[Keywords]

Civil/Construction Project Contract Disputes/Payment Terms/Dismissal of the Lawsuit

【Key Points of the Ruling】

The Construction Contract for the Project entered into between the plaintiff and the defendant explicitly stipulates that the contracting method is a fixed-price contract (under which the plaintiff assumes full responsibility for the management of materials, equipment, construction schedule, quality, construction techniques, and safe production of the project), and is also responsible for the completion acceptance and comprehensive acceptance of the project (including the re-registration of fire protection works). The quality standard for the project is “qualified” (meeting the fire safety standards and passing the relevant fire safety acceptance inspections). Within 7 working days after the signing of the contract, the defendant shall pay the plaintiff 30% of the total contract price. After the project has passed the completion acceptance and the government has paid the relevant funds to the defendant, the defendant shall, within 10 working days of receiving the plaintiff’s invoice, pay the plaintiff 95% of the total contract price; the remaining 5% shall serve as the quality warranty deposit. During the course of this litigation, both the plaintiff and the defendant unanimously confirmed that the defendant has already paid the plaintiff RMB 3,562,500 for the project in question, representing 67.8% of the total contract price. However, since the project in question has not yet passed the fire safety acceptance inspection nor the comprehensive acceptance inspection, the payment conditions have not been met. Therefore, the plaintiff’s claim should be regarded as lacking specific facts and legal grounds.

[Basic Facts of the Case]

The plaintiff alleges that on November 25, 2015, the defendant, Shenyang Yiming Real Estate Co., Ltd., entered into a Construction Contract with the plaintiff, Shenyang Tian’an Fire Protection Engineering Co., Ltd. Under the contract, the defendant subcontracted to the plaintiff the “Comprehensive Renovation Project of the Central Relocated Slum Areas in Shenbei New District, Shenyang City—Equipment Pump Room, Fire Protection Works, External Water Supply Network Works, and Exterior Wall Fire-Resistant Isolation Belt Works.” The contract amount was RMB 5,255,800. Additionally, entrusted by the defendant, during the course of construction, the plaintiff performed foundation support and dewatering works for the fire pump room, incurring costs totaling RMB 661,614.82. After signing the contract, the plaintiff actively organized and carried out the construction work and completed the entire project on August 2, 2017. The plaintiff then submitted the project for acceptance by the construction entity and the supervisory unit, and a final completion acceptance report was prepared. Currently, the entire project has been delivered to the construction entity. The plaintiff contends that the defendant has paid only RMB 3,562,500 so far, leaving an outstanding balance of RMB 2,354,914.82, and therefore requests the defendant to make the remaining payment.

Attorney Rodan, acting on behalf of Shenyang Yiming Real Estate Co., Ltd., submits the following defense arguments: 1. The plaintiff has failed to complete the fire safety acceptance inspection, and thus does not meet the conditions for payment of the project funds; 2. This case involves a fixed-price contract, and the costs associated with excavation support and dewatering do not constitute price increases resulting from design changes; therefore, the court should not uphold the plaintiff’s claim; 3. This project is a government-funded undertaking, and the contract explicitly stipulates that government payment is a prerequisite for the payment of project funds. Since the government has yet to make the payment, the defendant has no obligation to make payment. Upon investigation by the People’s Court of Shenbei New Area, it was determined that the project in question has not yet met the conditions for payment, and the plaintiff’s claims should be regarded as lacking specific facts and legal grounds.

【Judgment Result】

Shenyang Shenbei New Area People's Court: Dismisses the lawsuit filed by the plaintiff, Shenyang Tian'an Fire Protection Engineering Co., Ltd.

【Reasons for the Ruling】

The People's Court of Shenbei New Area, Shenyang City, holds that the Construction Contract for the Project signed between the plaintiff and the defendant explicitly stipulates that the contracting method is a fixed-price contract (the plaintiff shall assume full responsibility for the management of materials, equipment, construction schedule, quality, construction technology, and safe production of the project), and shall also be responsible for the completion acceptance and comprehensive acceptance of the project (including the re-registration of fire protection works). The quality standard for the project is qualified (meeting the fire safety standards and passing the relevant fire safety acceptance inspection). Within 7 working days after the signing of the contract, the defendant shall pay the plaintiff 30% of the total contract price. After the completion acceptance is qualified and the government has paid the funds related to the project to the defendant, the defendant shall, within 10 working days of receiving the plaintiff’s invoice, pay the plaintiff 95% of the total contract price; the remaining 5% shall serve as the quality warranty deposit. During the course of this trial, both the plaintiff and the defendant unanimously confirmed that the defendant has already paid the plaintiff RMB 3,562,500 for the project in question, representing 67.8% of the total contract price. However, since the project in question has not yet passed the fire safety acceptance inspection nor the comprehensive acceptance inspection, the payment conditions have not been met.

[Relevant Statutes]

Article 67 of the Contract Law; Articles 119 and Paragraph 1, Item 3 of Article 154 of the Civil Procedure Law of the People's Republic of China; Paragraph 3 of Article 208 of the Supreme People's Court’s Interpretations on the Application of the Civil Procedure Law of the People's Republic of China.

[Lawyer’s Perspective]

This case demonstrates that, in adjudicating disputes over construction project contracting agreements, the People’s Court conducted a rigorous review of the payment conditions for the project funds requested by the plaintiff. The “Construction Project Contract” signed by both the plaintiff and defendant clearly stipulates the contracting method, acceptance criteria, and payment conditions of the contract. The plaintiff filed a lawsuit with the court seeking full payment of the project funds without meeting the applicable payment conditions, lacking any relevant basis and failing to provide specific facts or grounds. Therefore, in accordance with the law, the plaintiff’s claim should be dismissed.