[Keywords] Civil/Construction Project Contract Disputes/Reversal of Judgment

【Key Points of the Ruling】

If the amount determined by the court of first instance is incorrect, the erroneous judgment shall be corrected.

[Basic Facts of the Case]

On × year × month × day, Company A, as the project owner, entered into a Construction Contract with Company B, as the contractor, for the construction project named “Project × (×).” This project was awarded to the plaintiff following a tendering and bidding procedure. Clause ×, item × of the tender documents stipulates that the project shall be executed under a fixed-price contract; clause ×, item × further provides that “all factors related to rising prices of construction materials shall be fully taken into account in the bid price, and once a bidder wins the contract, no compensation will be provided for any differences in material costs.” The contract specifies the commencement date as × year × month × day and the completion date as × year × month × day, with a total contractual duration of × calendar days. The quality standard for the project is “qualified,” and the contract price amounts to × yuan. Payment of the project funds (progress payments) shall be made as follows: 90% of the contract price within one year after the completion and acceptance of the project are qualified; the remaining 10% shall be paid upon expiration of the warranty period. The project was completed and delivered on × year × month × day, and both parties confirmed that Company A had paid the project amount of × yuan.

On × month × day of × year, Company A, as the project owner, entered into a Construction Contract with Company B, as the contractor. The project name is: Project × (×); the project location is: ×; the commencement date is: × month × day of × year; the completion date is: × month × day of × year; the total contract duration is × calendar days; and the contract price is × yuan. Payment of project funds (progress payments): Payments will be made according to the actual progress of the project volume. Upon successful completion and acceptance of the project, ×% of the contract price will be paid; one year later, another ×% of the contract price will be paid; and the remaining ×% will be paid after the expiration of the warranty period. The project was completed and accepted on × month × day of × year, and both parties confirmed that Company A has paid the project amount of × yuan.

On × month × day of × year, Company A, as the project owner, entered into a Construction Contract with Company B, as the contractor. The name of the project is × Project, and its location is ×. The commencement date is × month × day of × year, and the completion date is × month × day of × year. The total contract duration is × calendar days, and the contract price is × yuan. Payment of project funds (progress payments): The method and timing for payment of project funds (progress payments) agreed upon by both parties shall be based on the progress of the project. Progress payments will be made on the ×th day of each month at ×% of the actual completed work volume. Upon completion of the project, payments will be made according to the actual progress of the work volume. After successful completion and acceptance of the project, 95% of the contract price will be paid. One year later, an additional ×% of the contract price will be paid. The remaining ×% will be paid after the expiration of the warranty period. As for this contracted project, the defendant has already paid × yuan.

The special terms of all three contracts explicitly state that the contracts are fixed-price contracts. After the signing of the three contracts, the commencement of work on Section × was delayed due to the failure of Company A to complete land acquisition. The actual start date was in × month of × year. In × month of × year, both parties signed the “Completion and Acceptance Certificate for Construction Project” for Section ×, confirming that all work items under Section × had been completed and filling in “× month of × year” in the “Operation Period” column. On × day of × month of × year, both parties again signed the “Completion and Acceptance Certificate for Construction Project” for Section ×, confirming that all work items under Section × had been completed; however, no date was entered in the “Operation Period” column. On × day of × month of × year, the two parties held an emergency meeting on construction progress and prepared minutes of the meeting. According to the minutes, the delay in starting work on Section × was caused by land acquisition issues. Therefore, both parties agreed to adjust the price difference for Section ×—which had originally been stipulated in the contract not to be subject to adjustment for labor and material costs—and to exclude Section × from such adjustments. Both parties further agreed to execute a formal supplementary agreement regarding this matter. However, the two parties never actually signed such a supplementary agreement. The project has not yet been fully completed. Company B claims that the completion occurred in × month of × year, while Company A states that it is unclear about this. In × year, Company A issued a certificate of extension for the works of × to Company B, stating essentially that, due to the defendant’s equipment failing to arrive on time, the construction period was extended until × month of × year.

After Company B withdrew from the site, it failed to deliver the completion documents for Project X to Company A.

During the trial of this case, Company B applied for a judicial appraisal of the total construction costs of the three projects. The court of first instance randomly selected X Engineering Cost Consulting Co., Ltd. through the Judicial Technical Appraisal Center as the cost appraisal agency. The agency was subsequently commissioned twice to conduct cost appraisals—once for the portions outside the contract and once for the portions within the contract. On × month × day of × year, after undergoing a review, the agency finally determined that the contract-based costs for the three projects were as follows: Section ×—× yuan, Section ×—× yuan, and Project ×—× yuan, totaling × yuan, with the disputed amount being × yuan. Meanwhile, on × month × day of × year, after undergoing another review, the agency confirmed in a separate cost appraisal that the extra-contractual costs for the three projects were as follows: Section ×—× yuan, Section ×—× yuan, and Project ×—× yuan, totaling × yuan.

