Source: People's Justice
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Some practical issues in the settlement of construction project prices and their right of priority to be reimbursed
This article was published in People's Justice, No. 22, 2021
Author: Xiao Feng Han Hao
Author Affilications:Supreme People's Court Gulou District People's Court of Nanjing City, Jiangsu Province
table of contents
First, on the issue of settlement of project prices
(1) The issue of discount compensation in invalid construction project construction contracts
(2) Handling of management fees stipulated in invalid contracts
(3) The issue of determining the validity of the settlement agreement
(4) Issues in determining the nature of administrative audits
(5) The return of the project quality assurance fee under the circumstance of invalidity of the contract
2. On the issue of the right of priority to reimbursement of the construction project price
(1) The entity exercising the right of priority to be reimbursed for the construction project price
(2) The manner of exercising the right of priority to be reimbursed for the construction project price
On December 25, 2020, the 1825th meeting of the Adjudication Committee of the Supreme People's Court adopted the Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Project Construction Contracts (I) (hereinafter referred to as the "Construction Interpretation (I"),which came into effect on January 1, 2021; Interpretation on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Contracts (Fashi [2004] No. 14) (hereinafter referred to as the 2004 Construction Interpretation) Interpretation on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Contracts (II) (Fashi [2018] No. 20) (hereinafter referred to as the 2018 Construction Interpretation). Although the Construction Interpretation (I) comprehensively sorts out and revises the original two judicial interpretations in accordance with the spirit of the provisions of the Civil Code, in view of the complexity of the legal relationship in construction project construction dispute cases, it is difficult for existing laws and relevant judicial interpretations to make comprehensive and specific provisions on the new and difficult problems that arise in practice, and this article only focuses on several common problems involving the settlement of construction project prices and their priority right to reimbursement in construction project construction contract dispute cases, combined with trial practice. And put forward the author's personal preference opinion.
The settlement of the project price is the most common focus of dispute in the construction contract dispute case, and the validity of the contract directly affects the determination of the basis for the settlement of the project price, which is more controversial in practice. Here are a few questions that require further study and analysis.
The invalidity of a contract is the state's strongest negative evaluation of legal acts. The invalidity of a contract is not legally binding from the beginning, that is, it is invalid from the beginning of the conclusion of the contract, the unexecuted contract does not have to be performed, and the contract that has already been performed is obligated to return or compensate.
According to the provisions of Articles 1 and 3 of the Construction Interpretation (I), if any of the following circumstances exist, the construction project construction contract shall be found to be invalid: (1) The contractor has not obtained the qualification of the construction enterprise or exceeded the qualification level; (2) The actual builder without qualifications borrows the name of a qualified construction enterprise; (3) The construction project must be tendered but the bidding is not tendered or the winning bid is invalid; (4) the construction project is subcontracted or illegally subcontracted; (5) the planning approval procedures such as the construction project planning permit have not been obtained before the lawsuit.
Article 157 of the Civil Code states that "after a civil juristic act is invalid, revoked, or determined not to be effective, the property acquired by the actor as a result of the act shall be returned; if it cannot be returned or is not necessary, it shall be compensated at a discount." The party at fault shall compensate the other party for the losses suffered as a result; if each party is at fault, it shall bear corresponding responsibilities. Where the law provides otherwise, in accordance with its provisions, specific to the field of construction project construction contracts, since in the process of actually performing the invalid construction project construction contract, the manpower, materials, etc. paid by the contractor have been materialized into the construction project, and it is obviously not advisable to return the property.
To this end, with regard to the settlement of the project price for invalid construction contracts, Article 2 of the 2004 Construction Interpretation stipulates that if the construction contract for a construction project is invalid, but the construction project is qualified after completion and acceptance, and the contractor requests to pay the project price with reference to the contract, it should be supported.
In practice, there are the following doubts about the application of this article: first, the provisions of this article actually treat the invalid contract effectively, which violates the basic jurisprudence; second, it is unclear which clauses in the invalid construction contract can be applied by reference; third, the article does not clearly state whether the contract issuer has the right to claim the application of the article to defend the contractor.
With regard to the so-called effectiveness of an invalid contract, it should be pointed out that after the contract is illegal and invalid, the parties' requests for return and damages should be measured, so as to avoid the parties' unregulated return of benefits and encourage the parties to betray their trust. As far as the invalid construction contract is concerned, since under normal circumstances, the amount of the project price calculated according to the construction project quota standard is much higher than the amount of the project price determined by signing the contract through competitive quotation, in order to avoid inducing the contractor to maliciously claim that the contract is invalid and seek more benefits than the valid contract, the article stipulates that "the project price shall be paid with reference to the contract".
