[Direct answer]In the Beijing area, after the court reduces the penalty for breach of contract, if the actual losses of the party in compliance are higher than the reduced amount of the penalty for breach of contract, the party in compliance may still claim compensation for the difference, but must follow the principle of "making up for the losses" and not gain profits twice. According to Article 85 of the Civil Code of the People's Republic of China, if the agreed penalty for breach of contract is lower than the losses caused, the party may request an appropriate increase; if the penalty for breach of contract is excessively high compared with the losses, the court may reduce it appropriately. The reduction only applies to the penalty for breach of contract itself, and does not exclude the party in compliance from providing evidence of actual losses exceeding the amount of the penalty for breach of contract, but the party must prove that the losses are real, exceed the amount of the penalty for breach of contract, and are not covered by other compensation. It is recommended to systematically fix the evidence of losses and distinguish between the penalty for breach of contract and the actual losses. For more details, please refer to the relevant provisions.Business and contract dispute resolution services for enterprises.

1. Problem background and typical scenarios

After the penalty for breach of contract is reduced, claiming damages is a common tactic in contract breach disputes. Typical scenarios include: the penalty for breach of contract agreed in the contract is too high, and the breaching party requests a reduction and is supported by the court, but the non-breaching party believes that the reduced amount is insufficient to compensate for the actual losses; the penalty for breach of contract agreed in the contract is obviously too low, and the non-breaching party hopes to claim the expected benefits when the increase is insufficient; and the same breach of contract is claimed for both the penalty for breach of contract and the damages, fearing that it will be deemed as duplication. Many parties mistakenly believe that "if the penalty for breach of contract is set at a certain amount, they can only receive that amount", or conversely, they believe that it can be superimposed indefinitely. Both are wrong. The key lies in whether the actual losses exceed the agreed amount and whether there is duplication. Related enforcement can be combined with the above analysis.Creditor-debtor relations and enforcement case servicesAdvance.

II. Key points of dispute

There are three key points of the dispute. Firstly, whether the losses exceed the reduced breach of contract penalty: the claimant needs to compare the actual and quantifiable losses with the reduced amount, and vague claims will not be accepted. Secondly, whether there is double compensation: when the breach of contract penalty and the compensation for losses refer to the same damage, the profits cannot be superimposed, and only the difference can be claimed. Thirdly, foreseeability and mitigation: the excess part is still subject to the rules of foreseeability and mitigation. If there are foreign-related factors involved, the case can be handled accordingly.Financial capital and cross-border legal services involving foreign affairs\nEvaluate jurisdiction and the application of the law.

III. Professional analysis by Hengluo Lawyers

A case of arbitration over a commissioned creation contract dispute handled by Attorney Xiong Binrong of our firm clearly demonstrates the distinction between adjusting the penalty for breach of contract and claiming for losses. In May 2022, Shanghai A Technology Company and Shenzhen B Network Company signed a "Project Outsourcing Agreement", which stipulated a production fee of 583,000 yuan. After the respondent paid an advance of 291,500 yuan, it delayed the payment of the remaining amount. The applicant entrusted Attorney Xiong Binrong of Beijing Henglu Law Firm to apply for arbitration, requesting the payment of the contract amount of 583,000 yuan, the penalty for breach of contract of 116,600 yuan, and attorney fees and arbitration fees. The respondent argued that the applicant's delay in delivery and substandard quality constituted a fundamental breach of contract, and refused to pay all fees. After the arbitration tribunal heard the case, it adopted the attorney's main opinion and only adjusted the claim for the penalty for late payment, still ruling that the respondent should pay the contract amount of 583,000 yuan and compensate for all attorney fees. This case shows that adjusting the penalty for breach of contract does not eliminate other claims for proven losses and contractual debts. Each claim can be reviewed and supported separately. This case was handled by Beijing Henglu Law Firm.Xiong BinrongThe attorney (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

The core basis is Article 584 (Scope of Damages and Foreseeable Rules), Article 585 (Rules for Adjusting Liquidated Damages), and Article 591 (Rules for Mitigation) of the Civil Code of the People's Republic of China (effective January 1, 2021), as well as the adjudicative rules on adjusting liquidated damages and filling in losses contained in the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Contract Chapter of the Civil Code of the People's Republic of China. Practical suggestions: Set a reasonable liquidated damages when signing the contract, taking into account both compensation and deterrence; after the liquidated damages are reduced, timely sort out the list of actual losses and provide evidence for the excess amount; strictly distinguish between liquidated damages and actual loss items to avoid duplicated claims; and provide supporting evidence such as resale contracts and profit calculations for the loss of potential benefits. For those involved in contract system optimization, they can combine with the above suggestions to optimize the contract system and reduce legal risks.Intellectual property protection and corporate legal servicesImprove the terms and conditions.

