[Direct answer]In the Beijing area, if the defaulting party sues to terminate the contract, it shall not be exempt from its liability for compensation. According to Articles 566 and 584 of the Civil Code of the People's Republic of China, after the contract is terminated, the defaulting party shall still compensate the contracting party for its losses, including direct losses and expected benefits, but the compensation shall not exceed the losses that the defaulting party foresaw or should have foreseen when entering into the contract; if the contracting party fails to take appropriate measures and causes the losses to be expanded, the expanded part shall not be compensated. The specific amount of compensation depends on the contract price, the degree of performance, the actual losses of the contracting party, and the evidence provided, and cannot be generalized. For more details, please refer toBusiness and contract dispute resolution services for enterprises.

1. Problem background and typical scenarios

When a breaching party hopes to "get out of the hook" through legal means, their primary concern is often "how much they have to pay in compensation". Typical scenarios include: a lessee terminating the lease early, with the lessor claiming the rent for the remaining lease term and the loss of the rent-free period; a buyer refusing to accept the goods, with the seller claiming the difference between the contract price and the resale price, as well as storage fees; a developer unilaterally halting construction, with the buyer claiming the interest on the paid purchase price and the difference in purchasing another property; and a partner withdrawing from the cooperation, with the other party claiming the anticipated benefits. In these cases, the scope of compensation often becomes the core of the dispute: what should be compensated, to what extent, and whether deductions are allowed. Related contract disputes can be resolved in conjunction with the above scenarios.Business and contract dispute services for enterprisesEvaluation.

II. Key points of contention

There are three main points of contention regarding the breaching party's exemption from compensation. Firstly, the scope of compensation includes direct losses (already incurred expenses, contractual payments, and fees) and anticipated profits (profits that could have been gained after the contract was fulfilled), but is limited to what was foreseeable at the time of contract signing. Secondly, deductions and mitigations: the breaching party shall not compensate for any losses that were exacerbated due to the non-compliance of the other party with appropriate measures; and the expenses avoided due to the breach of contract can be offset against the compensation. Thirdly, the apportionment of liability: each party shall bear responsibility for their own breaches of contract; and the relationship between the breach of contract penalty and the damages compensation is often a subject of dispute. For loss calculations, reference can be made to the following provisions:Creditor-debtor relations and enforcement case services.

III. Professional analysis by Hengluo Lawyers

Based on an arbitration case of a commissioned creation contract dispute handled by our firm, the scope of compensation for the breaching party after the contract is terminated or breached can be understood. On May 12, 2022, Shanghai A Technology Company and Shenzhen B Network Company signed a "Project Outsourcing Agreement", with a fee of 583,000 yuan. After the work was accepted and qualified in July 2022, B Company delayed paying the remaining 50% of the fee and unilaterally terminated the contract. A Company entrusted Attorney Xiong Binrong of Beijing Henglu Law Firm to apply for arbitration, claiming a contract fee of 583,000 yuan, a breach of contract penalty of 116,600 yuan, and attorneys' fees and arbitration fees.

After hearing the case, the arbitration tribunal determined that B Company's refusal to pay on the grounds of "non-compliance with quality standards" lacked basis, and the works had been accepted and passed the inspection. B Company's unilateral termination of the contract could not exempt it from its obligation to pay. The arbitration tribunal ruled that B Company should pay A Company 583,000 yuan in contractual payments and compensate the applicant for all legal fees. The arbitration fees in this case amounted to 30,366 yuan, of which A Company should bear 5,000 yuan and B Company should bear 25,366 yuan. This result reflects the principle that compensation after contract termination is limited to the actual losses of the party in compliance with the contract: the contractual payments constitute a direct claim, and the legal fees, which are subject to the contract and have been supported, should be compensated by the defaulting party. The arbitration fees shall be shared in accordance with the principle of liability. The defaulting party's termination of the contract does not constitute an "exemption from liability", but it is still obliged to make up for the other party's losses.

This case is 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 legal basis is Article 566 of the Civil Code of the People's Republic of China (effective January 1, 2021) (Consequences of contract termination: restoration of the status quo ante, taking remedial measures, and compensation for losses), Article 584 (the scope of damages includes foreseeable benefits and is limited by foreseeability), Article 591 (reduction of damages rule), and Article 580 (the breaching party's termination does not exempt it from liability). Practical advice: Before the breaching party intends to terminate the contract, it should first calculate the total amount of possible compensation (direct losses + foreseeable benefits - avoided expenses - expanded losses); the performing party should promptly fix the evidence of losses and reduce damages; both parties may reach a package agreement on compensation. In the event of litigation, the parties may refer to the above provisions.Business and contract dispute resolution services for enterprisesAdvance.