The first paragraph of Article 793 of the Civil Code is based on the expression of this article, which stipulates that "if the construction contract for 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 on the project price in the contract". Article 24 of the subsequent Construction Interpretation (I) inherits the spirit of the provisions of this article of the Civil Code.
The above changes respond to practical issues in judicial adjudication:
The first is to replace "the project price agreed upon in the reference contract" to "the agreed discount compensation for the project price with reference to the contract". This provision inherits the principle of article 157 of the Civil Code, that is, if it cannot be returned or there is no need to return it, it should be compensated at a discount, and changing "payment of the project price" to "discount compensation" can indicate the legal basis and eliminate the misunderstanding of the validity of the invalid contract.
Second, the contract terms that the parties have the right to refer to are limited to the terms related to the project price, and conversely, the terms unrelated to the project price should not be used as the basis for application. When judging the terms of the project price, it should be understood in conjunction with the provisions of Article 157 of the Civil Code that the first half of the article is a discount compensation clause after the contract is invalid, and the second half belongs to the contractual negligence liability arising from the invalidity of the contract. Specifically, Article 793 of the Civil Code stipulates that the discount compensation clause solves the problem of the contractor's compensation for the return of the investment in the construction project, so the scope of the discount compensation should be limited to the relevant provisions on the valuation of the project price, and it is not appropriate to make an extensive interpretation.
Third, the contractual negligence liability arising after the contract is invalid, there is article 6 of the Construction Interpretation (I) that "if the construction contract for a construction project is invalid and one party requests the other party to compensate for the loss, it shall bear the burden of proof on the fault of the other party, the size of the loss, and the causal relationship between the fault and the loss." Where the size of the loss cannot be determined, and one of the parties requests to determine the size of the loss with reference to the quality standards agreed in the contract, the construction period, the time for payment of the project price, etc., the people's court may make a judgment based on factors such as the degree of fault of both parties, the causal relationship between fault and the loss, and other factors.
Fourth, the contract issuer may also request compensation with reference to the contract discount. According to the principle of reciprocity, the contract issuer should also have the right to defend and claim compensation for the discounted price agreed upon in the contract, so the first paragraph of article 793 of the Civil Code amends the "contractor requests reference to the contract" stipulated in article 2 of the 2004 Construction Interpretation to "the contract may refer to the contract", deletes the subject restriction of "contractor", and corrects the narrow understanding in judicial practice that only the contractor has the right to claim the project payment by reference to the contract.
According to the "Engineering Cost Terminology Standard" (GB/T50875-2013), the management fee refers to the cost incurred by the construction enterprise to organize construction production and operation management.
Generally speaking, there is no dispute over the determination and collection of management fees stipulated in a valid contract, but in practice, there is no uniformity in practice on how to determine the management fees stipulated in an invalid contract.
In the case of subcontracting or illegal subcontracting, the subcontractor or illegal subcontractor earns the difference in the project price through "reselling" the project, so the management fee agreed upon in this case is essentially the floating or concession clause of the project price in the subcontracting or illegal subcontracting, which belongs to the project price clause in the construction project construction contract, and should no longer be regarded as the nature of the management fee, and can be handled in accordance with the above-mentioned discount compensation clause.
In the case of contracting a project in the name of a qualified construction enterprise, the party that allows others to contract the project in the name of the enterprise will usually collect the corresponding fees of the other party in the name of internal contracting fees, management fees, etc. This act is similar to the legal relationship of illegal leasing of construction qualifications, and the so-called management fee is the illegal rent of construction qualifications or other concession qualifications, rather than legal management fees in the general sense. Because this kind of behavior of using the qualifications or qualifications authorized by the state to illegally make profits maliciously circumvents market supervision, seriously disrupts the order of the construction market and endangers the public interest, the so-called management fees generated based on this act are essentially paid for illegal reasons.
With regard to the dispute over management fees under the circumstance of contracting a project in the name of a qualified construction enterprise, the following main situations exist in practice:
First, it advocates the return of the management fees already collected by the lender. In this regard, there is a view that it should be handled in accordance with unjust enrichment, because others have no legal basis and obtain improper benefits, the person who suffered losses has the right to request him to return the improper benefits, and since the construction contract is invalid, the management fee obtained by the lender has no legal and contractual basis, and the parties naturally have the right to claim return.
