Supreme People's Court: Adjudication Views on Loss of Obtainable Profits (VIII)

Supreme People's Court: Adjudication Views on Loss of Obtainable Profits (VIII)

10. The determination of whether the liquidated damages are too high should not only be based on the actual losses, but also the amount of compensation for losses should be determined in combination with the profits that the non-breaching party should receive - a contract dispute between Zhongxin Chunyi Zhiye (Jilin) Comprehensive Energy Co., Ltd. and Jilin Lefu Hotel and Changchun Sanli Air Conditioning and Refrigeration Equipment Co., Ltd

[Summary of the trial]:

The Supreme People's Court held that Article 7, Paragraph 1, Item 1.8 of the energy service contract involved in the case stipulates that "Yuefu Hotel shall not dissolve or terminate the contract without authorization, otherwise, in addition to the direct economic losses, it shall also calculate and compensate China New Energy Company for the loss of profits available to China New Energy Company according to the annual lump sum cost of 20% of the total annual lump sum cost of energy costs agreed in the contract according to the charging period agreed in the contract." This clause clarifies that direct economic losses and loss of available profits are the contents of the compensation for the breach of contract losses of Yuefu Hotel, and it is a pre-arrangement for the consequences of the breach that both parties may bear for themselves. Considering the contractual principle of respecting the autonomy of the parties and maintaining good faith, when Lefu Hotel breaches the contract, it shall pay liquidated damages to China New Energy Company in accordance with the above-mentioned contract.

On December 25, 2017, the two parties signed the energy service contract involved in the case and agreed that the service fee period was 15 years, and in October 2018, Lefu Hotel delayed payment and drove China New Energy Company away from the energy station, resulting in the termination of the energy service contract. Taking into account the degree of fault of both parties in the termination of the contract in this case, the service period agreed in the contract and the actual performance time, and referring to the express agreement between the parties on the loss of profits, the original first instance supported the Lefu Hotel to bear the loss of profits of RMB 2,028,000 (RMB 1,690,000 ×20% × 6 years), which was in line with the principle of fairness.

Case Number: :(2021) Supreme Law Min Zai No. 341

11. Reference case: Administrative organs should bear the liability for compensation for illegally forcibly pushing land - Chen Mouyang v. the People's Government of a town in Qijiang District, Chongqing Municipality, a case of administrative compensation

[Summary of the trial]:

Where an administrative organ illegally forcibly pushes land, it shall be liable for compensation. Compensation for losses includes not only the existing property and vested interests at the time of the forced push of the contracted land, but also the property and future benefits that can be obtained in the future, but unproven uncertain interests cannot be regarded as direct losses. In terms of compensation standards, reference can be made to the output established by the local statistical yearbook, as well as the national purchase price and the supporting materials issued by the local administrative department.

[Case document number] :(2019) Yu 05 Xing Bao Zhong No. 26

12. The land transferor violates the contract and transfers the land to other entities, and the difference between the price of the other transfer and the original transfer price is the scope of benefits that can be obtained by the non-compliance party after the performance of the original transfer contract - point of view: Huaihua Shenlong Real Estate Development Co., Ltd. v. Hunan Zhijiang Dong Autonomous County Natural Resources Bureau, Huaihua Juyou Real Estate Development Co., Ltd. Construction land use right transfer contract dispute

[Summary of the trial]:

The Supreme People's Court held that the Zhijiang Bureau of Natural Resources had not terminated the Transfer Contract in accordance with the law, and had previously transferred the 44.56 mu of land under the Transfer Contract to Juyou Company, and only then sent the Notice on Terminating the Contract for the Transfer of State-owned Land Use Rights for the Unpaid Price to DPCA before the transfer was terminated, requesting the termination of the Transfer Contract corresponding to the 44.56 mu of land, which was in violation of the contract. DPCA agreed to terminate the Transfer Contract corresponding to the part of the land, and in accordance with Article 97 of the People's Republic of China Contract Law, it had the right to claim compensation for losses.

