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Quick Question Friday, China Law Answers, Part V
Putting a contract damages provision in your China contract will usually make sense. Photo by Steven Snodgrass.http://bit.ly/1CPPrkp
Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all these questions and then comprehensively answer them, that would soon become all that we do and we would soon be out of business. And that would be a bad thing for us and for this blog. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here.
The following was sent to us just yesterday by a lawyer based in China and it is one we get every so often (almost always from fellow lawyers) seeking help on writing a China contract.
What are commercial contract rules in China on interest for late payments? More specifically, is a contractual provision charging more for late payments or charging interest, enforceable? If these things are possible, are there restrictions voiding penalties unless they represent a bona fide estimate of loss?
The issue you are raising is usury. China has no usury law for commercial contracts; China has no law on the highest rate of interest that can be charged on a commercial contract.
2. With respect to damages in general, China does not prohibit liquidated damages. China does not have the penalty/estimate of actual damages concept like that which we have in the United States.
3. PRC Contract law provides for contract damages, or damages determined in advance by the parties to the contract. Rather than being disfavored, China actually favors contract damages since this provides clarity in litigation. For more on how to write a contract damages provision for a China contract, check out the following
- China Commercial Contracts: Writing the Contract Damage Provision
- China Contract Damages: More Art Than Science
- How To Write A China Contract. Liquidated Damages.
4. With respect to the amount of contract damages, if litigation ensues in a Chinese court the plaintiff can argue that the amount is less than actual damages and should be increased. Conversely, the defendant can argue that the damages are too high and that the amount should be reduced. In either case, the amount of contract damages does not affect the validity of the rest of the contract. It is simply one of many factual issues decided by the judge. But as stated above, Chinese courts generally favor contract damages provisions and so if yours was properly crafted, the odds of it holding are pretty good. Also, just having such a provision should give you a lot of leverage because it will make a quick court seizure of assets way more likely.
5. In general terms, no provision of a Chinese contract will invalidate the entire contract. If a provision of the contract is determined to be void (which is very rare), the judges will simply reinterpret the provision in a manner that is legal and move on.
The post Quick Question Friday, China Law Answers, Part V appeared first on China Law Blog.
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: http://www.chinalawblog.com/2015/07/quick-question-friday-china-law-answers-part-v.html