For example, the Supreme People's Court's [2016] Minshen No. 2762 Civil Ruling held that the construction contract was invalid because it violated the provisions of laws and judicial interpretations, and the agreement on the subcontractor's collection of management fees was also invalid, so the management fees obtained by the subcontractor through subcontracting should be returned to the actual builder; the Supreme People's Court's [2014] Civil Judgment No. 10 of the Civil Resistance Also held the same view.
There are also views that management fees are illegal gains, but the parties cannot obtain benefits from their illegal acts, and the parties can only claim property that they legally own, such as the Supreme People's Court's [2017] Minshen No. 2327 Civil Ruling and the [2018] Minshen No. 5532 Civil Ruling holding this view.
The author agrees with the latter view, due to the lending qualification, both parties are at fault in the invalidity of the contract, and the management fee is illegal, no one can claim the right to the illegal income, and the parties claiming to return the management fee, which is essentially transferring the illegal income from one party to the other party and should not be supported, and a consensus has gradually formed in judicial trial practice.
Second, it asserts that the management fees that have not yet been collected are asserted. Where the lender advocates the payment of management fees with reference to the contract agreement, there are views that it should be handled with reference to the contract agreement, combined with the performance of the contract and the general valuation method of such contract management fees in industry practice.
However, the author believes that according to the previous logic, if such management fees are supported, it is easy to form a negative incentive effect, disrupt the construction market, and is not conducive to cracking down on such affiliated illegal acts, so the litigation claims of the parties should also be rejected.
As for the question of whether the illegal gains can be confiscated by the court, Article 4 of the 2004 Construction Interpretation stipulates: "The contractor's illegal subcontracting, illegal subcontracting of construction projects, or the actual construction projects without qualifications to sign construction project construction contracts with others in the name of a qualified construction enterprise are invalid." The people's court may, in accordance with Article 134 of the General Principles of Civil Law, confiscate the illegal gains already obtained by the parties. ”
In judicial practice, the people's court may confiscate management fees in accordance with the law, but because the seizure of illegal gains gives the judicial organs the power to directly deprive civil subjects of their property, which has obvious punitive nature and public law overtones, the Civil Code has deleted the provisions of Article 134 of the General Principles of Civil Law on the confiscation of property as a consequence of invalid legal acts, and the newly issued Construction Interpretation (I) does not absorb the original collection provisions.
The author believes that the handling of such issues falls within the competence of other organs, and it is uncertain whether and the amount of seizure should be confiscated until they have made a decision on the penalty for seizure. The people's court may consider referring to article 14 of the Measures for the Administration of the Determination and Investigation of Illegal Acts in the Construction of Construction Contracts and Contracting by the Ministry of Housing and Urban-Rural Development, hand over the clues of the violation to the administrative organ and recommend that the administrative organ collect the management fee, so as to balance and repair the civil legal relationship and prevent the parties to the invalid contract from obtaining additional benefits.
The settlement agreement refers to the agreement reached on the contract price of the construction project and the settlement of the project advance payment, the project progress payment and the project completion price according to the contract.
Generally speaking, the settlement agreement is based on the construction contract of the construction project as the main basis for settlement. In practice, there is a dispute over the relationship between the validity of the settlement agreement and the validity of the construction contract for construction projects.
One view is that the settlement agreement is based on the settlement and liquidation clauses formed in the construction contract of the construction project, and the two are the master-slave contractual relationship, the main contract is invalid, and the slave contract is correspondingly invalid;
It is also believed that the settlement agreement is an agreement that is interrelated but independent of the construction contract, and since the settlement agreement has its own independence, it is not the settlement and liquidation clause of the construction contract, and it should be regarded as an independent agreement.
In principle, I agree with the latter view.
Judging from Article 14 of the Interim Measures for the Settlement of Construction Project Prices formulated by the Ministry of Finance and the Ministry of Construction, the settlement agreement is that the contract issuer and the contractor confirm the amount of the project price, the method of payment, the time, etc. in accordance with or with reference to the construction project construction contract, and are the acts and performances of the performance of the rights and obligations of the construction project construction contract, so the two have a close connection; at the same time, the settlement agreement is the autonomy of the two parties on the settlement of the project price after the completion of the construction project construction contract, and has a certain degree of independence. it is an expression of the true intention of both parties. If the disposition of the parties' rights does not exist in the civil code regarding the invalidity of civil juristic acts, it should be respected, so whether the construction contract is valid does not necessarily affect the validity of the settlement agreement.
It is worth noting that for the construction project to be tendered, the parties claim that the settlement agreement is invalid on the grounds that the settlement agreement does not conform to the valid winning contract, and some people believe that the settlement agreement is the autonomy of the intention reached by the two parties on the settlement of the project price, which is the true expression of intention of the two parties. The disposition of their rights by the parties should be respected, so the claim that the settlement agreement is invalid in such circumstances cannot be supported.
