The equipment shipped on time. The technical manuals did not, and a month later the Taiwan buyer's notice arrived: 1% of the contract price for every day of delay, deducted from the final payment (an invented example). Taiwan's Civil Code lets contracting parties agree on such a penalty, so the clause itself is usually not the weak point. The fight is over how much of it a court will keep.
If you are the supplier and the payment was cut
What you did deliver comes first. When a debtor has partly performed, Civil Code Article 251 lets the court reduce the penalty in light of the benefit the creditor received from that performance. The Taiwan High Court treated a similar fact as a reason to cut under Article 252, which allows an excessive penalty to be reduced to a reasonable amount. Its case, decided on April 29, 2026, concerned equipment built for a U.S. company further up the supply chain (112 Chong-Shang No. 684). Only the technical documentation ran late, it was one part of the supplier's obligations, and some of it had been handed over. A claim of NT$440 million at 1% a day came down to 0.1% a day for 55 days: US$1,224,011.25, converted at 30.8 and awarded as NT$37,699,547. The supplier filed a third-instance appeal on June 2, 2026; its outcome does not appear in the published decisions.
The burden then sits with you. On May 15, 2026, the Taipei District Court dismissed a Japanese manufacturer's claim for NT$145,801,500 withheld from an offshore wind contract governed by Taiwan law (114 Jian No. 141; Article 20(1) of the Act Governing the Choice of Law in Civil Matters Involving Foreign Elements). Citing earlier Supreme Court authority, it held that the debtor must assert and prove that a penalty is excessive, and it rejected the argument that the utility, having lost nothing, should collect nothing, finding that one turbine could not generate normally while a repair ran 225 days late. This is a first-instance judgment; an appeal had to be filed within 20 days of service, and as of October 22, 2026, public records do not show whether one was filed.
How you sue matters as well. A deducted penalty is challenged through a claim for the withheld price, or for return of the money as unjust enrichment (Article 179), and reduction is argued inside that claim. The Supreme Court said in passing in September 2026 that Article 252 is not itself a basis for a claim.
If you are the buyer holding the clause
On the buyer's side, the wording comes first. In the High Court case, the clause made the supplier compensate all losses and added costs on top of the daily rate, and that language is what made the court classify the penalty as punitive. Without it, Article 250(2) deems a penalty to be the total amount of damages for non-performance. What a buyer keeps even then, for a penalty tied to late or improper performance, is the right to demand performance and the penalty together.
A contractual cap does not end the inquiry either. On September 23, 2026, the Supreme Court set aside a judgment that had upheld delay penalties at a 20% cap, NT$14 million, and remanded it (115 Tai-Shang No. 1386). A court, it said, must first classify the penalty: liquidated damages are measured mainly against the creditor's actual loss and lost profit, a punitive penalty against all the circumstances at the time of breach. The lower court had not classified a forfeited NT$4.2 million performance bond, nor examined what the buyer gained from the delivered batches and what it actually lost. The contract was a defense procurement of 100,000 meters of ballistic fabric in four batches; the supplier delivered two batches, 40,000 meters, late, and the buyer rescinded the other two and forfeited the bond. No decision after the remand appears in the published decisions as of October 22, 2026.
Distribution and supply relationships raise other contract issues; see Terminating a Taiwan Distributor.
What a Taiwan lawyer can take on
For a supplier, a lawyer in Taiwan can build the record of what was delivered and what the buyer really lost, then bring the claim for the withheld price. For a U.S. buyer, the same lawyer can review the penalty wording and governing-law clause before signing, or enforce the clause against a Taiwan counterparty in court. Attorney Wei Tseng (曾雋崴) of Hovering International Law Firm, an English-speaking lawyer in Taipei, can be reached at wei@hoveringlaw.com.tw. The firm's offices are at 7F-2, No. 35, Sec. 1, Chengde Rd., Datong Dist., Taipei City 103 (103 臺北市大同區承德路一段35號7樓之2) and 6F-1, No. 19, Guanqian Rd., North Dist., Taichung City 40453 (40453 臺中市北區館前路19號6樓之1). In the invented example above, the first question is the one the High Court asked: was the late item the whole obligation, or only part of it?
Official sources
Checked: October 22, 2026
- Civil Code (民法), Articles 179, 250, 251 and 252.
- Act Governing the Choice of Law in Civil Matters Involving Foreign Elements (涉外民事法律適用法), Article 20.
- Judicial Yuan judgment database: Supreme Court, 115 Tai-Shang No. 1386 (September 23, 2026; reversed and remanded); Taiwan High Court, 112 Chong-Shang No. 684 (April 29, 2026; second instance) and ruling of June 8, 2026 on the third-instance appeal; Taipei District Court, 114 Jian No. 141 (May 15, 2026; first instance).
Frequently Asked Questions
- Our Taiwan contract charges 1% of the contract price per day of delay. Will a Taiwan court enforce it in full?
- Not necessarily. If an agreed penalty is excessive, the court may reduce it to a reasonable amount (Civil Code Article 252). In April 2026 the Taiwan High Court reduced a 1%-per-day clause to 0.1% per day (112 Chong-Shang No. 684; a third-instance appeal was filed in June 2026, and its outcome is not shown in published decisions). Courts have also held that the party seeking reduction must assert and prove the excess.
- We are the U.S. buyer. Can we enforce a delay penalty against our Taiwan supplier?
- Taiwan law lets the parties agree on a penalty for non-performance, and for a penalty tied to late or improper performance the creditor may demand both performance and the penalty (Civil Code Article 250). The supplier can ask the court to reduce it under Article 251 (partial performance) or Article 252 (excessive penalty); for Article 252 it must assert and prove the excess, as the Taipei District Court held in May 2026 citing Supreme Court precedent. Wording matters too: language requiring the supplier to compensate all losses on top of the daily penalty led the High Court to treat one clause as punitive.
- The equipment shipped on time and only the manuals were late. Does that limit the penalty?
- It can. In April 2026 the Taiwan High Court reduced a 1%-per-day penalty to 0.1% per day because the late item, technical documentation, was only part of the supplier's obligations and had been partly delivered (112 Chong-Shang No. 684, on appeal). The Civil Code allows reduction for partial performance by reference to the creditor's benefit (Article 251) and reduction of an excessive penalty (Article 252).
This article provides general information and is not legal advice on any individual matter.