5. Henglu Law Firm's Reminder

The party in breach of contract must understand that "termination does not equal exemption from liability". The first step is to calculate the compensation exposure: list the direct losses and potential benefits of the party in compliance with the contract, deduct the payments already made and the expenses avoided; the second step is to assess the relationship between the penalty clause and the damages, to avoid making duplicate claims; the third step is to prioritize negotiating a compensation plan and confirming it in writing, to reduce the cost of litigation and enforcement; the fourth step is to prepare evidence of performance and losses if litigation is necessary. The party in compliance with the contract should take timely mitigation measures and secure relevant evidence. If litigation is necessary, it may seek assistance from a professional legal team.Special services and other case-related servicesDevelop a plan.

VI. Frequently Asked Questions

Q1: If the defaulting party sues to terminate the contract, will they definitely have to pay a lot of money in compensation?

The amount of compensation depends on the actual losses of the party in breach of contract and the evidence provided, rather than the subjective concerns of the defaulting party. According to Articles 566 and 584 of the Civil Code, the defaulting party should still compensate for direct losses and foreseeable benefits, but only within the limits foreseen at the time of contract conclusion. The party in breach of contract shall not compensate for any losses that were not mitigated by the party in breach of contract, and the expenses avoided due to the breach of contract may be offset. If the party in breach of contract suffers limited losses, the contract has been largely performed, or the foreseeable benefits are difficult to prove, the compensation may be far lower than expected; conversely, it may be higher. It is recommended to first calculate the composition of the losses, and if necessary, entrust a lawyer to evaluate them. Do not easily believe in unrealistic claims of "exemption from liability" or "astronomical compensation".

Q2: If the breaching party wants to resolve the compensation dispute, what evidence do I need to prepare?

The core evidence includes: the original contract and performance certificates (proving the contract price, the degree of performance, and the payments made), evidence of the breaching party's losses (expense invoices, resale price differences, and calculation of the loss of profit), evidence of mitigation (evidence of the breaching party's timely disposal and avoidance of expenses), penalties and compensation clauses, and materials related to the breach of contract or fault of both parties. The evidence should be organized around "actual losses + loss of profit - avoidance of expenses - expanded losses". If materials are missing, you can apply for retrieval or use industry estimates as supporting evidence. Never give up on defense just because the evidence is weak.

Q3: How much will it cost in attorney's fees and litigation expenses to sue for the breaching party to be exempted from compensation?

The litigation fees shall be calculated in accordance with the "Measures for the Payment of Litigation Fees" based on the amount of the litigation request (the amount of the compensation claim) in stages, and shall be borne by the losing party. In the case of partial victory and partial defeat, the fees shall be shared proportionally. The attorney's fees shall be determined based on the complexity of the case, the amount of the subject matter and the workload, and shall be calculated on a piecework, hourly or percentage basis of the subject matter. The specific fees shall be subject to the contract of entrustment, and there is no unified government pricing. It is recommended to calculate the verifiable losses and deductible items before suing or defending, compare the costs and benefits with the litigation fees and attorney's fees, and prioritize negotiation for cases with small amounts but clear facts, so as to control the cost of protecting rights within a reasonable range.

Q4: How long does it usually take for the breaching party to dismiss a lawsuit for compensation?

The first-instance ordinary procedure is concluded within six months, and the simplified procedure is concluded within three months; cases involving loss appraisal or complex subject matters may take longer. If an appeal is filed, the second-instance procedure generally takes three months. After the judgment becomes effective, the enforcement phase begins, and the time required for repayment or performance depends on the specific circumstances. Overall, such cases often take several months to half a year from filing to adjudication. It is recommended to simultaneously fix evidence of losses and evaluate the possibility of mediation during the litigation process, and, if necessary, apply for property preservation to shorten the dispute resolution cycle.

Q5: As the party in breach of contract who wants to terminate the contract, what should I do first specifically?

It is recommended to proceed in four steps: First, calculate the compensation exposure, list the direct losses and potential benefits of the party in breach, and deduct the payments already made and avoidable expenses; Second, review the liquidated damages and compensation provisions in the contract to determine whether there are any duplicated or excessive risks; Third, first negotiate with the party in breach to terminate the contract and settle the compensation in a package, and strive to reach a written agreement; Fourth, if negotiation fails and the conditions for judicial termination are met, file a lawsuit within the statute of limitations and prepare plans and evidence to assume liability for compensation. Throughout the process, keep communication records and, if necessary, entrust a lawyer to assess the costs and chances of success.

The above content is based on the judicial practices in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Hengluo Lawyers about specific situations.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, 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 public 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.