The author believes that under the circumstance that the settlement agreement is not reached in accordance with the provisions of the winning contract, it is still debatable that the settlement agreement is legal and valid. The reason is that Article 2 of the Construction Interpretation (I) already stipulates that if the substantive content of the project price and other substantive contents stipulated in the construction contract for the construction project separately signed by the bidder and the successful bidder are inconsistent with the winning contract, and one of the parties requests that the rights and obligations be determined in accordance with the winning contract, the people's court shall support it. The reason why we no longer support the discount compensation with reference to the contract signed separately here is mainly to maintain the order of the construction market and the management of bidding and bidding, protect the fair competition rights and interests of other bidders, and eliminate the illegal behavior of circumventing bidding. Therefore, in order to curb the stubborn disease of "winning bids at low prices and settling at high prices", the validity of the "white contract", that is, the "black contract" that changes the substantive content after winning the contract, should be denied, and then the settlement cannot be carried out with reference to the "black contract". The people's court shall, in accordance with the provisions of the Civil Code and other laws and administrative regulations on the invalidity or revocability of the contract, focus on examining whether the settlement agreement between the two parties to the contract has malicious collusion to harm the lawful rights and interests of others, and other invalid or revocable circumstances, and comprehensively determine the validity of the settlement agreement.
In the field of construction projects, administrative auditing is the activity of auditing institutions to audit and supervise the budget implementation and final accounts of government investment and construction projects with government investment as the mainstay. This audit activity is only an act of supervision of the construction unit and does not automatically determine the settlement of the project price between the construction unit and the contracting unit.
On June 5, 2017, the Legislative Affairs Commission of the Standing Committee of the National People's Congress, in its reply to the Reply to the Review Recommendations on the Use of Audit Results as the Basis for the Settlement of Completion of Government Investment and Construction Projects in Local Regulations (Legal Work Preparation Letter [2017] No. 22) made by the China Construction Industry Association, clarified that "the provisions in local regulations that directly use audit results as the basis for completion settlement and should be specified in the bidding documents or agreed in the contract to use audit results as the basis for completion settlement, limiting civil rights." Exceeding the authority of local legislation should be corrected".
The relevant regulations or measures in various localities have also deleted or amended the relevant contents, and it is clear that the audit results cannot be mandatorily required as the basis for the settlement of the completion of construction projects.
At the same time, according to Article 11 of the Regulations on Guaranteeing the Payment of Funds by Small and Medium-sized Enterprises issued by the State Council, "organs, public institutions and large state-owned enterprises shall not compulsorily require the audit results of audit institutions as the basis for settlement, unless otherwise agreed in the contract or otherwise provided by laws and administrative regulations".
At present, there are no special provisions of laws and administrative regulations in the proviso section, so administrative audit should be regarded as a way to settle the project price, unless the construction project construction contract expressly stipulates that administrative audit and financial review shall be used as the basis for settlement of the project price, and the construction unit shall not settle the project price by administrative audit and financial review.
In practice, due to the extensive and time-consuming administrative audit and financial review and approval process, the audit or financial review institution failed to issue an audit opinion according to the time limit agreed upon by the two parties to the contract, or did not issue an opinion within a reasonable period of time, or the audit or financial review body clearly stated that it could not conduct the audit, resulting in the contracting parties being unable to form settlement documents for a long time. At this time, it is relatively unfair for the contractor to continue to wait for the audit results, if the contractor applies for a judicial appraisal on the settlement of the project price, in order to avoid the parties being in a state of dispute and uncertainty for a long time, the people's court may allow the parties to apply for judicial appraisal, but before the people's court initiates the judicial appraisal, it shall communicate with the auditing and financial review institutions to confirm the specific reasons for not issuing the audit opinion. If an audit or financial appraisal body issues an audit opinion in the course of judicial appraisal, since the people's court has already initiated a judicial appraisal, it shall be deemed that the two parties have reached an expression of intent to change the basis for settlement, that is, the judicial appraisal opinion shall be used as the new basis for settlement, and the judicial appraisal shall continue at this time; if both parties are willing to accept the audit opinion, it may be supported from the perspective of saving litigation resources and improving litigation efficiency.
Project quality assurance fund refers to the funds agreed between the contractor and the contractor in the construction contract of the construction project, which is reserved from the project payment payable to ensure that the contractor repairs the quality problems of the construction project during the defect liability period.