The average price of the 44.56 mu of land transferred by the Zhijiang Natural Resources Bureau was 1.1037 million yuan/mu, the unit price of the land involved in the case obtained by DPCA was 260,000 yuan/mu, and the premium income of the 44.56 mu of land transferred by the Zhijiang Natural Resources Bureau was about 37.5953 million yuan [(1.1037 million yuan/mu-260,000 yuan/mu) ×44.56 mu], which belonged to the scope of benefits that could be obtained after the performance of the contract. DPCA has not paid the transfer fee for 44.56 mu of land, nor has it obtained the state-owned land use right certificate and carried out development and construction. Taking into account the specific circumstances of this case and the degree of fault, the court of first instance decided that the Zhijiang Natural Resources Bureau should bear the liability for breach of contract according to the scope of 40% of the profits, which was not improper, and this court upheld it.

Case No.: :(2020) Supreme Law Min Zai No. 230

13. The conditions for termination agreed in the contract have long been fulfilled, but the non-breaching party has not exercised the right to terminate the contract for a long time, and the losses caused to the breaching party are also at fault, and its claim for loss of obtainable benefits can not be supported - Yantai Taisheng Real Estate Co., Ltd. v. Haiyang Municipal Bureau of Natural Resources and Planning, Haiyang Economic Development Zone Lugubu Community Residents Committee Construction land use contract dispute

[Summary of the trial]:

The Supreme People's Court held that, with regard to the loss of available benefits claimed by Taisheng Company, even if the loss of available profits claimed by Taisheng Company objectively existed, as a professional real estate development company, it failed to exercise its right to terminate the contract for six years when the land could not be delivered and the conditions for termination stipulated in the contract had already been met, and it was also at fault for causing the loss. Therefore, it was not improper for the court of first instance to fail to recognize and support the loss of obtainable benefits claimed by Taisheng Company.

Case Number: :(2019) Supreme Law Min Zhong No. 977

14. Correct understanding of foreseeability in the determination of loss of available benefits - Company A v. Company B, a dispute over a sales contract

[Summary of the trial]:

Loss of available benefits refers to the benefits that can be realized and obtained after the performance of the contract that can be reasonably foreseen by the parties at the time of entering into the contract. In a dispute over a sales contract, the determination of the loss of obtainable benefits should be based on the analysis of facts such as the type of loss, the time point at which it should have been foreseen, the amount of the loss, and other facts, and the exclusion of relevant unreasonable factors, so as to correctly understand and determine whether the loss of obtainable benefits exceeds the scope of reasonable foreseeability.

[Case Analysis]:

Article 584 of the Civil Code of the People's Republic of China stipulates: "If one of the parties fails to perform its contractual obligations or the performance of its contractual obligations does not conform to the agreement, causing losses to the other party, the amount of compensation for losses shall be equivalent to the losses caused by the breach of contract, including the benefits that can be obtained after the performance of the contract, but shall not exceed the losses that may be caused by the breach of contract foreseen or should have been foreseen by the breaching party at the time of entering into the contract." This article makes it clear that damages for breach of contract include loss of available benefits, that is, the benefits that can be realized and obtained after the performance of the contract that the parties can reasonably foresee at the time of entering into the contract. In this case, according to the determination of the effective judgment, Company B constituted a breach of contract, and after the termination of the contract between the two parties, in accordance with the provisions of Article 566 of the Civil Code of the People's Republic of China and the agreement of the black and gray sales contract that "Company A has the right to terminate this contract, and all consequences and losses arising therefrom shall be borne by Company B", Company A has the right to demand compensation from Company B, and the losses claimed by Company A in this case are losses of available benefits.

