness.
V. Conclusion
Based on recent Taiwanese court practice in construction contracts, liquidated damages for project delays are a common contractual tool for risk allocation and performance management. In accordance with the principles of private autonomy and freedom of contract, courts generally respect the amount of liquidated damages agreed upon by the parties. Unless the amount is excessive and manifestly disproportionate, it should be binding.
Regarding whether liquidated damages are excessive, courts conduct a substantive, case-by-case review, considering factors such as the parties’ economic conditions, market trends, the degree of project completion, the severity of the breach, whether the owner has suffered actual damages, and the public interest. Courts may, either on their own initiative or upon the parties’ request, reduce the liquidated damages to a reasonable amount.
When a project is nearly complete, the breach has not affected the contractual purpose or practical use, and no substantial economic loss has occurred, courts are particularly inclined to intervene and adjust the liquidated damages. Therefore, when owners and contractors stipulate delay liquidated damages in construction contracts, they should, in addition to performance management considerations, carefully assess the reasonable proportion between the liquidated damages and foreseeable damages to minimize the risk of future disputes.
[1] See Civil Judgment of the Taiwan High Court, Taichung Branch, 99 Jian-Shang-Geng (II) No. 75.
[2] See Civil Judgment of the Taiwan High Court, 109 Zhong-Shang-Geng (I) No. 31.
[3] See Civil Judgment of the Taiwan High Court, Taichung Branch, 99 Jian-Shang-Geng (II) No. 75.
[4] In a construction contract, the “creditor” refers to the employer, and the “debtor” refers to the contractor.
[5] See Civil Judgment of the Supreme Court, 83 Tai-Shang No. 2879.
[6] See Public Construction Commission, Executive Yuan, Standard Form Contract for Design-Build Procurement.
[7] See Civil Judgment of the Supreme Court, 86 Tai-Shang No. 1620.
[8] See Civil Judgment of the Supreme Court, 83 Tai-Shang No. 2879.
[9] See Public Construction Commission, Executive Yuan, Standard Form Contract for Design-Build Procurement.
[10] See Civil Judgment of the Supreme Court, 89 Tai-Shang No. 1021.
[11] See Civil Judgment of the Supreme Court, 79 Tai-Shang No. 1915.
[12] See Civil Judgment of the Supreme Court, 89 Tai-Shang No. 2824.
[13] See Civil Judgment of the Supreme Court, 109 Tai-Shang No. 497.
[14] See Civil Judgment of the Supreme Court, 107 Tai-Shang No. 764.
[15] See Civil Judgment of the Supreme Court, 113 Tai-Shang No. 2161; see Civil Judgment of the Supreme Court, 109 Tai-Shang No. 497.
[16] See Wang, Chun-wen, Wang, Chun-Wen (2025), An Analysis of Judicial Discretion in the Reduction of Liquidated Damages in Construction Cases, pp. 80–89, Master’s Thesis, In-Service Master’s Program, Department of Law, National Chung Cheng University.
[17] See Civil Judgment of the Taiwan High Court, 112 Chong-Shang-Zi No. 89; Civil Ruling of the Supreme Court, 113 Tai-Shang-Zi No. 647.
[18] See Civil Judgment of the Supreme Court, 110 Chong-Shang-Zi No. 244; Civil Judgment of the Supreme Court, 111 Tai-Shang-Zi No. 2777.
[19] See Civil Judgment of the Supreme Court, 111 Tai-Shang-Zi No. 2777.
[20] See Civil Ruling of the Supreme Court, 108 Tai-Shang-Zi No. 1431; Civil Judgment of the Taiwan High Court, 109 Chong-Shang-Geng-Yi-Zi No. 31.
[21] See Civil Judgment of the Taiwan High Court, Tainan Branch, 107 Chong-Shang-Geng-Er-Zi No. 8; Civil Judgment of the Supreme Court, 108 Tai-Shang-Zi No. 1275.
[22] See Civil Judgment of the Supreme Court, 107 Tai-Shang-Zi No. 764.
[23] See Civil Judgment of the Taiwan High Court, 111 Chong-Shang-Zi No. 918; Civil Ruling of the Supreme Court, 112 Tai-Shang-Zi No. 1814; Civil Judgment of the Taiwan High Court, Kaohsiung Branch, 109 Jian-Shang-Geng-Yi-Zi No. 4.
[24] See Civil Judgment of the Taiwan High Court, 109 Shang-Zi No. 699; Civil Ruling of the Supreme Court, 110 Tai-Shang-Zi No. 2175; Civil Judgment of the Taiwan High Court, 108 Jian-Shang-Zi No. 80; Civil Judgment of the Taichung District Court, 109 Jian-Zi No. 95.
[25] See Civil Judgment of the Supreme Court, 92 Tai-Shang-Zi No. 2747; Civil Judgment of the Supreme Court, 109 Tai-Shang-Zi No. 497.