With regard to the legal nature of the project quality assurance fee, it is generally believed that the project quality assurance fee is the fund set aside by the contractor from the project payment payable to ensure that the contractor repairs the defects in the construction project during the defect liability period.
As a tool for the contractor to repair defects in the construction project, it is not necessary to use the method of engineering quality assurance. As far as the existing regulations are concerned, at least they can be replaced by other guarantee methods such as bank guarantee, payment of performance bond, project quality assurance guarantee, project quality insurance, etc.
In other words, whether the guarantee method of withholding the project quality assurance fund from the project payment is entirely dependent on the agreement of the parties to the contract and is not a mandatory provision of the legislation. Furthermore, the withholding of the project quality assurance fund from the project payment is only the amount that should have been paid to the contractor as the project payment into the project quality assurance fund that the contractor should hand over to the contractor. Therefore, although the project quality assurance fund is withheld from the project payment, its nature is not the project payment. In the case of a valid contract, the issuer and the contractor shall deal with the issue of the return of the project quality assurance fee in accordance with the provisions of Article 17 of the Construction Interpretation (I).
In practice, it is often the case that when a construction contract for a construction project is found to be invalid, the contractor claims that the contractor pays the project payment, including the project quality assurance fee, and the contractor defends that the project quality assurance fee should be withheld before it has expired. There are different views on this.
The first view is that the project quality assurance fund is a guarantee for the quality of the project during the project quality warranty period, which is a statutory obligation, and should not be based on the validity of the contract as the premise, and the agreement on the guarantee amount belongs to the scope of the settlement clause and should be withheld accordingly.
The second view is that the basis for the contractor to withhold the project quality warranty from the project payment is the agreement of the construction contract of the construction project. As mentioned above, in the case of invalid construction contract, the terms related to the project price, such as the payment time, payment progress, and floating rate of the project price, should be applied by reference, and since the project quality assurance fund is part of the contractor's project payment, the return of the project quality assurance fund should still be implemented with reference to the contract. Moreover, if the contractor's litigation claim for the return of the project quality assurance fund is supported, the contractor may claim all the project funds, including the project quality assurance fee, before the expiration of the warranty period agreed in the original contract, and the legal consequence is that the contractor obtains more benefits than when the contract is valid, especially in the case of the contract being invalid due to the contractor's reasons, the contractor profits from the illegal act, which in disguise encourages the contractor to pursue the legal consequences of the invalidity of the contract, which is obviously unfair.
The third view is that the construction contract is invalid, the warranty clause is not a settlement and liquidation clause of the contract, it should not be considered valid, and the contractor should return it. If there is a quality maintenance problem during the warranty period of the construction project, the contract issuer may claim the right separately in accordance with the law.
The author adopts the third view in the cases in which he has participated.
The reason is that, first of all, the legislation does not mandate that the contractor collect the project quality assurance fee. The role of the project quality assurance fund is to guarantee the contractor to repair the quality problems of the construction project during the defect liability period, and from its role point of view, at least the parties can also choose other guarantee methods such as bank guarantee, payment of performance bond, project quality assurance guarantee, project quality insurance and other guarantee methods.
Secondly, the invalidity of the construction contract is the invalidity of all terms, including the terms of the project quality assurance fee. Since it is not a statutory obligation for the contractor to pay the project quality assurance fee to the contractor, the project quality assurance fee obtained by the contractor based on the agreement should also lack the basis for continuing to retain it because the agreement is invalid.
Third, the construction contract for the construction project is invalid, and the contractor has the right to claim compensation for the discounted price agreed in the reference contract, and the contractor then withholds the discount compensation in the name of the project quality assurance fund without basis.
Finally, after the contractor obtains the discount compensation based on the invalidity of the construction contract for the construction project, the contractor on the surface receives more than when the contract is valid because the contractor has not withheld the project payment, but even if the contractor withholds the quality assurance fund of the project, after the expiration of the defect liability period, if there is no project quality problem, the contractor still has to return the project quality assurance fee to the contractor, so there is no problem that the contractor will benefit additionally due to the invalidity of the construction contract. Finally, even if the construction contract does not have a project quality assurance fund, if there is a quality problem in the construction project during the defect liability period, the contractor may still require the contractor to repair or bear the maintenance costs in accordance with the law.
