[Direct answer]In the Beijing area, it is possible, but it must meet the statutory conditions and be initiated by you. According to Article 585 of the Civil Code of the People's Republic of China, the parties may agree on a penalty for breach of contract. If the agreed penalty is excessively high compared to the losses caused, the people's court or arbitration institution may, upon the request of the parties, reduce it appropriately. The adjustment shall be based on the actual losses, taking into account factors such as the performance of the contract, the degree of fault of the parties, and the expected benefits, and shall be measured in accordance with the principles of fairness and good faith. In judicial practice, it is often used as a reference that the penalty exceeds 30% of the actual losses. It should be noted that the court generally does not reduce the penalty on its own initiative. The defendant should explicitly put forward the request and provide evidence in the defense or counterclaim. For reference only.Legal services for corporate commercial and contract disputes.

I. Problem Background and Typical Scenarios

Penalty reduction is commonly seen in contracts such as sales, processing contracts, leases, and live-streaming agency contracts. Typical scenarios include: the contract stipulates a penalty of 0.05% of the daily amount or even higher for late payment, and the accumulated amount after long-term arrears far exceeds the actual losses; collecting high interest rates under the guise of "penalty"; stipulating a high termination penalty while the other party has no actual losses. When handling similar cases in Beijing, the court usually requires the party claiming penalty reduction to provide evidence of actual losses, performance of the contract, and the degree of fault, rather than making conclusions based solely on the clause ratio. For disputes involving leases and project settlements, the court may combine the parties' evidence and arguments to determine the appropriate penalty amount.Real estate sales and construction project servicesThe approach to calculating the losses.

II. Key points of contention

There are three key points of contention. First, whether the penalty is "excessively high": Based on the actual losses suffered by the party in breach, combined with the foreseeable expected benefits and the difficulty of providing evidence, if the losses are difficult to quantify, the court will determine the amount based on industry characteristics and the predictability of cost-benefit ratios at the time of contracting. Second, who initiates the adjustment: Reducing the penalty is a defense ground, which usually requires the party in breach to explicitly propose it. If they only complain verbally without making a claim, it may be regarded as a waiver. Third, the adjustment amount: The court does not simply discount the penalty proportionally, but determines a reasonable amount based on the degree of contract performance, the remaining performance period, and the fault and good faith of both parties. In addition, even if the party in breach claims under names such as "interest" or "fund utilization fees", as long as they essentially have the nature of a penalty, they may also be included in the same measurement framework.

III. Professional analysis by Henglue Law Firm

An arbitration case of a commissioned creation contract handled by Henglue Law Firm well demonstrates the boundaries of claiming and adjusting the breach of contract penalty. On May 12, 2022, the applicant, Shanghai A Technology Company, and the respondent, Shenzhen B Network Company, signed a "Project Outsourcing Agreement", which stipulated that the first episode of the virtual IP material upgrade would be completed with a total cost of 583,000 yuan (including tax), with a down payment of 291,500 yuan and a production period of about six weeks. The work was accepted on July 20, 2022, but the respondent delayed paying the remaining amount and claimed that the applicant's delayed delivery and non-compliance with quality standards constituted a fundamental breach of contract. Attorney Xiong Binrong compared the contract terms clause by clause, combined with WeChat communication and email finalization records, proving that the script had been confirmed in advance, every step had been approved by the other party, and the delay was caused by the respondent's repeated modifications. Moreover, the respondent's employees actively finalized the version, accepted the work before checking the invoice, and promised to pay the money. Therefore, the arbitration tribunal accepted the attorney's main opinion and only adjusted the breach of contract penalty for the overdue payment, ruling that the respondent should pay the contract amount of 583,000 yuan and compensate for all attorney's fees. This case shows that if the breach of contract penalty claimed by the contract-abiding party is significantly disconnected from the actual loss, it will also face a reduction. This case was handled by Beijing Henglue Law Firm.Xiong BinrongThe lawyer (practice certificate number: 11101202211410897, subject to the certificate issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

The legal basis is Article 85 of the Civil Code of the People's Republic of China (effective from January 1, 2021) (Agreement on Liquidated Damages and Judicial Adjustment) and Article 57 (Liability for Breach of Contract). Practical suggestions: First, when signing a contract, avoid stipulating excessively high liquidated damages. Instead, set a calculation method linked to actual losses; Second, after the breaching party receives a claim letter or lawsuit, it should clearly request a reduction within the defense period and submit data on losses in similar transactions, the progress of performance, and evidence of fault; Third, the party in compliance should keep complete evidence of actual losses, including the price of alternative transactions and the cost of funds; Fourth, note that "excessively high" is a comprehensive judgment. Simply claiming that the proportion is too high is usually not enough to gain support. For the recovery of payments and the connection with enforcement, it can be combined with other methods.Creditor-debtor relations and enforcement case services.

