7.8 Confidentiality
Estimate = 10 Minutes
In accordance with the PRC Contract Law, either party to the service agreement that fails to perform its obligations under the contract or fails to perform them as contracted shall bear the liability for breach of contract by continuing to perform the obligations, taking remedial measures, or compensating for losses.
Figure 9 provides sample text included in service agreements regarding liability for breach of the agreement.
If either party fails to pay charges or remuneration, the other party may demand the payment.
Nonrealization of quality requirements
If the quality fails to meet the agreed requirements, liability for breach of contract shall be borne in accordance with the agreement between the parties. If the liability for breach of contract is not stipulated or is not clearly stipulated in the agreement, the party suffering the loss may, with reference to the nature of the targeted matter and the degree of the loss, choose in a reasonable manner to demand that the other party bear the liability for breach of contract in such form as repair, replacement, redoing, return of the targeted matter, discount in payment or remuneration.
Losses due to breach of contract
Where either party fails to perform its obligations under the contract or does not perform its obligations as contracted, and losses are still caused to the other party after the performance of obligations or the adoption of remedial measures, the party in fault shall compensate for the losses.
If either party fails to perform its obligations under the contract or does not perform its obligations as contracted and thus causes losses to the other party, the amount of compensation for the loss shall be equivalent to the loss actually caused by the breach of contract and shall include the profit obtainable after the performance of the contract, but shall not exceed the sum of the loss that might be caused by a breach of contract and has been anticipated or ought to be anticipated by the breaching party in the making of the contract.
After a party has breached the contract, the other party shall take appropriate measures to prevent an increase of the loss. The party that fails to take appropriate preventive measures and thus aggravates the loss may not claim compensation for the increased part of the loss. The reasonable expenses incurred by the other party in preventing the aggravation of the loss shall be borne by the breaching party. If both parties breach the contract, they shall bear their respective liabilities accordingly.
The parties may stipulate that in case of breach of contract by either party a certain amount of penalty shall be paid to the other party according to the seriousness of the breach and may also stipulate the method for calculating the sum of compensation for losses caused by the breach of contract. If the stipulated penalty for breach of contract is lower than the loss caused by the breach,
the party concerned may apply to a people’s court or an arbitration institution for an increase. If the stipulated penalty for breach of contract is excessively higher than the loss caused by the breach, the party concerned may apply to a people’s court or an arbitration institution for an appropriate reduction.
If the parties agree upon a penalty for the breach of contract by a delayed fulfillment, the breaching party shall, after paying the penalty for breach of contract, discharge the debts notwithstanding.
The parties may, in accordance with the Guaranty Law of the People’s Republic of China, agree that one party pays a deposit to the other party as a guarantee of the creditor’s rights. After the debtor has met its liabilities, the deposit shall be calculated as part of the price or be refunded. If the party paying the deposit fails to meet its liabilities as contracted, it shall not be entitled to the refund of the deposit. If the party receiving the deposit fails to meet its liabilities as contracted, it shall doubly refund the deposit.
In the event that a penalty for breach of contract and a deposit are both stipulated by the parties, when either party breaches the contract, the other party may choose to apply either the clause on penalty for breach of contract or the clause on deposit.
Under the PRC Contract Law, force majeure is defined as objective situations which cannot be foreseen, avoided, or overcome. If one of the parties to the service agreement cannot fulfil its obligations due to force majeure, these obligations may be exempted in whole or in part depending on the impact of the force majeure, unless the laws provide otherwise. If force majeure happens, the party that is unable to fulfill his obligations shall notify the other party in time in order to reduce losses possibly inflicted to the other party. Evidence thereof shall be provided to the other party within a reasonable period of time.
Breach of contract by a third-party
The party that breaches the service agreement due to the actions or wrongdoings of an engaged third party shall bear the liability for breach of contract to the other party. Engagement of a third party to perform certain tasks of the service agreement does not transfer responsibility related to the service agreement. The PRC Contract Law stipulates that the (separate) dispute between the breaching party and the third party who has been subcontracted, delegated, or assigned tasks to related to the service agreement shall be settled separately and independent from the service agreement.
Infringement of (intellectual) property rights
If the breach of contract by either party causes infringement on the personal or property rights and interests to the other party, the injured party has the right to choose whether to demand that the breaching party bear the liability for breach of contract pursuant to the PRC Contract Law or bear the liability for infringement of rights in accordance with other laws.