Article 286 of the Contract Law creates a system of preferential reimbursement of construction project prices, and Article 807 of the Civil Code retains this system except for individual word adjustments. Generally speaking, the right of priority in reimbursement of the price of a construction project means that the contractor has the right of priority to be reimbursed for the price of the construction project in respect of the discounted price of the project or the price auctioned. In judicial practice, a consensus has gradually emerged on the exercise subjects, conditions for exercise, time of exercise, and scope of exercise of the right of priority to be reimbursed for the construction project price, and the Construction Interpretation (I) further clarifies the above issues. The author will analyze several types of special issues involving the right of priority in reimbursement of construction project prices in judicial practice.
Article 35 of the Construction Interpretation (I) limits the exercise of the right of priority to reimbursement of the construction project price to the contractor who concludes the construction project construction contract with the contractor, and how to define the scope of the contractor who concludes the construction project construction contract with the contractor is still somewhat controversial in practice.
1. Actual builders or unqualified contractors in subcontracting or illegal subcontracting
Judging from what the author learned when I participated in the drafting and finalization of the construction interpretation in 2018, the parties have a greater disagreement on whether the actual builder enjoys the right of priority to be reimbursed for the construction project price.
One view is that the actual builder is the actual input of the construction project person, property and property, and the project payment he claims also includes the wages payable to the construction workers, so he should be given the right of priority to be reimbursed for the construction project price;
Another view (which is also the author's view) is that the actual builders are involved in illegal construction, so they should be negatively evaluated from the value level, and furthermore, the protection of their rights should not be equated with that of legal contractors. The interpretation of Article 286 of the Contract Law, which had not yet expired at that time, that "the contract issuer did not pay the project price as agreed" also stated that the premise for the application of this article was that the contract was valid. However, there is no legal and valid construction contract between the actual builders in the subcontract or illegal subcontract and their predecessors, so this article cannot be applied to claim the priority right to reimbursement of the construction project price.
Finally, Article 17 of the 2018 Construction Interpretation actually adopts the second view by expressing the expression "a contractor who concludes a construction contract with the contractor for a construction project". It should be added that the contractor in this article also does not include a contractor who does not have the corresponding construction qualifications for the construction project but has signed a construction project construction contract with the contractor, for the same reasons as above and will not be repeated. Since the systematic interpretation of Articles 793 and 807 of the Civil Code can confirm the above views, Article 35 of the Construction Interpretation (I) follows the provisions of Article 17 of the 2018 Construction Interpretation.
2. Surveyor, designer
The subject of the survey and design of the construction project generally directly concludes the construction project contract with the contractor, but in practice, it is generally believed that the surveyor and the design entity do not enjoy the right of priority to be reimbursed for the project price, and only the construction personnel of the construction project may enjoy the priority right to be reimbursed for the project price, such as article 16 of the Anhui Provincial Higher People's Court's "Guiding Opinions on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Project Contracts", which stipulates that the contractor of the decoration and decoration project can support the claim of the right of priority to be reimbursed for the project payment The claim of the engineering surveyor or designer for the right of priority to be reimbursed for the engineering survey or design fee shall not be supported.
Because the original intention of the establishment of the right of priority reimbursement of the project price is to effectively solve the problem of arrears of project payments and protect the survival interests of the majority of migrant workers and other vulnerable groups represented by the construction workers. From the perspective of industry characteristics, the survey and design work engaged in by the survey and design subject is generally technical intellectual labor, and it can carry out private relief by refusing to deliver intellectual results, so there is no need to protect it through the method of preferential reimbursement of the project price.
Therefore, Article 35 of the Construction Interpretation (I) restricts the interpretation of "contractor" in Article 807 of the Civil Code (Article 286 of the Contract Law), and only refers to the builder who concludes a construction project construction contract with the contract issuer, and does not include the main body of the survey and design.
What needs to be further discussed is that in the EPC model, if the EPC plays the role of both the design subject and the construction body, does the EPC of course have the qualification to exercise the right of priority to be reimbursed for the construction project price?
The author believes that under the general contracting mode of the project, the general contractor of the project and the issuer sign the general contracting contract of the project, contracting the engineering design, procurement, construction or design, construction and other stage tasks, so the general contractor of the project belongs to the scope of the contractor stipulated in the law and judicial interpretation, and has the right to claim the priority right to reimbursement of the construction project price.