An important principle of compensation for loss of available benefits is foreseeability, that is, the breaching party has foreseen or should have foreseen the loss of available benefits that should be compensated. The law cannot require the breaching party to compensate for unforeseeable losses, and the people's courts shall reasonably apply the foreseeability rule when calculating and determining the loss of obtainable benefits, and deduct the unforeseeable losses of the breaching party from the total amount of compensation for the obtainable benefits claimed by the non-breaching party based on the consideration of fairness and good faith, so as to prevent the unduly enlarged obtainable benefits. Specifically, it can be reasonably grasped from the following four aspects:

First of all, it is necessary to determine the type of loss claimed by the non-breaching party, so as to determine whether it is a loss of available benefits, and then determine the basis for calculation. Referring to the relevant provisions of the Guiding Opinions of the Supreme People's Court on Several Issues Concerning the Trial of Civil and Commercial Contract Dispute Cases under the Current Situation (Fa Fa [2009] No. 40), according to the nature of the transaction, the purpose of the contract and other factors, the loss of available profits is mainly divided into three types: loss of production profits, loss of operating profits and loss of resale profits. In the case of a breach of a sales contract for production equipment and raw materials, the loss of profits available to the buyer caused by the seller's breach of contract is usually a loss of production profits. In the case of contracting, leasing and operation contracts and contracts for the provision of services or services, the loss of obtainable profits caused by the breach of contract by one party is usually a loss of operating profits. In successive sales contracts, the loss of profits available to the seller of the subsequent resale contract caused by the breach of contract by the seller of the original contract is usually a loss of resale profits. In this case, the price agreed in the contract could not be enforced due to the breaching party's breach of contract, and the non-breaching party incurred a loss of operating profits after reducing the transaction price, so Company A's claim was a loss of operating profits in the loss of available profits, and the focus of the trial of this case was how to determine the loss of operating profits.

Second, determine the foreseeable point in time. The loss of available benefits is not the actual loss, and the point in time at which the actual loss occurred cannot be used as the node for calculating the loss. According to the above-mentioned provisions of the Civil Code, the foreseeable time point is when the breaching party enters into the contract, and one of the key points of this case is how to determine the reasonable reference price of the losses that the non-breaching party may cause after the contract is terminated due to the breach of contract that can be foreseen at the time of the breaching party when the contract is terminated, and Company A claims that after the termination of the contract, due to the sharp drop in market conditions, the price of black ash can only be reduced to 5 yuan per ton, and the plaintiff's loss should be calculated according to the difference between the price and the original contract price signed with Company B of 69 yuan per ton. Company B also recognized that the market price had dropped significantly when the contract with Company A was performed until September 2021, but whether it was 35 yuan, 25 yuan or 50 yuan per ton proposed by Company B itself, or the price of 5 yuan per ton agreed between Company A and a trading company, it was not the price that Company B had foreseen or should have foreseen when the contract was signed with Company A, and the highest quotation of the other three companies at the time of bidding and bidding was 52 yuan per ton, which was the substitute price at which Company B could not win the bid. The loss of operating profit calculated according to the difference of 17 yuan per ton quoted by the price and Company B should be the loss that should have been foreseen when Company B and Company A entered into the contract, that is, Company B should have known that Company A would have earned at least 17 yuan less per ton of black ash after Company A terminated the contract due to its own breach of contract, and the actual loss suffered by Company A was not less than the loss calculated according to this standard, so the loss of available profits claimed by Company A should be calculated according to this standard.

Thirdly, the amount of loss should be accurately determined, and the standard for this should be the normal foreseeability. Specifically, in commercial cases, the foresight ability of ordinary commercial entities should be used as the criterion for judgment. Another focus of this case is how to determine the unfulfilled sales quantity, after the reference price is determined, once the sales quantity is reasonably determined, the difference between the unperformed contract price and the reference price multiplied by the sales quantity is the loss of available benefits that should be protected. In this case, Company A calculated based on the estimated output of 18,000 tons during the remaining contract period, which was less than the actual output performed by Company A and a trading company, which was within the reasonable scope of normal foresee, and Company B should have been foreseeable.

Finally, exclude some irrational factors. After the amount of loss is determined, it is also necessary to deduct the benefits actually obtained by the non-breaching party due to the breach, the losses caused by the non-breaching party's own reasons, and the necessary transaction costs in combination with the impairment rules, the profit and loss offsetting rules, and the fault offsetting rules. In this case, the previous effective judgment had already ruled that Company A was entitled to deduct the performance bond of RMB 193,200 from Company B, and the performance insurance money was liquidated damages in nature, and Company A had already obtained the liquidated damages, so the liquidated damages should be deducted when calculating the loss of available benefits, and the final result was the most reasonable result that was most in line with the law.

