As discussed in our last column, we can see the attitude of the Supreme People’s Court (SPC) is that the default interest and liquidated damages under loan contracts are in fact “high interest on loans” from specific cases. Where a loan contract provides for both interest and default interest, and liquidated damages, the protection is still accorded, with the standard that the maximum amount may not exceed four times the interest on bank loans of the same type.
From our perspective, the agreement reached by parties on interest, default interest and liquidated damages in the loan contract falls within the autonomy of parties’ will.
As long as such agreement does not violate the mandatory provisions of the laws and administrative regulations, then its legality should be recognised, therefore the liability in the form of interest, default interest and liquidated damages may co-exist in the loan contract.
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Li Tao is a senior partner and Luo Huichao is an associate at Dacheng Law Offices in Beijing
7/F, Building D, 9 Dongdaqiao Road
Chaoyang District, Beijing 100020, China
Tel: +86 10 5813 7799
Fax: +86 10 5813 7788
E-mail: tao.li@dachenglaw.com
huichao.luo@dachenglaw.com
www.dachenglaw.com
