Lawyer Xiang Qin
[Preface]
"Back-to-back" clauses refer to contractual terms in which the time, amount, and method of payment by the payment obligor are conditional on the third party paying the payment obligor first. "Back-to-back" clauses are mostly found in contracts related to construction projects, and their occurrence is closely related to the characteristics of capital flow in the construction industry, and the main content is that the payment of the project price by the above-mentioned party to the payment obligor of this contract is the precondition for the payment obligor to pay the creditor.
A greening project was contracted by the government to Company A, and Company A subcontracted to Person B, and signed the Construction Contract (hereinafter referred to as the "Contract") with B. In the contract, it is agreed that the project price shall be fixed at a total price of 475,540 yuan. The payment method of the project is as follows: the project is fully completed, after passing the acceptance of a government, the project money paid is paid in full according to the special fund allocated by a government, Party A does not withhold the project funds, and pays in full, and Party A shall not pay for any reason. Later, Party B fulfilled its obligations under the contract and the project was delivered. However, Party A delayed the performance of the payment obligation and did not actively claim the project payment from a certain government. Now that Party B has filed a lawsuit with a court to demand Party A to pay for the project, and Party A has defended it with "back-to-back clauses", will the court support Party B's claim?
First, on the issue of the validity of the Contract
In this case, Party A subcontracted the project to Party B who did not have the construction qualifications, and according to the third paragraph of Article 791 of the Civil Code, "the contractor is prohibited from subcontracting the project to a unit that does not have the corresponding qualifications." It is forbidden for a subcontractor to subcontract the project it has contracted. The construction of the main structure of the construction project must be completed by the contractor himself. Article 1 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: "In any of the following circumstances, a construction contract shall be deemed invalid in accordance with the provisions of Paragraph 1 of Article 153 of the Civil Code: (1) the contractor has not obtained the qualification of a construction enterprise or has exceeded the qualification level; (2) the actual contractor without qualifications has borrowed the name of a qualified construction enterprise; (3) the construction project must be tendered but the tender has not been tendered or the bid is invalid. A construction contract signed by a contractor with another person due to subcontracting or illegal subcontracting of a construction project shall be found to be invalid in accordance with the provisions of paragraph 1 of Article 153 and paragraphs 2 and 3 of Article 791 of the Civil Code. Therefore, the Contract between A and B shall be null and void.
2. The "Contract" is invalid, so what is the effect of the "back-to-back clauses" in the "Contract"?
Article 507 of the Civil Code stipulates that: "If a contract is not effective, invalid, revoked or terminated, it shall not affect the validity of the clauses in the contract relating to dispute resolution methods." Article 567 stipulates: "The termination of the rights and obligations of the contract shall not affect the validity of the settlement and liquidation clauses in the contract." However, "back-to-back clauses" are neither "dispute resolution clauses" nor "settlement and liquidation clauses", so when the contract as a whole is invalid, the "back-to-back clauses" should theoretically be invalid.
3. If the contract is invalid, can I still claim the project payment and interest?
The first paragraph of Article 793 of the Civil Code stipulates that: "If the construction contract of a construction project is invalid, but the experience of the construction project is qualified, the contractor may be compensated with reference to the agreed discount of the project price in the contract." Article 27 of the Interpretation (1) 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: "Interest shall be calculated and paid from the date of payment of the project price. If the parties have not agreed on the time of payment or the agreement is unclear, the following times shall be regarded as the time of payment: (1) if the construction project has been actually delivered, it shall be the date of delivery; (2) if the construction project has not been delivered, it shall be the date on which the completion settlement documents are submitted; (3) if the construction project has not been delivered and the project price has not been settled, it shall be the date on which the parties file a lawsuit. "In this case, Party B delivered the project after the completion of the project and passed the acceptance of Party A, so even if the Contract is invalid, Party B can still claim the project payment from Party A in accordance with the law, and can claim that Party A delayed the payment of interest on the project price.
Fourth, on the nature of "back-to-back clauses".
"Back-to-back terms" shall be conditional terms. Article 158 of the Civil Code stipulates that: "Civil juristic acts may be conditional, except that they may not be conditional on the basis of their nature. Civil juristic acts with conditions for taking effect take effect when the conditions are fulfilled. Civil juristic acts with conditions for rescission shall become invalid when the conditions are fulfilled. Article 159 stipulates: "In a conditional civil juristic act, where a party improperly prevents the fulfillment of a condition for its own benefit, it shall be deemed that the condition has been fulfilled; "It should be noted that the conditional legal provisions are inconsistent with the concept of conditional legal acts, and should be applied here by reference. If the conditions agreed in the "back-to-back clause" cannot be fulfilled and the time limit is unclear, the defence of the "back-to-back clause" should not be adopted. In judicial practice, if the contractor does not actively claim the project price and thus does not pay the project price to the contractor on the grounds that the employer has not paid the project price, it shall be deemed that the contractor has unduly prevented the fulfillment of the conditions, and the contractor shall pay the project price to the builder as if the payment terms have been fulfilled.
5. How to deny the validity of "back-to-back clauses"?
The first is to start from the validity of the contract itself to see whether the contract is valid. If the contract itself is invalid, the "back-to-back clause" shall be deemed invalid for the reasons stated above and shall not be repeated. Second, the "back-to-back clause" violates the relativity of contract, and the employer and the subcontractor are not two parts of the subcontract, and the employer's payment is the premise of the subcontract, which is obviously unfair. Thirdly, it is from the perspective of "standard terms" and fairness. "Back-to-back clauses" are generally standard clauses drawn up and provided by the contractor, and the other party only has the right to accept or not to accept, but has no room for negotiation. The purpose of such clauses is to transfer the relevant commercial risks to creditors and excludes the main rights of the counterparty, which is obviously contrary to the rules of commercial transactions and is obviously unfair, so the effect of such clauses should be denied. Finally, consider whether the conditions of the "back-to-back clause" can be realized. Some "back-to-back clauses" indicate that the amount audited by the owner shall prevail, and many projects have already been completed and accepted and delivered, or even have passed the warranty period, but the contractor still does not pay the project price on the grounds that the employer has not paid. The creation of such conditions should be regarded as an unclear agreement and no conditions, thus denying the validity of the "back-to-back clause".
6. What should the court do if it recognizes the validity of the "back-to-back clause"?
First of all, it is necessary to explore the reasons for the non-payment by the employer. Whether the contractor has fully performed the construction contract with the employer, the contractor has failed to file a claim or request for payment from the employer within a reasonable period of time, the employer has gone bankrupt, and the contractor has failed to perform its obligations to assist in the completion acceptance and commissioning of the project, and to submit the completion settlement documents. If the contractor unduly prevents the fulfillment of the conditions, the application of the "back-to-back" clause shall be excluded. In judicial practice, the court will usually consider the nature of the act, the characteristics of the industry and the consideration of maintaining the security of the transaction, and on the basis of recognizing the validity of the "back-to-back" clause, the court will judge whether the payment terms have been fulfilled based on whether the payment obligor can provide evidence such as whether the payment payment has not been settled between it and the previous party and whether it has actively claimed the project payment from the upper family. Therefore, when the payment obligor cannot prove that the project payment between itself and the previous family has not been settled and it has claimed the project payment through litigation, arbitration and other judicial means, it is usually deemed that the payment terms have been fulfilled and the creditor's claim is supported. The lawyer can start to win the court's recognition and fight for the rights and interests of the client from the above aspects.