Is the actual loss in the liquidated damages based on the actual losses?

There are specific provisions on compensation for losses in the Contract Law, that is, if one of the parties fails to perform its contractual obligations or the performance of its contractual obligations does not conform to the agreement, causing losses to the other party, the amount of compensation for losses shall be equivalent to the losses caused by the breach of contract, including the benefits that can be obtained after the performance of the contract, but shall not exceed the losses that may be caused by the breach of contract that the breaching party foresaw or should have foreseen at the time of entering into the contract. Party B's failure to repay the arrears is sufficient to determine the actual loss incurred by Party A.

According to the relevant laws and regulations, if the parties claim that the agreed liquidated damages are too high and request an appropriate reduction of the actual losses in the liquidated damages, the people's court shall weigh them in accordance with the principles of fairness and good faith on the basis of the actual losses, taking into account comprehensive factors such as the performance of the contract, the degree of fault of the parties, and the expected benefits. Where the liquidated damages agreed upon by the parties exceed 30% of the losses caused, they can generally be found to be "excessively higher than the losses caused" as provided for in paragraph 2 of Article 114 of the Contract Law.

Relevant provisions of the Interpretation (II) of the Supreme People's Court on Several Issues Concerning the Application of the Contract Law of the People's Republic of China

Article 29: Where a party claims that the agreed liquidated damages are too high and requests an appropriate reduction, the people's court shall, on the basis of the actual losses, take into account comprehensive factors such as the performance of the contract, the degree of fault of the parties, and the expected benefits, and weigh them in accordance with the principles of fairness and good faith, and make a ruling.

Where the liquidated damages agreed upon by the parties exceed 30% of the losses caused, they can generally be found to be "excessively higher than the losses caused" as provided for in paragraph 2 of Article 114 of the Contract Law.

Legal analysis: Liability for breach of contract is generally based on actual losses. With regard to liability for breach of contract, if the parties have an agreement, the agreement shall be followed first, and the autonomy of the parties shall be respected to the greatest extent.

However, the liquidated damages agreed by the parties shall generally not exceed 30% of the actual losses. If there is no agreement, it shall be determined on the basis of the actual losses caused to the other party by the breach of contract and the concealment. It should not be distinguished whether there is a written agreement or not, and the liability for breach of contract should be measured according to whether there is actual loss.

Legal basis: Civil Code of the People's Republic of China Article 585 The parties may agree that when one party breaches the contract, it shall pay a certain amount of liquidated damages to the other party according to the circumstances of the breach, and may also agree on the method of calculating the amount of compensation for losses arising from the breach. If the agreed liquidated damages are lower than the losses caused, the people's court or arbitration institution may increase them at the request of the parties; Where the agreed liquidated damages are excessively higher than the losses caused, the people's court or arbitration institution may appropriately reduce them at the request of the parties.

If the party concerned agrees on liquidated damages for delayed performance, the defaulting party shall also perform the debt after paying the liquidated damages.

Yes, but liquidated damages are not just based on actual losses. The basis for determining whether the liquidated damages are too high is not only the actual loss, but also other factors such as expected benefits. According to the law, the parties may agree that in the event of a breach of contract, one party shall pay the other party a fixed amount of liquidated damages according to the circumstances of the breach, and may also agree on the method of calculating the amount of compensation for losses arising from the breach.

Article 588 of the Civil Code Where the parties agree on both liquidated damages and deposits, the other party may choose to apply the liquidated damages or deposit clause when one party breaches the contract. If the deposit is insufficient to compensate for the losses caused by one party's breach of contract, the other party may request compensation for losses in excess of the amount of the deposit.

Legal analysis: If the liquidated damages are insufficient to make up for the actual losses, the parties may request the People's Law Branch or the arbitration institution to increase them, and there is no contradiction between the two. Therefore, China's contract law does not deny the simultaneous use of liquidated damages and loss compensation, and the right to claim liquidated damages and the right to claim loss compensation are two independent claims.

Legal basis: Article 389 of the Code of the People's Republic of China on Civil Residue Article 389 The scope of security of a security interest includes the principal creditor's right and its interest, liquidated damages, damages, the cost of keeping the secured property and realizing the security right of the bearer. Where the parties agree otherwise, follow their agreement.