Corporate Counsel Team: Huaicheng lawyers
Edit | July
作者 | 槐城律师 王业子
Wang Yezi
Liaoning Huaicheng Law Firm
Government Services: State-owned Assets Management, Corporate Legal Counsel
There are quite a few small enterprises that like to do business with government agencies, public institutions, and large enterprises, and the advantage is that these units have basically no problem with their ability to pay except for the account period. However, relatively speaking, these units will naturally take advantage of their dominant position in the transaction, requiring small enterprises to accept some harsh conditions.
For example, refusing to set a default clause for one's own late payment.
In this case, if the government, public institutions, and large enterprises are overdue, how should the small enterprises recover the arrears?
1
Unpaid Purchases
Late interest is controversial
On March 19, 2020 and May 25, 2020, Cedar Company and China Railway Shanghai Rail Branch signed three sales contracts on the sale and purchase of steel for the 20-bid project of Shanghai Rail Transit Line 14 and the 21-bid project of Shanghai Rail Transit Line 15 respectively.
The three sales contracts all stipulate that the goods will be qualified at the construction site of China Railway Shanghai Rail Branch, and the monthly measurement and settlement shall be submitted to China Railway Shanghai Rail Branch for review, and the two parties shall carry out summary verification of the quantity and amount in the form of confirmation (or settlement statement), and shall be signed and sealed by both parties before the end of the settlement month.
After the supply is completed, the two parties will verify and summarize the previous supply and payment, and handle the final settlement.
Within 60 days after the completion of the settlement between the two parties, China Railway Shanghai Railway Branch will pay 95% of the current settlement payment to Cedar Company, and the remaining 5% will be paid within 180 days.
Additional bank charges incurred by one party due to the fault of one party in the execution of the contract shall be borne by the party at fault.
Regarding the payment for the 20 bid project of Shanghai Rail Transit Line 14, Cedar Company and China Railway Shanghai Rail Branch settled in six installments, totaling 3,954,897.72 yuan, and Cedar Company issued invoices for the corresponding amounts.
Regarding the payment for the 21 bid project of Shanghai Rail Transit Line 15, Cedar Company and China Railway Shanghai Rail Branch settled in five phases, totaling 5,204,034.08 yuan, and Cedar Company also issued invoices for the corresponding amounts.
China Railway Shanghai Railway Branch made six payments to Cedar Company through bank transfers and acceptance bills, totaling 6,652,768.11 yuan.
On May 19, 2021, China Railway Shanghai Railway Branch issued a Repayment Plan to Cedar Company and Cedar Supply Chain Group, an outsider to the case, confirming that it still owed a total of RMB 6,588,493.81 to the above two companies, that is, more than half of the payment.
After repeated unsuccessful collections, Cedar Company filed a lawsuit with the court, claiming that China Railway Shanghai Railway Branch and its head office, China Railway Shanghai Company, should pay it the unpaid payment of RMB 4,658,931.79, overdue interest of RMB 515,769.49 and other expenses.
In addition, it was specifically ascertained that China Railway Shanghai Rail Branch is a large enterprise, and Cedar Company is a small and micro enterprise.
2
The contract does not stipulate overdue interest
How should I pay?
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During the trial, the plaintiff had no objection to the outstanding principal and other expenses, but disputes arose as to whether the overdue interest should be paid and the standard for calculating the overdue interest.
Cedar Company asserted that, in accordance with Article 15 of the Regulations on Guaranteeing the Payment of Small and Medium-sized Enterprises, if an organ, institution or large enterprise delays the payment of small and medium-sized enterprises, it shall pay overdue interest, and if the overdue interest is not agreed, it shall be calculated at a daily interest rate of 5/10,000.
Therefore, the overdue interest claimed by Cedar Company is calculated at the daily interest rate of 5/10,000 from the date of payment of each futures amount to the date of actual payment.
China Railway Shanghai Railway Branch asserted that the two parties did not agree on overdue interest in the contract, so there was no need to pay overdue interest to Cedar Company.
The court held that there was a sales contract between Cedar Company and China Railway Shanghai Railway Branch, and that Cedar Company had fulfilled its obligation to deliver the goods as agreed, and that China Railway Shanghai Railway Branch should fulfill its obligation to pay the price as agreed.
Since China Railway Shanghai Railway Branch did not pay the payment as agreed, Cedar Company had the right to require it to pay for the loss of overdue payment.
