If the employer claims to reduce the project price on the grounds of project quality problems, is it a defense or a counterclaim?

In a lawsuit in which the contractor claims the project price from the employer as the plaintiff, the employer often claims that the project price is not paid or underpaid on the grounds that there are problems with the quality of the project. This raises the question of whether the employer claiming to reduce the project price should raise a counterclaim against the contractor claiming payment of the project price by way of a defense or a counterclaim.

In this case, the employer's claim may be regarded as a defence or a counterclaim. However, there are differing views in practice as to how to define the nature of such claims. With the development of judicial practice, as well as the improvement of relevant legal norms, or the improvement of the legal professional level of judicial personnel, in recent years, this issue seems to be less and less controversial.

Article 12 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 clearly stipulates that if the quality of the construction project does not conform to the agreement due to the contractor's reasons, the contractor refuses to repair, rework or reconstruct, and the employer requests a reduction in the payment of the project price, the people's court shall support it. It stands to reason that such a clear provision should not be disputed.

If there is a problem with the quality of the project, the employer shall first request the contractor to perform the repair obligation, and if the contractor refuses to repair, rework or reconstruct, this is a precondition for the employer to request deduction of the project payment.

However, in practice, the original defendant or even the adjudicator of a disputed case often fails to accurately understand and apply the provisions of the above-mentioned judicial interpretation for various reasons.

On the one hand, as mentioned above, there is a view that when the employer discovers a problem with the quality of the project, it should first require the contractor to perform the repair obligation, and if the contractor refuses to repair, rework or rebuild, the employer may request a reduction in the payment for the project.

On the other hand, it is also pointed out that if there is an express provision in the contract that the liquidated damages or compensation for the quality of the project can be directly deducted from the project price payable, the employer may directly raise a defense in the lawsuit without the need to file a counterclaim.

In addition, it is also argued that if the employer's claim does not exceed the scope of the contractor's claim and belongs to the same legal relationship, then even if the employer claims to reduce the construction price, it should be regarded as a defense rather than a counterclaim. This shows that, in some cases, the employer can directly defend the deduction of the project payment on the grounds of project quality in the lawsuit without filing a counterclaim.

Although Article 12 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 clearly stipulates that the employer may request a reduction in the payment of the project price if the quality of the project is not in accordance with the agreement due to the contractor's reasons, in judicial practice, whether to support the employer's act of directly defending and claiming deduction of the project price in litigation without first requiring the contractor to repair the quality problems still needs to be comprehensively judged in light of the circumstances of the specific case and the specific provisions of the contract.

If there is an express provision in the contract that the construction price can be directly deducted, or the employer's claim does not exceed the scope of the contractor's claim and belongs to the same legal relationship, the court may support the employer's defense.

Conversely, if the employer fails to prove that it has fulfilled its obligation to require the contractor to repair the quality problem in advance, it may not be upheld by the court.

According to Article 11 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, it is not clearly stated that the employer's claim should be raised in the form of a defense or a counterclaim, which may be one of the reasons for the dispute.

However, Article 16 of the Judicial Interpretation makes it clear that if the employer files a counterclaim demanding that the contractor pay liquidated damages or compensate for reasonable expenses such as repair, rework, or reconstruction on the grounds that the quality of the project does not conform to the contract or the provisions of the law in a lawsuit filed by the contractor, the people's court may combine the trials. This indicates that if the employer's claim involves an independent claim, such as a demand for liquidated damages or damages, then it should be filed in the form of a counterclaim.

In practice, there are also differences in the way different courts deal with the employer's claim to reduce the construction payment. Here are a few common handling scenarios:

1. Distinguish according to the content of the employer's claim: Some courts (such as the Jiangsu High Court and the Guangdong High Court) will distinguish whether it is a defense or a counterclaim according to the content of the employer's claim. If the employer claims non-payment, underpayment or lack of payment conditions, it is usually regarded as a defense, while if it claims liquidated damages, compensation, etc., it should be filed in the form of a counterclaim or a separate lawsuit.