After the first-instance court’s judgment, Company A filed an appeal requesting: 1. That the first item of the first-instance judgment be reversed and the appellant be ordered by law to pay the appellee the principal amount of RMB × (the appealed portion: reduction of the principal amount by RMB ×); 2. That the second item of the first-instance judgment be reversed; 3. That the appellee bear all litigation costs incurred in both the first and second instances.

【Judgment Result】

1. The first item of the Civil Judgment No. × in the First Instance of the Shenyang Intermediate People's Court [×] Shen Zhong Min Liu Chu Zi No. × is hereby amended to read: Within fifteen days after this judgment becomes effective, Company A shall pay to Company B the principal amount of the project payment totaling RMB ×.

2. The second item of the Civil Judgment No. [×] Shen Zhong Min Liu Chu Zi No. × issued by the Shenyang Intermediate People's Court is hereby amended to read as follows: Within fifteen days after this judgment becomes effective, Company A shall pay interest on the project payment to Company B (calculated based on a principal amount of RMB × yuan, at the benchmark interest rate for similar loans of the same term published by the People's Bank of China, starting from × year × month × day and continuing until the date of actual payment).

【Reasons for the Ruling】

The three construction contracts signed by both parties genuinely reflect the true intentions of the parties involved and do not violate any mandatory provisions of laws and regulations. Therefore, the first-instance court’s determination that these contracts are valid is correct. Currently, the × section and the × section of the three contracts have been substantially completed. Although the × contract has not yet been fully performed, the responsibility does not lie with Company B. Consequently, Company A, as the contracting party, should pay Company B the full amount of the project payment as stipulated in the contract.

1. With regard to the appeal filed by Company A, which claims that the original judgment underreported the amount of × yuan paid for the project in connection with the × portion, and that Company B acknowledges Company A’s claim, the amount already paid for the × portion as determined by the first-instance judgment should be adjusted to × yuan.

2. Regarding the issue that the cost estimate for the disputed item listed by the appraisal agency should be × yuan rather than the × yuan stated on page × of the judgment, Company B acknowledges Company A’s claim that this discrepancy was caused by a clerical error, and therefore the cost estimate for the disputed item should be adjusted to × yuan.

3. Regarding the cost issue related to Section ×, Company A argues that, based on the design drawings, the actual quantity of work should be × rather than ×, resulting in a difference of ×. The corresponding cost is × yuan and should be deducted. The court holds that the appraisal agency reached its conclusion based on the design drawings, construction specifications, and signed change orders—not merely on the design drawings alone. Therefore, its conclusion is more credible, and Company A’s claim cannot be upheld.

4. Regarding the issue of ×, Company A claimed that what actually occurred was × rather than ×; however, it failed to provide sufficient evidence to substantiate its claim. The court held that there was no separate acceptance record for the × project, and neither Company A nor the supervisory unit raised any objections either during or after the completion of ×. Therefore, the court upheld the first-instance ruling, finding that the implementation of × had indeed taken place, and there was nothing improper about this determination. Consequently, Company A’s appeal on this point cannot be sustained.

5. Regarding the claim by Company A that the first-instance judgment improperly double-counted the price difference of × yuan and × yuan between × and ×, and that these amounts should be deducted from the awarded damages, Company B acknowledges Company A’s claim; therefore, these two sums should be deducted.

6. Regarding the issue of ×, Company A argues that the design drawings specify one pipe per hole, and the appraisal agency also calculated the quantity based on one pipe per hole as indicated in the design drawings. The first-instance court erred by calculating two pipes per hole; accordingly, the corresponding construction cost of × yuan should be deducted from the amount awarded in the first-instance judgment. Company B acknowledges Company A’s claim, and therefore × yuan should be deducted from the total construction cost.

7. Regarding the issue of ×, during the second-instance proceedings, the court consulted an appraisal agency. The agency explained that if the material is pulled as a single bundle, the anti-corrosion cost would be × yuan; however, if it is pulled as individual pieces, the cost would increase by × yuan, meaning the total cost should be × yuan plus × yuan. The amounts of × yuan and × yuan are not mutually exclusive. Company B provided a testing report proving that the material was indeed pulled as individual pieces; therefore, the cost of × should be × yuan plus × yuan. Although Company A denied that the material was pulled as individual pieces and insisted it was ×, it failed to provide any evidence to support its claim. Consequently, the first-instance court properly accepted Company B’s assertion and correctly determined that the cost of × should be × yuan plus × yuan. Since Company B itself admitted that × percent of the work was not performed, the first-instance court’s deduction of the corresponding amount and calculation method for the uncompleted portion of the project from Company B’s payment was correct. Thus, the court cannot uphold Company A’s appeal on this point.