5. Henglu Law Firm's Reminder

The penalty clause is a double-edged sword: if it is set too high, it may be reduced; if it is set too low, it cannot compensate for the losses. The burden of proof is also crucial — the party claiming a reduction needs to explain the actual loss situation, and the party in breach needs to prove its own losses and foreseeable benefits. Don't think that "if it's written in the contract, you have to pay it all", nor that "the court will help you reduce it automatically". When you find that the amount of compensation is obviously abnormal, you should calculate the loss as soon as possible and submit a request within the defense period. For contracts involving live streaming, endorsements, and platform cooperation, it's difficult to quantify the losses, so it's even more important to pay attention to industry practices and evidence of revenue expectations at the time of contracting. Specific solutions can be combined with the above.Special services and other case servicesEvaluation.

VI. Frequently Asked Questions

Q1: If the party requests to reduce the excessive penalty for breach of contract, will the court support it?

According to Article 85 of the Civil Code, if the agreed penalty for breach of contract is excessively high compared to the actual losses caused, the party may request a reasonable reduction. Whether the penalty can be adjusted depends on the evidence of losses and a comprehensive evaluation, and the outcome cannot be guaranteed in advance. In judicial practice, the court often takes a reference standard of more than 30% of the actual losses, but this is not a mechanical standard. The court will also consider the degree of contract performance, the remaining performance period, the fault of both parties, and the situation of good faith. There are two key points: the reduction must be initiated by the party concerned, and the court generally does not intervene actively; the claimant needs to provide comparable data on the actual losses, otherwise the adjustment range will be limited.

Q2: If I claim that the penalty for breach of contract is too high, what evidence do I need to prepare?

It is recommended to prepare four types of materials: 1. Contracts and supplementary agreements that clarify the calculation method of the breach of contract penalty and the provisions on damages; 2. Evidence of actual losses, including the price of alternative transactions, the cost of capital occupation, and losses from work stoppages and business suspensions; 3. Evidence of performance, such as delivery records, acceptance documents, and communication records, to prove the proportion of performance and the reasons for the delay; 4. Evidence of fault and reasonableness, including correspondence and industry transaction practices. The party in compliance needs to prove that the losses are genuine and foreseeable, and explain that the breach of contract penalty does not significantly deviate from the level of losses. If necessary, the party may apply for appraisal or audit.

Q3: How much do litigation fees and attorney's fees cost for such disputes?

The litigation fees shall be paid in accordance with the "Measures for the Payment of Litigation Fees", calculated on the basis of the amount of the litigation request and accumulated in stages. The losing party shall bear the fees or share them according to the proportion of victory and defeat; when requesting a reduction in the breach of contract penalty, the amount of the disputed breach of contract penalty shall generally be used as the basis for calculation. The attorney's fees shall be determined by the parties through consultation, which may take the form of a fixed fee, a percentage of the subject matter, or an hourly rate, subject to the terms of the entrustment contract. There is no unified standard; in civil and commercial cases involving property relations, if a contingency fee arrangement is adopted, the fee rate shall be subject to a cap. If the contract stipulates that the breaching party shall bear the attorney's fees, the successful party may claim them together. It is recommended to first estimate the adjustment space and cost of the fees, and then decide whether to initiate the procedure.

Q4: How long does it usually take to reach a verdict in arbitration or litigation?

In civil litigation, the first-instance ordinary procedure is generally concluded within six months, and the summary procedure is concluded within three months. If either party appeals, the second-instance procedure is generally concluded within three months. Arbitration follows the principle of "once and for all", and the arbitral award is usually made within the time limit specified in the arbitration rules from the date of the formation of the arbitral tribunal. Generally, it is faster than the two-instance litigation, but it will be extended if it involves appraisal and evaluation. Overall, the amount of the dispute and the complexity of the facts are the main variables. It is recommended to apply for property preservation simultaneously when the procedure is initiated, which not only prevents the transfer of property, but also helps to promote mediation and shorten the actual time of recovering the money.

