(c)  German law

be nonsensical to allow a party to claim a sum stipulated as payable for non­ -performance, if that party were able at the same time to force performance of the primary duty. The claim for other penalty sums, for instance for late or defective performance, does not of course prohibit a concurrent claim for performance.

As in the Common law, penalty clauses are subject to scrutiny by the courts, though the criterion for, and method of, such scrutiny is different. The BGB provides that, if application is made to the court before the penalty is paid, a penalty which is ‘disproportionately high’ can be reduced to a ‘reasonable amount’. Such a trigger for scrutiny is somewhat different to that under the Common law, where the court’s jurisdiction to consider agreed damages clauses is founded upon the question of whether the clause represents a genuine pre-estimate of loss at the time the contract was made: if it is, then even if at the time of the breach the damages payable may be ‘disproportionately high’ in relation to actual loss suffered, the clause will stand; on the other hand, if the clause was not a genuine pre-estimate of likely losses, it will be struck out of the contract (not amended), the party suffering the breach having instead to fall back upon a common law damages claim. However, the outcome of the Common law approach may not be so different to the German approach: a disproportionately high German penalty clause can be altered to provide ‘reasonable’ recovery (reasonableness, naturally suggesting some reference to the loss actually suffered), and an English common law damages award is based upon assessment of damages at the time of the trial by reference to the actual loss suffered by the party. The English approach is to look at the good faith nature of the term as agreed by the parties, the German approach to consider the practical effect of the clause at the time a complaint is raised. To that extent, the English approach may be said to pay more regard to the nature of the promise as made.

Unlike the position in the Common law and mixed legal systems, a stipulated penalty may not in German law be the full extent of what may be claimed by the creditor: the creditor is entitled to claim the penalty as the ‘minimum amount’ of damages, but is permitted to claim further damages if his loss exceeds the amount of the penalty.247 This is at odds with the Common law approach, where, if parties commit their agreement as to exigible damages to a valid liquidated damages clause, the amount ­stipulated is that which is required to be paid by the party in breach, regardless of whether the actual amount of damages suffered

247  §340(2).