8. Regarding the issue of Section ×, Company A believes that Company B failed to perform the commissioning of ×, rendering the equipment unusable. Therefore, the corresponding payment for that portion should be deducted, and payment can be made once the commissioning is successfully completed. In contrast, Company B argues that it has already carried out the commissioning of ×; however, since certain electrical equipment was outsourced and had not yet been delivered, it was impossible to conduct load tests. Moreover, the contract did not stipulate that additional commissioning was required. If any problems are found with the equipment, they would fall under the scope of subsequent maintenance, and the two parties could resolve such issues through mutual negotiation. The court held that Section × has already undergone completion acceptance, and at the time, Company A did not raise any objections regarding quality issues with the equipment. Therefore, the court cannot uphold Company A’s claim in this regard.

9. Regarding the issue of interest payments on the outstanding construction payment for Project ×, Company A argues that it has already paid the corresponding construction fees as stipulated in the contract and therefore there is no default in payment. Moreover, since the contract is still being performed, interest should not be paid on this portion of the outstanding construction payment. The court held that Company B had already vacated the site for Project ×, the project had not been accepted and delivered, and the final settlement of the construction payment had not yet been completed. According to Article 18 of the “Interpretation by the Supreme People’s Court on the Application of Laws in Handling Disputes over Construction Contract Cases,” “Interest shall accrue from the date when the construction payment is due. If the parties have not agreed on the payment time or the agreement is unclear, the following dates shall be deemed as the due dates: … (3) For construction projects that have not been delivered and whose construction payment has not been settled, the date on which a party files a lawsuit shall be considered the due date.” Therefore, the first-instance court’s calculation of interest starting from the date Company B filed its lawsuit was entirely appropriate. Company A’s claim in this regard cannot be upheld.

10. Regarding the warranty deposit for Project ×, since the delay in the project schedule was caused by Company A, the warranty deposit should be paid to Company B, along with interest.

11. Regarding the allocation of appraisal fees and litigation costs, the proportion of responsibility assigned to each party in the first-instance judgment is reasonable and appropriate; therefore, the claim made by Company A cannot be upheld.

12. Regarding whether Company B should hand over the project archives and completion documents, as well as issue invoices for the project payment: During the first-instance trial, Company A did not file a counterclaim addressing the above-mentioned issues, nor did it raise these issues as grounds for defense. Therefore, the court in the second instance is not authorized to adjudicate these issues. Company A may file a separate lawsuit regarding the aforementioned issues.

[Relevant Statutes]

Article 60 of the Contract Law of the People's Republic of China: The parties shall fully perform their respective obligations in accordance with the agreement.

The parties shall abide by the principle of honesty and good faith and perform their obligations, such as notification, assistance, and confidentiality, in accordance with the nature, purpose, and trade practices of the contract.

Article 107 of the Contract Law of the People's Republic of China: If one party fails to perform its contractual obligations or performs them in a manner that does not conform to the agreement, it shall bear liability for breach of contract, including continuing to perform the contract, taking remedial measures, or compensating for losses.

Article 90 of the “Interpretations of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China” stipulates that parties shall provide evidence to substantiate the facts upon which their claims are based or to refute the facts upon which the opposing party’s claims are based, unless otherwise provided by law. Before a judgment is rendered, if a party fails to provide evidence or if the evidence provided is insufficient to prove its factual assertions, the party bearing the burden of proof shall bear the adverse consequences.

Article 18 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” stipulates that interest shall be calculated from the date on which the project payment is due. If the parties have not agreed on the payment time or the agreement is unclear, the following dates shall be deemed as the due payment dates: (1) If the construction project has been actually delivered, the date of delivery shall be the due payment date; (2) If the construction project has not been delivered, the date on which the completion settlement documents are submitted shall be the due payment date; (3) If the construction project has not been delivered and the project payment has not been settled, the date on which a party files a lawsuit shall be the due payment date.

[Lawyer’s Perspective]

1. In the course of civil activities, the parties to a contract shall abide by the principle of honesty and good faith. Each party shall strictly perform its contractual obligations in accordance with the terms of the contract.

2. The parties shall, in accordance with the law, enjoy the right to appeal. If they disagree with the legal documents issued by the court of first instance, they must file an appeal within the prescribed time limit. Article 49 of the Civil Procedure Law of the People's Republic of China states: “Parties have the right to appoint an agent, file a request for recusal, collect and submit evidence, present arguments, request mediation, file an appeal, and apply for enforcement.” Article 164 provides: “If a party disagrees with the first-instance judgment rendered by a local people’s court, they have the right to file an appeal with the next higher people’s court within fifteen days from the date of service of the judgment. If a party disagrees with the first-instance ruling rendered by a local people’s court, they have the right to file an appeal with the next higher people’s court within ten days from the date of service of the ruling.”

3. If a party disagrees with the content of the legally effective document issued by the primary court, it may seek correction through the second-instance proceedings. In this case, the court of first instance indeed made errors in its determination and calculation of the project payment. After the parties lawfully filed the aforementioned request, these errors were corrected during the second-instance proceedings.