[Company Name] Group Co., Ltd. v. [Company Name] Co., Ltd. of Liaoning and [Company Name] Development Co., Ltd. of Liaoning 
Construction Project Contract Dispute Case 
           
[Keywords] Large scale, complex case facts, legal principles 
【Key Points of the Ruling】 
Judging from the terms of the agreement itself, the applicable conditions have not been met. Article 26 of the contract stipulates: “Within one week after Party B completes all the work quantities agreed upon in the contract, Party B shall pay 85% of the total project amount. Within three months after Party B submits the final account to Party A, Party A shall complete the audit (failure to meet this deadline shall be deemed as acceptance).” It is evident that the application of this clause requires two conditions to be satisfied: First, Party B must complete all the work quantities agreed upon in the contract—only after the completion of the project can the appellant submit the relevant documents to Nanfeng Company; second, the documents submitted by the appellant to Nanfeng Company must be final account documents, rather than settlement documents. In this case, the appellant, Guangda Company, unilaterally and arbitrarily suspended construction and, when submitting its documents, had not yet completed all the work quantities agreed upon in the contract. Moreover, the documents it submitted were not final account documents. Therefore, since the conditions have not been met, this agreement cannot be applied. According to Article 20 of the Supreme People’s Court’s Interpretation on the Application of Laws in Handling Disputes over Construction Project Contracting Contracts, this agreement is not applicable. 
According to the Contract for the Five-Star Grand Hotel Project in Tanxiangwan, Diaobingshan, the parties had agreed in the contract on a provisional price of 28.73 million yuan. However, the settlement quotation submitted by the appellant, Guangda Company, came in at 61.21 million yuan—a discrepancy of as much as 32.48 million yuan above the provisional price stipulated in the contract. Even accounting for changes and additional items in the project, it is simply impossible for the final cost to exceed the provisional price by such a large margin. The cost appraisal agency has conducted a cost appraisal of the completed work volume, and according to its findings, the total project cost amounts to only slightly over 44.98 million yuan—still a gap of 16.23 million yuan from Guangda Company’s quoted price. Moreover, of this 16 million yuan difference, not only were some figures falsely reported, but there were also numerous instances of deliberate misrepresentation and fraudulent reporting. 
[Basic Facts of the Case] 
Certain Group Co., Ltd. (hereinafter referred to as “Guangda Company”) and Liaoning Certain Co., Ltd. (hereinafter referred to as “Certain”) have become embroiled in a dispute over unpaid construction project payments. Guangda Company claims that after signing a contract with Certain as the construction contractor, it diligently fulfilled its obligations; however, Certain still owes Guangda Company RMB 223,562,85 yuan in project payments. In the first-instance judgment, Certain was found liable and ordered to pay Guangda Company RMB 208,259,70.65 yuan. As the agent for Guangda Company in the second-instance proceedings, I filed an appeal on behalf of my client, pointing out that Guangda Company had submitted a false quotation (the provisional contract price was RMB 28.73 million, whereas Guangda Company’s final settlement quotation reached RMB 61.21 million, exceeding the provisional contract price by RMB 32.48 million). Furthermore, Guangda Company had repeatedly used fabricated inspection reports to falsely inflate the scope of work, engaged in fraudulent itemization, submitted duplicate quotations, failed to meet the conditions for payment, and committed other factual and legal errors during the first-instance trial. Given the substantial amount involved and the complexity of the case, through thorough investigation and evidence collection, careful analysis of the case facts, clarification of legal relationships, and identification of key points of contention, I successfully advanced the case step by step, fully leveraging the principle of fairness under contract law. As a result, the second-instance court reversed the original judgment and remanded the case for retrial, thereby safeguarding my client’s legitimate rights and interests. 
【Judgment Result】 
1. Revoke the Civil Judgment No. 00020 of the First Instance (2014) issued by the Intermediate People's Court of Tieling City; 
II. Remand to the Intermediate People's Court of Tieling City for retrial. 
【Reasoning of the Ruling】 
I. If the conditions that must be met have not been fulfilled, the relevant agreement should be excluded from application. 
II. In accordance with the principle of fairness, the project payment claimed by the majority of companies should not be used as the basis for settlement. 
【Relevant Statutes】 
Article 20 of the “Interpretation by the Supreme People’s Court on Issues Concerning the Application of Law in the Adjudication of Disputes over Construction Project Contracting Contracts” 
Article 29 of the “Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China” 
Guiding Opinions of the Supreme People's Court on Several Issues Concerning the Adjudication of Civil and Commercial Contract Disputes under the Current Situation 
Article 114 of the Contract Law of the People's Republic of China 
Article 30 of the “Opinions on Several Issues Concerning the Adjudication of Disputes over Construction Project Contracting Contracts” 
[Lawyer’s Perspective] 
After receiving this case, my client analyzed the facts of the case, conducted investigations and gathered evidence, and comprehensively considered and weighed the pros and cons. As a result, it was determined that the primary point of contention in this case lies in whether the project payment claimed unilaterally by Guangda Company can be used as the basis for settlement. My client argues that the total amount of project payment due cannot be determined solely on the basis of the project payment claimed by Guangda Company; rather, it should be established based on the actual volume of work completed by the contractor, using methods such as construction cost appraisal. The specific reasons are set forth below: 
1. If the conditions that must be met have not been fulfilled, the relevant agreement should be excluded from application. 
