Supreme People's Court: Selected Views on the Legality of Construction Contract Disputes (Volume 09)

Supreme People's Court

Selected Views on the Applicable Law of Construction Contract Disputes

Volume 09

54. If the employer and the contractor have only agreed on liquidated damages for the outstanding construction payment, can the contractor still require the employer to pay interest on the outstanding construction payment in addition to the liability for paying liquidated damages?

【Q&A】:

The construction contract of the construction project is a two-way paid contract, and the payment of the project price is the main obligation of the employer. If the employer violates the contract and fails to pay the project price, it constitutes a breach of contract and shall bear the liability for breach of contract, and the agreement between the parties to pay interest on the outstanding project price is often the basic way to bear the liability for breach of contract.

Article 26 of the Interpretation (I) of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Contracts stipulates that: "If the parties have agreed on the standard for calculating and paying interest on the unpaid project price, it shall be handled in accordance with the agreement. If there is no agreement, the interest shall be calculated according to the interest rate of the same type of loan or the prime interest rate of the loan market for the same period. This provision is aimed at the settlement of disputes between the parties to a construction contract over interest issues, and should be applied when the parties have not agreed on the way to bear the liability for breach of contract for the unpaid project price. If the parties have agreed in the construction contract on the form of liability for breach of contract that should be borne for late payment of the project price, the agreement between the parties shall prevail.

Therefore, if the parties expressly stipulate in the construction contract that the employer shall compensate for losses or bear other liabilities for breach of contract in addition to the interest, the contractor shall agree with the employer if it requests the employer to bear the agreed liability for breach of contract and also requests the payment of the corresponding agreed interest. Article 577 of the Civil Code stipulates that: "If one of the parties fails to perform its contractual obligations or the performance of its contractual obligations does not conform to the agreement, it shall bear the liability for breach of contract such as continuing to perform, taking remedial measures or compensating for losses." "Compensation for losses is one of the ways to bear liability for breach of contract.

If the parties only agree to pay liquidated damages for the unpaid project price, but do not additionally agree to pay interest on the unpaid project price, then the employer's payment of liquidated damages shall be deemed to be liable for breach of contract to compensate for losses, and the contractor shall not have the right to request the employer to pay additional interest on the unpaid project price.

[Source of opinion]: Q&A on Civil Trial Practice compiled by the First Division of Civil Trial of the Supreme People's Court

55. First Circuit Court: Should the transferee of the right to develop and operate part of the real estate development project be jointly and severally liable with the transferor for the arrears of the entire project?

[A said]: should bear joint and several liability.

If there is no sufficient evidence to prove that Company A and Company B have expressed their intention to settle with the contractor for the project A and Area B, it should be determined that the plaza project should be contracted and settled as a whole, and Company B should be jointly and severally liable for the arrears of the entire project and the real estate company A, which is also conducive to protecting the rights and interests of the actual constructor.

[B said]: should not bear joint and several liability.

The determination of joint and several liability shall be in accordance with the provisions of the law or the agreement of the parties. The Agreement clearly stipulates that Company B is only responsible for Area B of the Project, and Company C is aware of the situation, so Company C has no right to claim the arrears of the project in Area A from Trading Company B. However, He's rights should not be greater than those of his predecessor, Company C, so even if he did not know the contents of the Agreement, he had no right to claim the arrears of the project in Area A from Company B. Therefore, Trading Company B shall not be jointly and severally liable for the arrears of the entire project and Real Estate Company A, and Company A and Company B shall be liable for the repayment of the arrears of the project in Area A and Area B respectively.

[Judges' Conference Opinion]: Cai Jia said.

56. How to understand and grasp the provisions of Article 22 of the Judicial Interpretation on Construction Engineering (I) that "if the construction contract signed by the parties is inconsistent with the scope of the project, the construction period, the quality of the project and the project price specified in the bidding documents, bidding documents and bid-winning notice, and one party requests that the bidding documents, bidding documents and bid-winning notice be used as the basis for settling the project price, the people's court shall support it"?

【Q&A】:

Important documents for project bidding include bidding documents, bidding documents, notice of winning bid, etc., and the project contracted through the bidding procedure shall be based on the main content of the above documents to sign the construction contract. In practice, the construction contract signed and actually performed between the parties is inconsistent with the above-mentioned bidding documents and bid-winning documents in terms of project scope, construction period, project quality, project price, etc., and some construction contracts have also been recorded, resulting in the so-called "black and white contract" and "yin and yang contract" phenomenon. Regardless of whether the construction contract signed and performed between the parties has been recorded, if it is inconsistent with the above-mentioned bidding documents and bid-winning documents on the scope of the project, the construction period, the quality of the project, the project price, etc., and there is a dispute between the parties on the settlement of the project price, the people's court shall use the bidding documents, the bidding documents and the notice of winning the bid as the basis for settling the project price.