It is worth noting that according to Article 10 of the Measures for the Administration of General Contracting of Housing Construction and Municipal Infrastructure Projects formulated by the Ministry of Housing and Urban-Rural Development and the National Development and Reform Commission, the general contracting unit of the project may be composed of a consortium of design units and construction units with corresponding qualifications, and if the design unit and the construction unit form a consortium, the lead unit shall be reasonably determined according to the characteristics and complexity of the project, and the responsibilities and rights of the member units of the consortium shall be clarified in the consortium agreement. All parties to the consortium shall jointly sign a general contracting contract with the construction unit and bear joint and several liability for the general contracting project. Under the consortium general contracting model, the design unit is not actually engaged in project construction work, which should be excluded from the scope of the exercise of the right of priority reimbursement. If the design unit is supported to claim the right of priority to be reimbursed alone, it may lead to disputes between the subsequent design unit and the construction unit over the distribution of the project money after receiving the project money. If the final construction unit is unable to actually receive the project price due, the value purpose of the preferential right of reimbursement may not be realized.
3. Contractor of decoration and decoration projects
Different from general construction projects, decoration and decoration projects are carried out on existing buildings, regarding whether the contractor of the decoration and decoration project enjoys the right of priority to be reimbursed for the construction project price, the Supreme People's Court's "Letter Reply on Whether the Decoration and Decoration Project Funds Enjoy the Right of Priority to Be Reimbursed As Provided for in Article 280 of the Contract Law" clearly affirms that the decoration and decoration project is a construction project and the provisions of the right of priority to be reimbursed may be applied, except that the contractor of the decoration and decoration project is not the owner of the building. Article 18 of the 2018 Construction Interpretation has not changed its attitude towards this issue. When the contractor is not the owner of the building, is it of course not the contractor to have the right of priority in reimbursement of the construction price?
It has been argued that the contractor does not have the right to dispose of the building, and the creditors of the contractor certainly do not enjoy any rights to the building, and if the building is included in the scope of the contractor's priority right to be reimbursed for the decoration and renovation project, it will not only expand the scope of the contractor's claims without any basis, but also infringe on the legitimate rights and interests of the owner of the building and the right holder who creates other security rights in the building, which is obviously biased.
However, in the process of judicial application, the author found that although the decoration and decoration project is generally attached to the building that has been completed or basically completed, the adhesion characteristics of the decoration and decoration project do not mean that the decoration and decoration project does not have independent value, and when the contractor of the decoration and decoration project is not the owner of the building, it should still be further judged whether the decoration and decoration project can be objectively discounted or auctioned separately. If the decoration and decoration project has the conditions for discount or auction, the contractor of the decoration and decoration project shall enjoy the right of priority to be reimbursed. The above views are also adopted in Article 37 of the Construction Interpretation (I).
Regarding the criteria for judging whether there is a discount or auction condition and judicial operation, reference may be made to the Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Law in the Trial of Urban Housing Lease Contract Dispute Cases, which stipulates whether decorative decorations have formed an attachment.
4. The assignee of the claim for the project price
The right of priority to be reimbursed for the construction project price is a statutory priority, which has a subordinate attribute, and its function is to ensure that the claims of the project price can be paid off in priority, and ultimately protect the basic interests of construction workers. Some people hold that the right of priority to be reimbursed for the construction project price and the right to claim the construction project price have personal dependence, and the contractor transfers the claim on the construction project price, and the priority right to be reimbursed for the construction project price is extinguished. However, the right of priority repayment is a priority and subordinate right similar to the security interest, and the main claim does not have a personal attribute, so whether it is the nature of the right of priority to be reimbursed from the construction project price or the purpose of establishing the purpose of protecting the survival rights and interests of migrant workers and other construction workers, it cannot be concluded that the priority right to reimbursement of the construction project price has the identity attribute. In practice, the transferee of the claim is often based on the "excellent quality" of the claim having statutory priority that makes it willing to pay the consideration to obtain the claim, so if the contractor transfers the claim for the construction project price, the priority right to reimbursement of the construction project price should be transferred accordingly, and the creditor of the claim shall enjoy the subject qualification of the right of priority to be reimbursed.
The right of priority to be reimbursed for the price of a construction project is a legal right to be reimbursed in priority for the discount of the construction project and the proceeds of auction, and there is a great controversy in judicial practice as to whether the realization of this legal right must be determined by means of public power or quasi-public power intervention such as litigation or arbitration.
First of all, the contractor may exercise the right of priority to be reimbursed for the construction project price through the intervention of public power or quasi-public power such as litigation or arbitration. In practice, there are two points to be noted:
First, because the right of priority to be reimbursed for the construction project price breaks the order of repayment of the creditor's rights of the mortgagee and ordinary creditors, involving the vital interests of other creditors of the contract issuer, especially the bank and other mortgagee, in order to effectively prevent false litigation and avoid harming the legitimate rights and interests of third parties, the people's court shall, before issuing a judgment, mediation document or before the arbitration institution issues an award, review whether the parties' exercise of the right of priority to reimbursement of the construction project price meets the conditions prescribed by law (exercise subject, time limit, scope, etc.). Those who do not meet the conditions will not be confirmed. In particular, on the issue of the time limit for exercising the right of priority to be reimbursed for the construction project price, it should be noted that article 41 of the Construction Interpretation (I) provides for the exercise period: 1. it shall be exercised within a reasonable period of time; 2. It shall not exceed 18 months at the longest; 3. The starting point of the time limit shall be the date on which the contractor shall pay the construction project price.