The focus of the dispute in this case is the calculation standard of overdue interest.
The Regulations of the State Council on Safeguarding Payment to Small and Medium-sized Enterprises came into effect on 1 September 2020.
According to the Regulations, if an organ, a public institution or a large enterprise delays the payment of funds to small and medium-sized enterprises, it shall pay overdue interest, and if the two parties have not agreed on the interest rate of overdue interest, they shall pay overdue interest at the rate of 5/10,000 per day of the daily interest rate.
As a large enterprise, China Railway Shanghai Railway Branch shall pay interest on overdue payment in accordance with the above provisions of the Regulations if it delays the payment of the goods as a micro, small and medium-sized enterprise.
At the same time, the court noted that the Regulations on Guaranteeing the Payment of Small and Medium-sized Enterprises had not yet been implemented before May 25, 2020, when China Railway Shanghai Rail Branch signed the sales contract involved in the case, and the relevant provisions of the Regulations did not apply to the overdue payment behavior of China Railway Shanghai Railway Branch before the implementation of the Regulations.
Since the signed sales contract does not stipulate the calculation standard for late payment losses, the late payment losses before September 1, 2020 shall be calculated at 1.4 times the loan market prime interest rate announced by the National Interbank Funding Center for the same period.
If the default of overdue payment of China Railway Shanghai Railway Branch continues to occur, and its default continues after the implementation of the Regulations on Guaranteeing the Payment of Small and Medium-sized Enterprises, it shall pay the interest on overdue payment calculated at the standard of 5/10,000 per day in accordance with the relevant provisions of the Regulations.
3
Huaicheng lawyer suggested
The overdue interest is 18.25% per year at 5/10,000, which is far more than the interest standard of LPR that is currently widely advocated, and correctly adapts to the Regulations on Guaranteeing Payment of Small and Medium-sized Enterprises, which will help protect the legitimate rights and interests of small and medium-sized enterprises, optimize the business environment, and promote the development of the real economy.
In view of the application of the Regulations on the Protection of Payment of Funds to Small and Medium-sized Enterprises, Huaicheng lawyers put forward the following suggestions based on the above cases and practical experience for your reference:
1. The premise of the application of the Regulations on Guaranteeing the Payment of Funds for Small and Medium-sized Enterprises is that the payers are government agencies, institutions and large enterprises, and the payees are medium-sized enterprises, small enterprises and micro enterprises, and the transaction types are limited to the purchase of goods, projects and services.
If the parties to the transaction and the type of contract do not meet the above conditions, it cannot be applied.
2. It is recommended that organs, institutions and large enterprises must have a standardized action when purchasing goods, projects and services to confirm whether the supplier belongs to small and medium-sized enterprises.
This is also the reason why in the above case, the court deliberately tried to investigate whether the buyer belonged to a micro, small and medium-sized enterprise.
3. It is recommended that when signing contracts with small, medium and micro enterprises, government agencies, institutions and large enterprises must agree on the interest rate of overdue payment, and the interest rate shall not be lower than the one-year loan market prime interest rate at the time of the conclusion of the contract.
Otherwise, in the event of a dispute, small and medium-sized enterprises can claim overdue interest at the standard of 5/10,000 per day, then the losses of government agencies, public institutions, and large state-owned enterprises are not a star and a half, resulting in the loss of major state-owned assets, and will be investigated for violating the responsibility, and the huge amount is not excluded from criminal liability.
If you have more legal questions about the sales contract, it is recommended to consult relevant professional lawyers, our law firm also provides online consultation services for lawyers, you are welcome to click the QR code below to provide legal advice anytime and anywhere.
Applicable administrative regulations:
Regulations on Safeguarding Disbursements to Small and Medium-sized Enterprises
Article 15 Where organs, institutions and large enterprises delay the payment of funds to small and medium-sized enterprises, they shall pay overdue interest. If the two parties have agreed on the interest rate of overdue interest, the agreed interest rate shall not be lower than the one-year loan market prime interest rate at the time of conclusion of the contract, and if no agreement is made, the overdue interest shall be paid at the rate of 5/10,000 per day of the daily interest rate.
Case Source:
Shanghai Baoshan District People's Court, Cedar Company, China Railway Shanghai Company, China Railway Shanghai Railway Branch, et al., Sales Contract Dispute Case (2021) Hu 0113 Min Chu No. 13707
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