However, it cannot be considered that the construction contract signed in violation of the bidding documents and bid-winning documents is of course invalid, and only if the substantive content of the relevant project scope, construction period, project quality, project price and other substantive content is inconsistent, it may lead to the invalidity of the project construction contract. Even if there are inconsistencies in other relevant liability for breach of contract and dispute resolution clauses, it will not necessarily lead to the invalidity of the construction contract. If the project construction contract makes non-substantive changes to the content of the bidding documents and bid-winning documents in terms of the scope of the project, the construction period, the quality of the project, the project price, etc., it will not necessarily lead to the invalidity of the project construction contract. For the grasp of non-substantive changes, comprehensive factors such as the content of the specific changes, external objective circumstances, and the subjective intentions of the parties shall be considered. In addition, after the project is won the bid, if there is a major change in the basic conditions of the construction project contract that is unforeseeable in the bidding activities and is not a commercial risk, it is obviously unfair to one of the parties to continue to sign and perform the contract in accordance with the notice of winning the bid, the adversely affected party shall generally be deemed valid if the construction project contract reached through renegotiation with the other party in accordance with Article 533 of the Civil Code.

Source: Rules of the Sixth Circuit Court of the Supreme People's Court, November 2022, People's Court Press.

57. In trial practice, how to grasp the scope and time of amendment of contract validity?

The Judicial Interpretation (I) only stipulates that construction contracts that exceed the qualification level may be supplemented and corrected, and other contracts that violate the prohibitions of laws and administrative regulations are not allowed to be corrected. Therefore, the scope of the contract for which the effect correction can be made should be limited to the circumstances under this provision, and the scope of the contract effect correction should not be expanded.

The Judicial Interpretation (I) has made it clear that the time for supplementation and correction is relaxed to before the completion of the construction project, and this time limit should be strictly grasped in trial practice. The completion of a construction project generally refers to the completion of the project, the contractor submits the relevant materials of the completion of the project to the employer, and the supervision company recognizes the fact that the contractor has completed the project and actually delivers the construction project to the employer. The completion time of the construction project here is a different concept from the completion and acceptance time of the construction project, the completion time of the construction project refers to the time when the construction project is completed, and the time of the completion and acceptance of the project is the time when the construction, survey, design, supervision and construction unit jointly accept the project after the completion of the project. In practice, there is another situation where the construction of the project has been completed, but the contractor does not actually deliver the project that has been actually completed to the employer due to factors such as the employer's failure to pay the project price in full, and the contractor does not actually deliver the project to the employer because the employer has not paid the project price in full or other factors, but the contractor has evidence to prove that the project has actually been completed, the fact of completion of the project may be determined, and the completion time can be determined based on the fact of completion. However, if the construction of the project is not completed due to the termination of the contract or other reasons, the contractor shall generally take whether the contractor has obtained a qualification level suitable for the contracted project when the contractor stops the construction and actually delivers the project to the employer as the factual basis for determining the validity of the contract.

[Source of opinion]: The First Division of the Civil Trial of the Supreme People's Court, "Judicial Interpretation of New Construction Project Construction Contracts (1) Understanding and Application", People's Court Press, April 2021, first edition.

58. If the parties do not have clear handover procedures for the project, the actual time when the project is put into use can be used as the starting point for calculating the outstanding project payment

【Viewpoint Analysis】:

If the parties have not reached an agreement on the delivery of the project, and there is no clear handover procedure, the actual time when the project is put into use can be used as the starting point for calculating the outstanding project payment.

[Source of opinion]: The First Division of Civil Trial of the Supreme People's Court, "Guidance and Reference for Civil Trial", Vol. 63

59. Discussion on issues related to whether the priority right to be compensated for the price of a construction project can exclude enforcement and the scope of the trial of the lawsuit against enforcement

【Viewpoint Analysis】:

1. The priority right to be repaid for the price of the construction project is the realization of the claim secured by the exchange value of the construction project at the discount or auction, which is essentially the priority of the realization of the claim. The enforcement of the creditor's rights confirmed by the effective judgment by the people's court does not necessarily hinder the realization of the right of priority for repayment of the price of the construction project, and the person not involved in the case cannot request the suspension of enforcement on the ground that it has the priority right to be repaid for the construction project subject to enforcement, but shall submit a claim for priority repayment to the enforcement court during the enforcement procedure. If the claim of priority for compensation put forward by an outsider is not supported, it can raise a written objection to the distribution plan in accordance with Article 512 of the Interpretation of the Civil Procedure Law, and can file a "lawsuit against the implementation of the distribution plan".

2. The fundamental purpose of an enforcement objection lawsuit by an outsider is to resolve the issue of whether enforcement can be excluded, and confirmation of rights is only an incidental function of excluding enforcement, and if the substantive rights enjoyed by an outsider to the subject matter of enforcement are insufficient to preclude compulsory manufacturing, the people's court cannot make a judgment on the confirmation of rights of the outsider alone in the enforcement objection lawsuit.