Second, when the mortgage right and the construction project preferential right to be reimbursed exist at the same time, whether the right of priority to be reimbursed for the construction project price is valid or not, and the scope is large, there is a legal interest in the mortgagee, so when the mortgagee has evidence to prove that the document confirming the right to the priority of repayment of the construction project price is indeed wrong, it has the right to file a third-party revocation lawsuit to protect the legitimate rights and interests of the contract issuer/other creditors. In this regard, the main points of the adjudication of the Supreme People's Court's Guiding Case No. 150, "China Minsheng Bank Co., Ltd. Wenzhou Branch v. Zhejiang Shankou Construction Engineering Co., Ltd. and Qingtian Yiligao Shoes Co., Ltd., a third party revocation case", also make it clear that the priority right to reimbursement of the construction project price and the mortgage right point to the same subject matter, and the realization of the mortgage right is affected by the existence or absence of the right of priority to reimbursement of the construction project price and the size of the scope. It should be found that the realization of the mortgage right has a legal interest in the handling of the case of the preferential right to reimbursement of the construction project price, and the mortgagee has the qualifications of the plaintiff to initiate a third-party revocation lawsuit against the effective judgment confirming the priority right to reimbursement of the construction project price.
Second, if the parties exercise their right of priority to be reimbursed for the construction project price by sending a letter or agreeing on a discount, a consensus has not yet been reached in judicial practice. Affirmatively arguing that the Supreme People's Court explicitly replied to the Guangdong Provincial Higher People's Court in its Reply to the Law Applicable to the Right of Priority in Reimbursement of Construction Project Funds ([2007] Zhi Ta Zi No. 11): "The right of priority to be reimbursed for construction project prices is a statutory priority that does not need to be expressly stated by the parties separately. "The contractor's right of priority in reimbursement of the construction project price is a legal right, which does not need to be confirmed by the court to enjoy, and from the perspective of reducing the litigation burden of the parties and saving judicial resources, it is also conducive to the timely settlement of disputes by issuing a letter or agreeing to discount the right to be reimbursed by way of discounting the price of the construction project under the premise of not violating the prohibited provisions of the law." The negative view holds that the right of priority to be reimbursed for the construction project price not only involves the interests between the contract issuer and the contractor, but also may involve the legitimate rights and interests of other creditors of the contract issuer, and in order to ensure the safety of the transaction and the order of the transaction, the way it is exercised should be appropriate for the intervention of public power. The author believes that the exercise of the right of priority to be reimbursed for the construction project price is not limited to the litigation method, but can also be exercised by negotiating with the contractor for discounting the price, as long as the contractor is not neglecting to exercise the right of priority to be reimbursed for the project price, in principle, it should be protected, and the exercise of the right of priority to reimbursement should be limited to the litigation method, which is also inconsistent with the original intention of the legislation.
At the same time, Article 807 of the Civil Code does not preclude the contractor from exercising it through special procedures, and if the contractor's claim for project funds is determined, it may also apply to the people's court to auction the project in accordance with the law, and the price claim of the construction project may be reimbursed in priority for the auction price of the project. The specific exercise procedures may be considered to apply the provisions of article 372 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law on the procedures for realizing the right to security interests, because the right of priority to be reimbursed for the construction project price, as a statutory priority, has a specific function of guaranteeing the realization of claims for project funds, and it is not inappropriate to realize the right of priority through special procedures, which is not contrary to the legislative intention of article 807 of the Civil Code. In practice, where a contractor discounts or auctions a project in accordance with law, it shall follow certain procedures. Where the contractor discounts the price of the project, it shall reach an agreement with the contract issuer, and may determine a certain price with reference to the market price to transfer the ownership of the project from the contractor to the contractor, so that the contractor's price claim can be realized. Where the contractor adopts the method of auction because it cannot reach a discount agreement with the contract issuer, it shall apply to the people's court to auction the project in accordance with law, and the contractor must not entrust the auction company or auction the project on its own.
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Editor's Note: Notes have been omitted for ease of reading, and for citations, please check the original paper version of the magazine.