The broad company argues that the settlement price agreed upon by both parties should be based on the quotation provided in the settlement documents submitted unilaterally, as stipulated in Article 26 of the Special Terms of the Contract for the Five-Star Grand Hotel Project at Tanchangwan, Diaobingshan. 
(1) Judging from the terms of the agreement itself, the applicable conditions have not been met. Article 26 of the contract stipulates: “Within one week after Party B completes all the work quantities agreed upon in the contract, Party B shall pay 85% of the total project amount. Within three months after Party B submits the final account to Party A, Party A shall complete the audit (failure to meet this deadline shall be deemed as acceptance).” It is evident that the application of this clause requires two conditions to be satisfied: First, Party B must complete all the work quantities agreed upon in the contract—only after the completion of the project can the appellant submit the relevant documents to Nanfeng Company; second, the documents submitted by the appellant to Nanfeng Company must be final account documents, not merely settlement documents. In this case, the appellee, Guangda Company, unilaterally and arbitrarily halted construction and, when submitting its documents, had not yet completed all the work quantities agreed upon in the contract. Moreover, the documents it submitted were not final account documents. Therefore, since the conditions have not been met, this agreement cannot be applied. 
(2) According to Article 20 of the “Interpretation by the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Disputes over Construction Project Contracting Contracts” (hereinafter referred to as the “Judicial Interpretation”), the aforementioned agreement is not applicable. In judicial practice within the construction engineering field, even before the issuance of the “Judicial Interpretation,” courts generally did not treat as valid any tacit acceptance provisions in contracts stipulating that failure to settle accounts within a specified period would be deemed as acceptance of the final settlement documents’ quoted prices. Instead, courts typically appointed independent appraisers to conduct price assessments. The reason lies in the fact that disputes over construction project contracting contracts differ from ordinary civil cases; such disputes usually involve extremely large sums of money. Moreover, given that the settlement quotations submitted by construction contractors often contain substantial exaggerations, the decision whether to conduct an appraisal or not significantly affects the interests of both parties—differences can easily amount to hundreds of thousands or even millions of yuan. If the tacit acceptance clauses were applied simply and mechanically, thereby validating the settlement quotations, it would result in manifest unfairness and cause substantial economic losses to the project owner. Based on the above considerations, even after the issuance of the “Judicial Interpretation,” courts, when applying this interpretation, strictly adhere to its prescribed terms and apply the agreements between the parties only under conditional circumstances—namely, only when the agreements fully meet the conditions set forth in the interpretation. Article 20 of the “Judicial Interpretation” provides: “If the parties agree that, upon receipt of the final settlement documents by the employer, failure to respond within the agreed time period shall be deemed as acceptance of the final settlement documents, such agreement shall be enforced accordingly. If the contractor requests payment of the project price according to the final settlement documents, such request shall be supported.” The legislative intent behind this judicial interpretation is to punish those project employers who maliciously delay settlement after project completion, persistently failing to pay the construction contractor and thereby infringing upon the contractor’s interests. Therefore, the time limit for the contractor’s submission of documents is strictly confined to the period following project completion, and the documents received by the employer are specifically limited to “final settlement documents.” In light of the spirit of the aforementioned interpretation and considering the present case, the respondent, Guangda Company, submitted its documents while the project was still unfinished; hence, the documents submitted were naturally not final settlement documents and could not be subject to the application of Article 26 of the Special Provisions of the “Contract for the Five-Star Hotel Project at Tanxiangwan, Diaobingshan” pursuant to the “Judicial Interpretation.” 
2. In accordance with the principle of fairness, the project payment claimed by the majority of companies should not be used as the basis for settlement. 