Q5: If I find that the penalty for breach of contract is obviously too high, what should I do specifically?

It is recommended to follow four steps: First, immediately calculate the actual losses and collect evidence such as alternative transaction prices, capital costs, and operational losses; Second, verify the items claimed by the other party and identify whether they are disguisedly raised under the guise of interest, service fees, or late payment penalties; Third, within the defense period, explicitly submit a request for reduction in writing and attach evidence to avoid being deemed as accepting the claim if no objection is raised; Fourth, simultaneously evaluate the mediation proposal and strive to settle the matter once and for all within a reasonable range. If the contract stipulates arbitration, be sure to submit the case to the designated institution. Throughout the process, it is recommended that a lawyer calculate the loss figures and organize the collection of evidence.

The above answer is based on the judicial practice in Beijing. The judicial interpretation in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

VII. Related public cases (for reference only, not handled by our firm)

The following cases are all sourced from the official websites of courts at all levels, judicial authorities, and authoritative media outlets, and are not related to the cases handled by our firm. They are provided solely for reference in understanding relevant adjudication rules and do not constitute opinions on specific cases.

[Case Number](2018) Shanghai No. 0106 Civil Case No. 31513
[Trial Court]The People's Court of Jing'an District, Shanghai City conducted the first-instance trial, and the Second Intermediate People's Court of Shanghai City conducted the second-instance trial (Guiding Case No. 189 of the Supreme People's Court, Contract Dispute Case between Shanghai Panda Interactive Entertainment Co., Ltd. and Li Cen and Kunshan Boloveyou Information Technology Co., Ltd.)
[Judicial Summary]Online streamer Li Cen signed an exclusive cooperation agreement with Panda Company, stipulating that she must pay a high penalty if she broadcasts on competing platforms without authorization during the contract period. When Li Cen transferred to other platforms to broadcast during the contract period, Panda Company sued her for breach of contract and demanded that she pay the penalty. The court held that if a party claims that the agreed penalty is too high and requests a reasonable reduction, the amount should be based on the actual losses, taking into account the performance of the contract, the degree of the party's fault, and the expected benefits, and measured in accordance with the principles of fairness and good faith. In the online live-streaming industry, where streamers are the core resources, the actual losses are difficult to quantify, and the adjustment of the penalty should consider the characteristics of the industry and the cost-benefit forecast at the time of contracting. Based on the streamer's popularity and reputation, income situation, remaining contract performance period, the fault of both parties, and the current situation of the platform, the court adjusted the penalty to 2.6 million yuan as appropriate.
[Source]The official website of the Supreme People's Court (Guiding Case No. 189: Shanghai Panda Interactive Entertainment Co., Ltd. v. Li Cen and Kunshan Boyou Information Technology Co., Ltd. Contract Dispute Case) (2022-12)

[Case No.]The case number has not been made public.
[Trial Court]The People's Court of Baojing County, Hunan Province (Dispute over a Sales Contract)
[Judicial Summary]Zhang * purchased materials such as electrical appliances, sanitary ware, and lighting fixtures from a certain business department to renovate his house. At the time of settlement, he still owed 36,000 yuan in unpaid debts. A promissory note was issued, stipulating that if the debt was not repaid within the due date, the defendant would pay a penalty of 5% of the total amount of the debt (i.e., 1,800 yuan per month). The court held that the contract was protected by law, but the plaintiff failed to provide sufficient evidence of the actual amount of losses. The agreed penalty rate of 5% per month was significantly higher than the general loss of funds occupation. Under the defendant's request for adjustment, taking into account factors such as the performance of the contract, the length of the overdue period, and the degree of fault, the court adjusted the penalty rate to an annual interest rate of 4.65% (i.e., 1.5 times the one-year LPR of 3.1% in the same period).
[Source]Xiangxi Court Website (Interpreting the Law Through Cases: Is a Higher Penalty for Breach of Contract More Beneficial? The Court Has Ruled) (2025-11)

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Business and commercial legal services·Attorney Xiong Binrong·Beijing Henglue 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 a dispute arises, please consult a practicing lawyer in time.