[Case source]: Typical case 127 of the application of the Civil Code of Shandong Court

15. The amount of compensation for the expected benefits claimed by the parties should be fixed when they first file a lawsuit with the court -- a dispute over a real estate contract between the West District Engineering Office of Zhuhai Construction Engineering Corporation and Keli Chemical Co., Ltd. of Zhuhai Special Economic Zone, Dongxin Real Estate Development Company of Zhuhai Special Economic Zone, and Municipal Management Service Center of Sanzao Town, Jinwan District, Zhuhai City

[Summary of the trial]:

The Supreme People's Court held that in 2004, when the Western District Engineering Office filed a lawsuit with the court seeking compensation for losses, the cooperation project involved in the case was still in the state of completion of the pile foundation project, and at this time, the main expenditure of both parties was the land construction fee of 1.28 million yuan paid by the Western District Engineering Office on three occasions; The pile foundation project cost paid by Keli Company was 7,327,023,840 yuan and the land price paid by Dongxin Company was 835,0176 yuan. After the original judgment of this case came into effect and was enforced, Dongxin Company obtained the Construction Permit in February 2014, the Commercial Housing Pre-sale Permit in September 2015 and opened for sale, and completed the construction and acceptance in September 2016, and the real estate involved in the case was independently developed and completed by Dongxin Company. At present, most of the homes and shops have been sold.

In the present case, the scope of the WWA claim for damages was the expected benefits, which should have been fixed in 2004 when the WWA first brought the action to the court. However, the amount of damages claimed by the Western District Works Agency has increased with the changes in the real estate market in recent years, from the initial estimate of about 4 million yuan to more than 19.56 million yuan, and finally to 134.4 million yuan in this retrial. More than 20 years have elapsed since the suspension of construction of the Longzhu Building and the exhaustion of sales, and it is not possible to simply equate the benefits claimed when the conditions of the contract were terminated in October 1993 with the benefits that may be obtained after the completion and sale of the project involved in the case more than 20 years later. Under the circumstance that the cooperation contract in this case has been terminated, there is no factual and legal basis for the Central and Western District Engineering Office to claim that 20% of the proceeds after the completion and sale of the project involved in the case and 134.4 million yuan should be used as the amount of compensation for economic losses, and this court does not support it.

Case No.: :(2016) Supreme Law Min Zai No. 152

16. When judging whether the breaching party can or should foresee the damage, the subjective foresight state declared by the breaching party should not be used as the determination standard, but should be measured according to the nature of the contract, the experience of the breaching party, the foresight ability of ordinary people in the society or the general concept of the industry - Hunan Shaoshan Maojia Hotel Development Co., Ltd. v. Kou Changhua Chef Management Service Contract Compensation Dispute

[Summary of the trial]:

The Supreme People's Court held that the pursuit of commercial profits was the purpose of the Franchise Contract signed between Maojia Hotel and Kou Changhua, and that the nature of the contract was determined by the fact that both parties obtained commercial profits and assumed the corresponding risks, and that the parties should have foreseen it when they signed the contract. When judging whether the breaching party can or should foresee the damage, it is not based on the subjective foresight state declared by the breaching party, but should be measured according to the nature of the contract, the experience of the breaching party, the foresight ability of ordinary people in society or the general concept of the industry. As far as the loss of obtainable benefits claimed by Kou Changhua is concerned, the compensation for the obtainable benefits of breach of contract refers to the operating profits that Kou Changhua could have obtained, and the operating profits will indeed be affected by a variety of factors and have uncertainties, and will fluctuate with changes in various factors such as market conditions, economic situation, business quality and tax policies, but this does not affect the fact that it has become the standard for determining the obtainable benefits for breach of contract.