The principle of fairness is a fundamental principle of civil law—a principle that should be given priority in order to ensure that fairness and justice are reflected in every judicial case. This principle requires that, when hearing civil cases, judicial authorities not only abide by the law but also act fairly and reasonably. In this case, the court of first instance should not have upheld the claim made by the Guangda Company that the submitted appraisal price should serve as the final settlement price; otherwise, it would inevitably lead to a severely skewed balance of interests, reducing fairness and reasonableness to mere empty rhetoric. The reasons are as follows: 
(1) False quotations amounting to tens of millions of yuan. According to the “Contract for the Five-Star Grand Hotel Project in Tanxiangwan, Diaobingshan,” the parties had agreed in the contract on a provisional price of 28.73 million yuan. However, the settlement quotation submitted by the appellant, Guangda Company, came to as much as 61.21 million yuan—a discrepancy of as much as 32.48 million yuan over the provisional price stipulated in the contract. Even accounting for changes or additional items in the project, it would still be highly unlikely for the final settlement amount to exceed the provisional price by more than double. To clarify for your court just how inflated the settlement documents submitted by Guangda Company truly were, Nanfeng Company, following the first-instance judgment, commissioned a professional cost appraisal agency to conduct a cost appraisal of the completed work volume and has now submitted the appraisal report to your court. According to this appraisal report, the total project cost amounts to only slightly over 44.98 million yuan—representing a difference of as much as 16.23 million yuan from Guangda Company’s quoted figure. Moreover, of this 16 million yuan difference, not only was there significant overstatement, but also substantial instances of false and fraudulent reporting: specifically, portions of the project that were neither constructed nor completed by Guangda Company were fraudulently included in the settlement documents under the guise of being part of the project. The instances of false, fraudulent, and misleading reporting involve multiple aspects: First, falsely claiming—and fraudulently reporting—that parts of the project not actually under its responsibility (i.e., those constructed by other entities not affiliated with Guangda Company) were instead carried out by Guangda Company itself; second, fraudulently inflating the reported quantities—specifically, quoting prices as if the work had been fully completed when in fact it had not yet been finished; third, repeated quoting—where the same work items were calculated and billed multiple times; fourth, unreasonable fee charges—where fees were levied without adhering to the contractual agreements or standard fee rates; fifth, fictitious itemization—where certain items were fabricated or invented out of thin air; and sixth, misrepresentation of ancillary costs—where costs for supporting facilities were falsely inflated. Of course, there are also other circumstances involved, which we will not enumerate here one by one. 
These 16 million yuan were not earned by the vast majority of companies through hard work and relentless, day-and-night construction—brick by brick, effort after effort. Rather, they were obtained through arbitrary, large-scale expenditures, without any real effort or even by means of deception. It is exceedingly rare to find a contractor as audacious and “bold” as this one. In contrast, Nanfeng Company has always acted with honesty and good faith, disbursing project payments on time and in full accordance with the contract—never once defaulting on payments. On the other hand, the other party unilaterally halted construction, took advantage of the deadlock in negotiations over the project’s finalization work, and seized the opportunity during the lull just before the Spring Festival to suddenly submit a settlement report—in that report, they falsely inflated the amount of project payments by as much as 16 million yuan, recklessly hoping to secure a huge windfall through litigation as “compensation.” As a result, Nanfeng Company’s honest and trustworthy conduct has ultimately landed it in the midst of a protracted legal battle. It is indeed unfortunate for Nanfeng Company to have encountered such a partner. However, fortunately, the principle of fairness enshrined in civil law provides some solace—and even more fortunate is the fact that the inflated figures in the settlement quotation run into tens of millions, making the extreme unfairness that would result from applying this provision something that any ordinary citizen could readily foresee. Even better still, the court handling the second-instance review of this case is your court. We are confident that, as a provincial-level court, your court will certainly not adopt the mechanical approach taken by the first-instance court; instead, it will strike a proper balance among the interests of all parties involved, ensuring that this case is decided fairly and reasonably and rectifying any errors in the first-instance judgment. We sincerely hope that in this case, we can truly experience fairness and justice. 
(2) The necessity of applying the principle of fairness in this case. 
1. The principle of fairness may serve as a legal basis for disregarding agreements between the parties when such agreements are manifestly unfair. 
Article 29 of the “Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China” provides: “If a party claims that the agreed liquidated damages are excessively high and requests a reasonable reduction, the people’s court shall, based on the actual losses incurred, take into account comprehensively such factors as the performance of the contract, the degree of fault of the parties, and the expected benefits, and shall make a ruling in accordance with the principles of fairness and good faith.” 
Meanwhile, in the “Guiding Opinions of the Supreme People’s Court on Several Issues Concerning the Adjudication of Civil and Commercial Contract Disputes under the Current Situation,” it is stated: “II. Reasonably adjust the amount of liquidated damages in accordance with the law and fairly resolve issues related to breach of contract liability. 6. In the current context where enterprises generally face considerable operational difficulties, if the amount of liquidated damages significantly exceeds the losses caused by the breach, we should, in accordance with the principles of good faith and fairness stipulated in the Contract Law, adhere to the nature of liquidated damages as primarily compensatory and secondarily punitive, and reasonably adjust the discretionary range. We must effectively prevent parties from freely agreeing on excessively high liquidated damages solely on the grounds of autonomy of will. 7. When the People’s Courts adjust excessively high liquidated damages pursuant to Article 114, paragraph 2 of the Contract Law, they shall, based on the specific circumstances of each case and taking the losses caused by the breach as the benchmark, comprehensively assess a variety of factors—including the degree of contract performance, the fault of the parties involved, expected benefits, the relative bargaining power of the parties, whether standardized contracts or clauses apply—and make a balanced judgment in accordance with the principles of fairness and good faith. This approach should avoid simplistic, ‘one-size-fits-all’ methods such as applying a fixed percentage, thereby preventing mechanical judicial practices that could lead to substantive unfairness.” 