3. The essence of an enforcement objection lawsuit is an "objection to the subject matter of enforcement", and the trial should be conducted around the "objection to the subject matter of enforcement". If a party or interested party raises a claim that the enforcement act or enforcement procedure is illegal in a lawsuit against enforcement that has already been filed, it does not fall within the scope of the trial of the lawsuit against enforcement, and it shall file an objection to the enforcement act, apply for reconsideration or apply for enforcement supervision in accordance with the provisions of article 225 of the Civil Procedure Law.

[Viewpoint source]: The First Division of Civil Trial of the Supreme People's Court, "Civil Trial Guidance and Reference", Vol. 72

60. The scope of the right of priority to be compensated for the price of a construction project does not include the losses caused by the employer's breach of contract

【Viewpoint Analysis】:

Article 3 of the Reply of the Supreme People's Court on the Issue of the Priority Right to Compensation of Construction Project Prices stipulates that: "The price of a construction project includes the actual expenses incurred by the contractor for the construction project, such as staff remuneration and material payment, and does not include the losses caused by the contractor's breach of contract by the employer." "The contractor's claim in the litigation claim for the loss of work stoppage and the loss of material price difference caused by the employer's breach of contract do not fall within the scope of the right to exercise the right of priority to be compensated for the price of the construction project, and the people's court will not support the contractor's request to exercise the right of priority for compensation of the above two parts.

[Source of opinion]: The First Division of Civil Trial of the Supreme People's Court, "Civil Trial Guidance and Reference", Vol. 62

61. Reference case: If the parties have a dispute over the project of the construction project and the project has not been accepted, whether it can be determined according to the quantity of the project prepared by the subcontractor and the general contractor on the "project" of the bureau -- an industrial company in Sanya v. an engineering company in Chaoyang and a fishery administration management station in Hainan A dispute over a construction contract for a project

[Summary of the trial]:

If the construction project contract stipulates that the final settlement shall be based on the actual quantity of the project, and the project involved in the case has been actually completed by the sole constructor and handed over to the general contractor through the subcontractor, and the general contractor has paid the progress payment to the subcontractor, and the subcontractor and the actual constructor fail to reach an agreement on the quantity of the project and have not accepted and settled, it may be determined on the basis of the quantity determined between the subcontractor and the general contractor for the same project.

About the application of law. Article 2 of the Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Contracts stipulates that: "If a construction contract is invalid, but the construction project passes the completion and acceptance, and the contractor's request to pay the project price with reference to the contract shall be supported." "An engineering company in Chaoyang signed a labor subcontract for the sand replenishment project in Sanya with an industrial company in Sanya, and subcontracted all the subcontracted projects involved in the case to an industrial company in Sanya for construction, which is a case of subcontracting by the dry law, and the contract should be found to be invalid, but the project has been completed by an industrial company in Sanya, and the project has been handed over by an engineering company in Chaoyang to a company not involved in the case. There is a factual and legal basis for an industrial company in Sanya to request an engineering company in Chaoyang to pay progress payment based on the subcontract signed with an engineering company in Chaoyang and its performance. Article 13 of the Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Contracts stipulates that: "If a construction project has not been completed and accepted, and the employer uses it without authorization, and then claims rights on the ground that the quality of the part used does not conform to the agreement, it shall not be supported." "An engineering company in Chaoyang accepted the project handed over by an industrial company in Sanya and handed it over to the general contractor, which should be deemed to have passed the completion acceptance and the quality met the agreement, and the engineering company in Chaoyang claimed its rights on the grounds that it had not been completed and accepted, and should not be supported. In summary, it was not improper for the original trial court to find that an industrial company in Sanya had the right to request an engineering company in Chaoyang to pay the project price with reference to the contract. The grounds for a retrial of an engineering company in Chaoyang on the erroneous application of law in the original trial could not be sustained.

About quantity calculations. As mentioned above, the construction of the subcontracted project involved in the case has been completed and handed over to the general contractor, the general contractor has paid the progress payment to a certain engineering company in Chaoyang, and the conditions for an industrial company in Sanya to request an engineering company in Chaoyang to pay the progress payment have been fulfilled. An industrial company in Sanya and an engineering company in Chaoyang could not reach an agreement on the construction quantity, because the subcontracted project transferred by an engineering company in Chaoyang to the general contractor was completely completed by an industrial company in Sanya, and the engineering company in Chaoyang and the general contractor confirmed that the actual project quantity was 510,000 cubic meters, and it was not improper for the original trial to support the claim of an industrial company in Sanya, and there was no sufficient evidence for an engineering company in Chaoyang to overturn the determination of the original trial in its application for retrial.

Case Number: :(2021) Supreme People's Court

Transferred from the same judgment rule for similar cases