Court Overturns Reduced Liquidated Damages in Chinese Property Pre-Sale Dispute, Awards Buyer 26,452 RMB
Court Overturns Reduced Liquidated Damages in Chinese Property Pre-Sale Dispute, Awards Buyer 26,452 RMB
CASE OVERVIEW
A Chinese real estate developer was ordered to pay a home buyer 26,452 RMB in liquidated damages for a 149-day delay in delivering a property. The retrial court overturned the original judgment, which had reduced the contractual penalty from 0.15% per day to 0.05% per day. The key legal issue was whether a court could reduce liquidated damages on its own initiative when the defendant did not request such a reduction.
CASE BACKGROUND AND FACTS
In September 2004, Mr. Ye entered into a pre-sale contract with Pingyang Taiyu Real Estate Development Company (Taiyu) to purchase an apartment in the Taiyu Huayuan complex in Eastern China. The total purchase price was 295,880 RMB. Mr. Ye paid the full amount as agreed.
The contract required Taiyu to deliver the completed apartment by March 30, 2006. The contract specified that if delivery was delayed by more than 90 days, Taiyu would pay the buyer liquidated damages at a rate of 0.15% of the total purchase price per day for each day of delay.
The project was a redevelopment of an old urban area. The original developer, Pingyang Yutian Real Estate Development Company, changed its name to Taiyu in October 2005. The construction contractor completed the building in July 2006, and the project passed its final inspection on August 19, 2006. Taiyu notified Mr. Ye to take possession starting August 21, 2006. However, Mr. Ye refused to accept the property because the developer had not installed permanent residential power supply. The units were still using temporary construction power.
COURT PROCEEDINGS AND EVIDENCE
Mr. Ye filed a lawsuit in the local court in 2007. The original court found that Taiyu had delayed delivery by 149 days. However, the court ruled that the contractual liquidated damages of 0.15% per day were excessively high compared to the actual loss suffered by Mr. Ye. Without any request from the defendant, the court reduced the rate to 0.05% per day and awarded Mr. Ye 22,043.06 RMB.
Mr. Ye did not accept this judgment. He filed a complaint with the procuratorate. The procuratorate issued a civil protest, arguing that the court had no legal basis to reduce the liquidated damages because Taiyu had not appeared in court and had not requested any reduction. The case was then retried by a higher court.
In the retrial, Mr. Ye argued that the original court had applied the law incorrectly. Taiyu defended the original judgment, claiming the reduction was lawful.
COURT FINDINGS AND JUDGMENT
The retrial court confirmed that the contract was valid. It found that Taiyu had indeed delayed delivery by 149 days. The court noted that Mr. Ye had only claimed damages at a rate of 0.06% per day in his lawsuit, which was lower than the contractual rate of 0.15% per day.
The critical finding was that Taiyu had not appeared in the original trial and had not requested the court to reduce the liquidated damages. The retrial court held that under Chinese contract law, a court may only reduce liquidated damages if the defaulting party makes a specific request. Since Taiyu did not make such a request, the original court had no legal authority to reduce the penalty on its own motion.
The retrial court therefore reversed the original judgment regarding the amount of damages. It ordered Taiyu to pay Mr. Ye liquidated damages of 26,452 RMB, calculated at the rate of 0.06% per day as requested by Mr. Ye. The court also upheld the original order requiring Taiyu to complete the installation of residential power supply facilities within one month.
KEY LEGAL PRINCIPLES
The court applied the principle that liquidated damages are a contractual agreement between parties. Under the Contract Law of China, a court may reduce liquidated damages only if the defaulting party requests it and proves that the agreed amount is excessively high compared to actual losses. A court cannot reduce liquidated damages on its own initiative. The burden of proof lies with the party seeking the reduction.
PRACTICAL INSIGHTS
This case highlights the importance of appearing in court and actively defending one’s position. A defendant who fails to appear may lose the opportunity to request a reduction of liquidated damages, even if the contractual penalty is high. For buyers, this case confirms that courts will enforce agreed-upon penalty clauses when the seller does not challenge them. For developers, it is a reminder to respond to lawsuits and present evidence regarding actual losses if they wish to reduce penalty payments.
LEGAL REFERENCES
Civil Procedure Law of the People’s Republic of China (2007 Revision), Article 153(1)(2) and Article 186(1).
DISCLAIMER
This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified attorney for advice on specific legal matters.