It is evident that when the application of an agreement between the parties would lead to a serious imbalance of interests—where one party is clearly at a significant disadvantage while the other party clearly gains benefits exceeding the scope permitted by law—the court, guided by the principle of fairness, should refrain from enforcing the agreed-upon terms. 
2. The principle of fairness should be given priority in the judicial practice of adjudicating disputes arising from construction project contracting agreements. 
Disputes over construction project contracts typically involve substantial sums of money, and in many cases, the outcome of these disputes can determine the survival or demise of the parties involved. In 2004, the "Interpretation on Issues Concerning the Application of Law in Adjudicating Disputes over Construction Project Contracts" was issued. In the Supreme People's Court’s First Civil Division’s “Understanding and Application of the Interpretation on Issues Concerning the Application of Law in Adjudicating Disputes over Construction Project Contracts,” Chief Judge Feng Xiaoguang pointed out that the vast majority of provisions in the Judicial Interpretation were formulated based on the principle of fairness—that is, disputes should be resolved fairly, and cases should be adjudicated and applied from the perspective of balancing the interests of all parties involved. 
Some provincial-level courts have also genuinely adopted the principle of fairness as a legal basis for their judgments in judicial practice. For example, in the “Opinions on Several Issues Concerning the Adjudication of Disputes over Construction Project Contracting Contracts,” Article 30, the Shandong Provincial Higher People’s Court stipulates: “In adjudicating disputes over unpaid construction project payments, the settlement should generally be based on the contractually agreed-upon project cost and settlement method. However, if the agreed-upon price significantly exceeds or falls below the market price by more than 30%, or if the remuneration for labor significantly exceeds or falls below the standard rate for similar work by more than 30%, thereby causing a serious imbalance of interests between the parties, the agreed-upon price should be adjusted fairly and reasonably.” As this demonstrates, when there is a conflict of interest between the parties, the people’s court should comprehensively weigh the situation using the principle of fairness and, when appropriate, refrain from applying the parties’ agreement or make suitable modifications thereto. 
3. The necessity of applying the principle of fairness in this case. 
Here, it is essential to provide an overview of the current situation faced by Nanfeng Company. As everyone knows, since last year, the real estate market has continued to slump, leaving most developers in a state of severe financial strain—and Nanfeng Company is no exception. The Diaoxiangwan Hotel and Residential Community project in Diaobingshan, developed and constructed by Nanfeng Company, is a large-scale undertaking that requires substantial capital flows. It is therefore all the more crucial to meticulously plan the source of each funding tranche, the amount to be invested, and the timing of these investments, so as to ensure the smooth progress of the project’s construction. Should any major funding source falter, it could trigger a series of serious cascading effects—for instance, payments originally scheduled for other construction contractors might become impossible to make; these contractors would then be unable to pay their migrant workers, leading to prolonged wage arrears for large numbers of laborers. Such circumstances would inevitably give rise to mass petitioning incidents, thereby undermining social stability. 
In light of this case, the settlement documents submitted by Guangda Company contained false quotations totaling as much as 16 million yuan, and the quotations also included a substantial number of inflated quantities of work. If the project payment claimed by Guangda Company were used as the basis for settlement, it would indirectly validate the falsely reported quantities of work. Such validation would inevitably contradict objective facts and lead to an erroneous determination of the facts. Moreover, the principle of equivalent exchange embodies the principle of fairness in property-related civil transactions: acquiring a right should entail fulfilling corresponding obligations toward the other party; one may not gratuitously or without legal basis appropriate another party’s property, thereby infringing upon the other party’s interests. Since Guangda Company did not actually carry out the work corresponding to the inflated quantities, supporting its claimed amount would mean that although Guangda Company would receive the corresponding project payment, it would fail to fulfill its due obligations and would thus obtain Nanfeng Company’s property gratuitously and without legal basis, thereby infringing upon Nanfeng Company’s interests—a clear violation of the principle of equivalent exchange. 
In light of the foregoing, this attorney believes that the amount of work actually completed by the contractor should be determined through methods such as construction cost appraisal. This view was adopted by the Liaoning Provincial Higher People’s Court, which ruled in accordance with the law to remand the case back to the Intermediate People’s Court of Tieling City for a new trial.