What can be done if a certain amount of liquidated damages in a contract under Chinese law does not correspond with the amount of losses caused?

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According to Article 585 of the Civil Code of the People’s Republic of China, parties (to a contract) may agree that one party shall pay a certain amount of liquidated damages to another party in the case of a contract breach, or may agree to the calculation method of the amount of compensation for losses arising from the breach of the contract.

If a certain amount of liquidated damages in the contract under Chinese law does not correspond with the amount of losses caused, a party may request the People's court or an arbitration institution to increase or decrease the claimed amount respectively.

In accordance with Article 585 of the Civil Code of the People’s Republic of China, the following provisions may be applied;

  1. If liquidated damages in the contract are lower than the losses caused, the People's Court or an arbitration institution may increase them at the request of the party concerned;
  2. If liquidated damages in the contract are excessively higher than the losses caused, the People's Court or an arbitration institution may reduce them at the request of the party concerned.

 

Published: 27 June 2022

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