In this case, Mao's breach of contract caused the contract to be unable to be performed, making Kou Changhua's profit expectations unable to be realized, and Kou Changhua objectively suffered a loss of profits, which was also foreseen by Mao's Hotel. Therefore, the original trial court comprehensively considered the performance of the contract, the return on investment analysis made in the franchise manual, and referred to the business tax payment certificate of Jining Maojia Hotel in August 2008, as well as some of the obtainable benefits voluntarily given up by Kou Changhua, etc., and supported Kou Changhua's actual loss of 1.399 million yuan in profits according to the principle of fairness, and the application of law was not improper, and this court upheld it.

Case No.: :(2016) Supreme Law Min Zai No. 282

17. When calculating and determining the loss of obtainable profits in a specific case, the foreseeable rule, the derogation rule, the profit and loss offsetting rule and the fault offsetting rule should be used to comprehensively consider the unforeseeable loss, the improperly enlarged loss, the benefits obtained due to the breach of contract, the negligence of both parties and the necessary transaction costs -- Wei Wen and Chen Li'an, Shanxi Coal Transportation and Marketing Group and Shunhongrun Coal Industry Co., Ltd. Mining Cooperation Contract Dispute

[Summary of the trial]:

The Supreme People's Court held that, in accordance with Article 5, Paragraph 1 of the Cooperation Agreement, Wei Wen promised Chen Li'an a guaranteed minimum profit of 1:1, and the two parties cooperated in construction and mining until Chen Li'an recovered the investment and profits totaling 320 million yuan. Chen Li'an claimed that Wei Wen should compensate him for the loss of expected profits of 160 million yuan. When calculating and determining the loss of obtainable benefits in a specific case, the foreseeable rule, the derogation rule, the profit and loss offsetting rule, and the fault offsetting rule should be applied, and the unforeseeable loss, the improperly enlarged loss, the benefits obtained as a result of the breach of contract, the negligence of both parties, and the necessary transaction costs should be comprehensively considered.

In this case, both parties were responsible for the termination of the Cooperation Agreement, and the coal market was in a state of recession when Chen Li'an withdrew, and there was an objective possibility that the obtainable benefits agreed by the parties could not be fully realized, so the court decided that Wei Wen should be liable for compensation to Chen Li'an according to 60% of the profits agreed in the Cooperation Agreement, i.e. 96 million yuan, and Chen Li'an should bear the rest of the losses.

Case Number: :(2019) Supreme Law Min Zhong No. 240

18. The amount of loss of available benefits is a matter of discretion in the specific degree of damage, and in the absence of obvious impropriety in the discretionary result, the court of second instance should not exercise its discretion again to overturn the result of the exercise of discretion by the court of first instance - the contract dispute between the Gansu Branch of Chinese Life Insurance Co., Ltd. and Gansu Landong Real Estate Development Co., Ltd. and Gansu Jufeng Gujin Trading Co., Ltd

[Summary of the trial]:

I. In addition to the proviso to Article 113 of the Contract Law, the derogation rule provided for in Article 119 of the Contract Law, the fault offset rule provided for in Article 120 and Articles 29 and 30 of the Judicial Interpretation of the Sales Contract shall also be applied to the determination of the scope of loss of profits, as well as the profit and loss offsetting rule provided for in Article 31 of the Judicial Interpretation. That is, when calculating and determining the loss of obtainable benefits, the people's court shall deduct from the total amount of compensation for the obtainable benefits claimed by the non-breaching party, the unforeseeable losses of the breaching party, the unduly enlarged losses of the non-breaching party, the benefits obtained by the non-breaching party due to the other party's breach of contract, the losses caused by the negligence of the non-breaching party, and the necessary transaction costs.

Paragraph 2 of Article 90 of the Interpretation of the Civil Procedure Law stipulates: "If a party fails to provide evidence or the evidence is insufficient to prove its factual assertion before a judgment is rendered, the party who bears the burden of proof shall bear the adverse consequences." "This adverse consequence is that when the burden of proof is not fulfilled, the parties should bear the litigation risk that their litigation claims will not be supported, but it is not necessarily the consequence of losing the litigation if their litigation claims are rejected, and the parties should bear the litigation risks brought about by the proper exercise of their discretionary powers, and should tolerate such discretionary results. If the result of the discretion is not obviously improper, the court of second instance should not exercise its discretion again to overturn the result of the exercise of the discretion of the court of first instance.

