November 2022
Jolene Chen and Teresa Huang
The Shanghai High People’s Court issued the Typical Cases of Safeguarding the Healthy Development of Private Enterprises and Creating a Good Rule-of-Law Business Environment by Shanghai Courts in Accordance with the Law (Fourth Batch) on September 28, 2022, which is the fourth batch of typical cases of safeguarding the healthy development of private enterprises issued since 2018, providing new references and guidelines for the trial work of Shanghai courts. In one of the typical cases, a materials industry company v. an engineering company et al. concerning sales contract disputes, the court made a judgment to protect the rights and interests of SMEs after judging that the one of two parties is an SME and the other is a large enterprise, which will be highlighted in this article.
[Basic Facts]
In the case of a materials industry company v. an engineering company et al. concerning sales contract disputes, a materials industry company and an engineering company signed a steel sales contract, which clearly agreed on the payment period and method, but did not agree on the liability for breach of contract as to overdue payment. After the materials industry company supplied goods to the engineering company, the engineering company owed the payment for goods of more than RMB2.5 million to the materials industry company. Then, the materials industry company brought a lawsuit before the court to require the engineering company to pay the remaining payment for goods and compensate for the loss of interest on the overdue payment. As to the calculation of the loss of interest on the overdue payment, the materials industry company argued that as it is a small and medium-sized enterprise, while the engineering company is a large enterprise, according to Regulation on Ensuring Payments to Small and Medium-Sized Enterprises issued by the State Council, the overdue interest shall be paid at a daily interest rate of five ten thousandths. The engineering company, et al. argued that as both parties had not agreed on the liability for breach of contract as to overdue payment in the contract, it shall not be obligated to pay the overdue interest.
[Judgment]
The court confirmed that the contract signed by both parties was legal and valid, the materials industry company had fulfilled its obligation of delivery of goods in accordance with the contract, the engineering company shall fulfill its obligation to pay for the goods in accordance with the contract, and both parties did not disagree on the amount of the payment for goods, only had a dispute on the overdue interest. The court held upon trial that according to Provisions on Criteria for Classifying Small and Medium-sized Enterprises issued by the State Council, it was determined that the materials industry company met the criteria for the classification of SMEs and the engineering company met the criteria for the classification of large enterprises. In addition, according to the Regulation on Ensuring Payments to Small and Medium-Sized Enterprises, if a government organ, public institution or large enterprise delay the payment of money to a small and medium-sized enterprise, it shall pay the overdue interest; if no overdue interest has been agreed, the overdue interest shall be paid at a daily interest rate of five ten thousandths. In view of the fact that the Regulation on Ensuring Payments to Small and Medium-Sized Enterprises came into effect after the engineering company’s overdue payment, the court determined that the loss of interest on overdue payment before the implementation of the Regulation on Ensuring Payments to Small and Medium-Sized Enterprises by the State Council shall be calculated at a rate equal to 1.4 times of the loan market quoted rate published by the National Interbank Funding Center for the same period. The interest on the overdue payment after the implementation of the Regulation on Ensuring Payments to Small and Medium-Sized Enterprises shall be calculated at a daily interest rate of five ten thousandths.
[Significance]
In practice, it often appears that large enterprises use their advantage position to restrict the contractual rights of SMEs, and do not agree on their own liability for breach of contract, and eventually large enterprises use their advantage position to refuse or delay payment for goods, resulting in high difficulty and cost for SMEs to claim payment for goods, and a tight capital chain of SMEs, which seriously affects the development of SMEs. The judgment in this case is conducive to urging large enterprises to regulate their transaction behaviors and make payments to SMEs in a timely manner, so that SMEs’ funds can be used efficiently and their healthy development can be safeguarded.
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