5. Henglu Law Firm's Advice

The reduction of the penalty fee does not mean that the "loss is capped". The party fulfilling the contract should establish the awareness of itemized evidence: claim and prove the contract amount, penalty fee, and the difference between actual losses separately, to avoid being rejected in a general way. The key is to prove that the actual losses are genuine and exceed the reduced penalty fee, and explain that they are not covered by other compensation, strictly adhering to the principle of equalization. At the same time, do not claim the same damage repeatedly in addition to the penalty fee. Setting a reasonable penalty fee and preserving the evidence of performance and losses at the contract signing stage is a good way to reduce disputes at the source. If necessary, you can seek help from a professional evaluation agency.Special services and other case servicesDevelop a strategy.

VI. Frequently Asked Questions

Q1: After the penalty for breach of contract is lowered, can I still claim back the actual losses?

Yes, but there are prerequisites. Reducing the penalty for breach of contract only means a reduction in the amount of the penalty, which does not deny the right of the party in breach to be compensated for actual losses. If your actual losses exceed the reduced amount of the penalty, you can still claim compensation for the excess losses. The court or arbitration tribunal will review this according to the principle of making up for the losses. Conversely, if the reduced amount of the penalty is sufficient to cover the actual losses, it will be difficult to obtain additional compensation. The key is to prove that the losses are real, exceed the amount, and are not already covered by other compensation, rather than simply demanding a "difference in compensation". It is recommended to first calculate the actual losses and then decide on the claim path.

Q2: After reducing the claim, what evidence do I need to prepare to prove the difference in losses?

The core evidence includes: the original contract and the penalty clause (proving the agreed amount and the basis for adjustment), the court or arbitration's reduction documents (determining the reduced amount), the actual loss list and supporting documents (such as replenishment contracts, invoices, resale profit estimates, and proof of shutdown losses), the causality explanation of the loss and the breach of contract, and the record of mitigation measures. The organization of evidence focuses on three points: "the loss is real—exceeds the reduction amount—and is not compensated twice". If the evidence is weak, the claim for the difference is likely to be rejected. It is recommended to entrust an evaluation or obtain third-party quotes to enhance the persuasiveness, and never make claims based on estimates.

Q3: If I want to claim the difference in losses, how much extra cost will I have to bear?

If the claim for the difference in losses has been raised in the main case, the litigation fees are usually not paid separately, but calculated based on the final amount supported by the court. If a separate lawsuit is necessary, the litigation fees shall be calculated in accordance with the "Measures for the Payment of Litigation Fees" based on the amount of the claim, and shall be borne by the losing party. Lawyer's fees may vary depending on the scope of the main case. For additional evidence and representation work, the law firm may negotiate additional fees, which shall be subject to the terms of the engagement contract and there is no unified standard. It is recommended to claim the difference in losses together in the main case to avoid the time and economic costs of a separate lawsuit and improve the overall efficiency of protecting rights.

Q4: How long does it usually take to reduce the penalty and complete the compensation process?

If the loss difference is adjudicated together with the main case and follows the time limit of the main case: six months for the first-instance ordinary procedure and three months for the summary procedure; arbitration usually takes several months. If a separate lawsuit is filed, the time limit will be recalculated, plus the possible second instance, which may take more than a year overall. After the judgment or award becomes effective, the recovery of the funds will depend on the status of the other party's assets. It is recommended to provide evidence of the loss difference simultaneously in the main case to avoid procedural delays; if it is necessary to file a separate lawsuit, attention should be paid to the three-year statute of limitations and apply for property preservation simultaneously to prevent the transfer of assets and shorten the recovery period.

Q5: After the penalty for breach of contract has been reduced, what exactly should I do?

It is recommended to proceed in four steps: First, obtain the adjustment document and specify the reduced amount of the breach of contract penalty as the benchmark for comparison; Second, systematically sort out the actual losses, prepare a list of losses and attach supporting documents such as contracts, invoices, quotations, profit estimates, etc. to quantify the excess amount; Third, review whether there are cases of duplicate compensation, remove the already covered parts, and strictly adhere to the principle of making up for the shortage; Fourth, in the main case or a separate lawsuit, focus on proving the excess amount based on the evidence of "authenticity, excess, and no duplication", and if necessary, apply for an evaluation or obtain third-party evidence. Throughout the process, keep all materials and entrust a lawyer to evaluate the evidence-gathering plan to increase the likelihood of obtaining support.

The above content is based on the compilation of judicial practices in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Henglu Law Firm for specific situations.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, so as to avoid missing the statutory time limit.Business and commercial legal services·Attorney Xiong Binrong·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.