2. Distinguish according to whether the quality of the project is qualified by experience: Some courts (such as the Beijing High Court) will distinguish the project according to whether it is qualified by experience. If the project has been accepted and accepted or used by the employer without authorization, the quality problems usually fall within the scope of the warranty, and the employer shall make a claim in the form of a counterclaim or a separate lawsuit; if the project has not been accepted or the acceptance is unqualified, the employer claims to reduce the project payment, which can be used as a defense.

3. Both defense and counterclaim: Some courts (such as the Fujian High Court) hold that the employer can either defend on the grounds of quality problems and request that reasonable expenses be deducted from the project price, or counterclaim the contractor for paying these costs.

Considering the above factors, we can draw the following conclusions:

1. The situation that the project is accepted or deemed to be qualified: if the project has been completed and accepted, or the employer has actually used the project, the quality problems that occur usually fall within the scope of the warranty. In this case, if the employer requests a refusal or reduction of the project payment on the grounds of quality problems, it will usually not be supported, unless the quality problems involve the foundation or main structure of the project. If the employer requires the contractor to bear the warranty liability or compensate for the actual losses such as repair costs, it is a new independent claim and should be filed in the form of a counterclaim or a separate lawsuit.

2. The project has not been completed and accepted or has not been used after the completion and acceptance: In this case, if the employer claims to reduce the project price on the grounds that the quality of the project does not conform to the agreement, it should usually be raised in the form of a defense. This is because the employer's claim does not form an independent lawsuit, nor does it exceed the scope of the contractor's claim, and does not have a new independent payment content.

3. Circumstances expressly agreed in the contract: If it is expressly stipulated in the contract between the two parties that the employer has the right to reduce the payment for the project or directly deduct the repair cost when the quality of the project is defective, then the employer's request can be recognized as a cause of defense rather than a new claim. In the absence of such an agreement, the employer's request may be recognized as a new lawsuit and should be filed in the form of a counterclaim.

When dealing with such cases, the court usually comprehensively considers various factors such as the specific provisions of the contract, the actual situation of the project, and the claims of the parties to determine whether the employer's claim is a defense or a counterclaim. This judgment has an important impact on the trial procedure, the bearing of costs and the final judgment of the case.

Attached: Summary table of the High People's Courts of different provinces on the handling of project quality problems:

province	After completion acceptance or use	Unfinished acceptance	Reduction of project costs	Compensation for damages
Beijing	The warranty covers the main structure of the foundation works, except for the foundation works	Treated as a defence	Treated as a defence	Counterclaim or separate claim
chekiang	Treated as a defence	Treated as a defence	Treated as a defence	Counterclaim Handling
Guangdong	If the payment terms are not fulfilled, the defense will be handled	Adversarial Processing	Adversarial Processing	counterclaim
Jiangsu	Some are counterclaims, and some are defenses	It is a defence	It is a defence	counterclaim
Anhui	It is a defence	It is a defence	It is a defence	counterclaim
Sichuan	Handled as a defence	Handled as a defence	Adversarial Processing	Counterclaim or separate claim
Fujian	Defense, net of fees	Defense, net of fees	Defense, net of fees	counterclaim

Illustrate:

1. "After completion acceptance or use" refers to the way to deal with the quality problems raised by the employer after the project has been completed and accepted or actually used.

2. "Unfinished acceptance" refers to the way in which the employer proposes to deal with the project on the grounds of quality problems before the acceptance of the project has been completed.

3. "Reduction of project payment" refers to the situation where the employer requests a reduction in the project payment to the contractor on the grounds of quality problems.

4. "Compensation for losses" refers to the situation where the employer requires the contractor to compensate for the relevant losses due to quality problems.

Please note that the information in the form is based on the text content disseminated on the Internet, and the specific interpretation and application of the law need to be screened and judged according to official documents and the specific circumstances of the case.