III. The Contract Law stipulates the foreseeable time as "when the contract is concluded" rather than "when the breach of contract occurs" to prevent the interests of the parties from being obviously unbalanced. According to academic general theory and judicial practice, the breaching party only needs to foresee or should foresee the type of damage at the time of the conclusion of the contract, and does not need to foresee the extent or specific amount of the damage.

The Supreme People's Court held that Gansu Life Insurance Company adduced evidence to prove that Landong Company's "two sales of one house" could not achieve the purpose of the contract, and that the price difference between the two transactions was huge, and there were basic facts such as the loss of available benefits, but it failed to fulfill the burden of proof with regard to the specific fact of the amount of the loss of available benefits. The evidence adduced by Gansu Life Insurance Company was insufficient to support its claim on the amount of loss of available benefits, and it was difficult for the court of first instance to make a determination of the amount of loss of available benefits based on the evidence submitted by Gansu Life Company. Landong Company adduced evidence to prove that the delay in the project involved in the case led to an increase in costs, an increase in losses, and that Gansu Life Insurance Company was responsible for the performance of its stop-loss obligations, negligence offset, and profit and loss offset, and its defense assertion on such basic facts was established. However, the evidence submitted by Landong Company was insufficient to substantiate the amount that should be deducted from the difference in the real estate transaction claimed by Gansu Life Insurance Company, and Landong Company also failed to fulfill its burden of proof.

In the original trial procedure, both parties supplemented evidence, but this evidence did not meet the statutory standard of proof. None of the parties submitted an application to the court of first instance for investigation and evidence collection. It should be determined that the claims of both parties on the specific fact of the amount of compensation for the loss of available benefits are incapable of adducing evidence. The parties have exhausted the evidentiary measures provided for in the Civil Procedure Law in the original trial proceedings. Before the conclusion of the court debate, the trial court still failed to obtain all the evidence required for the verdict on the amount of loss of profits.

In addition, the court of first instance conducted a court investigation into the evidence required for the determination of the amount of loss of benefits that can be obtained from the facts to be proven, and the parties conducted effective cross-examination and fully debated the factual issues. During the second-instance trial, both parties expressly agreed that the people's court should determine the amount of compensation for the loss of benefits that can be obtained. In such a case, it is not unreasonable for the court of first instance to exercise its discretion to determine the amount of compensation for the loss of benefits that can be obtained in accordance with the rule of thumb.

<中华人民共和国民事诉讼法>Paragraph 2 of Article 90 of the Interpretation of this court on application stipulates: "If a party fails to provide evidence or the evidence is insufficient to prove its factual assertion before a judgment is rendered, the party who bears the burden of proof shall bear the adverse consequences." "This adverse consequence is that when the burden of proof is not fulfilled, the parties should bear the litigation risk that their litigation claims will not be supported, but it is not necessarily the consequence of losing the litigation that their litigation claims will be rejected, and the parties should bear the litigation risks brought about by the proper exercise of their discretionary powers.

Even if a party claims that the amount of compensation determined by the court of first instance is deviated, the risk of such adverse consequences should be borne by the party who has failed to meet the burden of proof, and the party should tolerate such a discretionary result. The amount of loss of available benefits is a matter of discretion as to the specific degree of damage. In the absence of obvious impropriety in the discretionary result, the court of second instance should not exercise its discretion again to overturn the result of the trial court's discretionary exercise.

Therefore, there was no legitimate basis for the trial court to exercise its discretion in the present case to determine the amount of compensation for the loss of profits to be obtained by a discretionary method. Gansu Life Insurance Company and Landong Company's assertion that the original judgment used a discretionary method to determine the amount of compensation for the loss of profits lacked basis and could not be sustained.

Case No.: :(2017) Supreme Law Min Zhong No. 387

Transferred from the same judgment rule for similar cases

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