Real estate perspective: the expected benefit (available benefit) loss calculation method of construction contract breach.

Published:

2022-07-20

Presentation of 1. issues Article 584 of the Civil Code adopts the principle of full compensation for damages for breach of contract, including the actual loss and the loss of expected benefits arising from the breach, and the expected benefits and the available benefits can basically be used synonymously, referring to the benefits that can be obtained after the full performance of the contract. Compared with the actual losses, the expected loss of interest has not yet occurred, and its amount is highly uncertain in the context of the complex and volatile market environment and the uneven management level of the project's contractors. For the construction contract, in judicial practice, the breach of contract direction claims that the expected benefits are mostly rejected by the court because of the lack of evidence or insufficient evidence, and there are also a small number of judgments to calculate the amount of expected benefit damage, but has not yet formed a unified applicable standard. In the event of a breach of contract in the construction contract, what method should the contracting party calculate the expected loss of interest on the basis of Article 584 of the Civil Code? 2. view of judicial adjudication In judicial practice, the expected loss of interest is mainly calculated in the following categories: First, the court determines the amount of compensation for the loss of expected benefits based on the profits set out in the information exchanged between the parties. (1) The people's court shall, with reference to the profits set out in the tender documents, determine the expected loss of interests in accordance with the principles of fairness and good faith, taking into account the degree of fault of the parties and the expected interests and other comprehensive factors. Such as: Jiangxi Provincial Higher People's Court (2017) Ganmin Zhong No. 325 Huatai Construction Engineering Co., Ltd., Ganzhou Development Zone Construction Investment (Group) Co., Ltd. construction project construction contract dispute case. (2) The court, taking into account the performance of the contract in question, the degree of fault of the parties and the expected interests and other comprehensive factors, shall, in accordance with the principles of fairness and good faith, determine the compensation for the loss of profits by reference to the fixed profits in the sub-table of the contract price list. For example, Xinjiang Uygur Autonomous Region Higher People's Court (2018) Xinmin Final No. 524 Qinghua Group Xinjiang Coal Chemical Co., Ltd. and Beijing Xinyuan Guoneng Technology Group Co., Ltd., Ningxia Qinghua Coal Chemical Group Co., Ltd. and other construction project contract disputes. (3) The court shall determine the amount of compensation for the loss of expected profits by reference to the profit margin stated in the confirmation of the amount of work. Such as Yueqing Municipal People's Court (2018) Zhejiang 0382 Minchu No. 10847 Yueqing Baixiang Construction Engineering Company and Yueqing Dejia Real Estate Co., Ltd. construction contract dispute. Second, in the case of the existing evidence can not accurately determine the expected loss of interest, the court combined with the case, the expected loss of interest. For example, Shengzhou Municipal People's Court (2017) Zhejiang Yixia Construction Co., Ltd. and Shengzhou Yinhe Industrial Investment Co., Ltd. Construction Contract Dispute Case No. 4444 of Zhejiang 0683 Minchu. Third, the people's court shall determine the amount of compensation for the expected loss of interest according to the appraisal opinion of the project profit. For example, Jiangsu Huai 'an Intermediate People's Court (2019) Su 08 Min Zhong 601 Jiangsu Hongrui Real Estate Development Co., Ltd. and Huai 'an Zhengda Doors and Windows Co., Ltd. and Yan Zhongjun Construction Project Construction Contract Dispute. Whether discretionary or appraised, there are significant differences in the calculation of expected benefits, and there are calculations in judicial practice as shown in the following table: Table 1 The calculation of expected benefits used in judicial practice. In the case that the calculation of the expected benefit damage compensation is not clearly defined, the above six cases respectively adopt six different methods to determine the specific amount of the expected benefit damage compensation, which has important reference significance for judicial practice. However, for different construction contract disputes, the method used to calculate the specific amount of expected loss of interest is itself a dispute. Therefore, it is necessary to further analyze the advantages and disadvantages of different calculation methods. 3. legal analysis Some of the above-mentioned calculation methods of compensation for damage to expected interests are adopted by judicial practice, some are reasonable in theory, and have been applied to varying degrees, which play a positive role in the calculation of compensation for damage to expected interests, but there are also disadvantages. (I) identification calculation method The appraisal calculation method advocates to determine the specific amount of expected benefits by entrusting appraisal. Although the appraisal opinion is relatively fair to the parties to the contract, the appraisal is also an estimation of the benefits that may be generated in the future. There are also subjective activities of the appraiser. Due to the difference in appraisal level, different appraisers may draw different conclusions. Secondly, the basic materials required to apply for appraisal may not be complete for each case, at this time, the appraisal cannot determine a standard, and the appraisal agency has to choose the facts, which may also lead to the deviation of the appraisal opinions, and even the situation of "reviewing by appraisal"; in addition, some appraisal opinions only have the amount of compensation for losses. Without the facts and methods based on the appraisal process, it is inevitable that the parties have doubts about the objectivity and scientificity of the appraisal opinions. (II) comparison calculation and analogy calculation. Both comparative calculation and analogy calculation can provide relatively definite profit margin. The former refers to the profit margin of other parts of a project, while the latter refers to the profit margin of other projects undertaken by the contractor or the profit margin of the same industry, which is in line with the principle of predictability for the contractor, but after all, it is the profit margin of the project completed by the contractor, which does not include the possible risks in the performance of the contract. Secondly, the profit margin of the case is not representative, objectively, the proportion may be out of proportion to the unperformed part of the contract, thus becoming the main reason for the contractor's defense. If reference is made to the profit margin of construction projects in the same industry, it is obviously unfair to contractors whose production costs are lower than the industry average cost and whose profit margin is higher than the industry average. (III) difference calculation method The most important feature of the difference calculation method is that it conforms to the reasonable expectations of both parties, but for the specific construction project contract, it may not exist the applicable basis. The difference calculation method may not have set a reasonable minimum price for the project, and for the fixed profit calculation method, the parties to the construction contract may not use this as the basis for the valuation of the contract. (IV) estimation method or discretionary method The estimation method or the discretionary method have the same characteristics, emphasizing the risks that may exist in the process of contract performance. However, the so-called comprehensive multiple factors of these two calculation methods are too abstract, and the subjectivity is too strong as a judgment standard. The discretion of the referee is relatively large. For similar cases, different judges may come to different calculation results, which is obviously unfair to the parties to the contract. For contracts that cannot continue to be performed due to the contractor's breach of contract, the expected loss of interest is often expressed as the profit that can be obtained after the completion of the remaining part of the project, and there is a method of calculating the expected benefit damage as described above in theory or judicial practice. Different calculation methods have their own advantages and disadvantages, and should be applied or combined according to the circumstances of the case. In addition, there is a form of breach that may result in a loss of expected benefits, I .e., the contractor's breach of contract resulting in a delay in the duration of the contract and the damage to the contractor's expected benefits. 4. advice from our lawyers In theory and judicial practice, it is difficult to say which calculation method is the most appropriate for different cases, each has its own advantages and disadvantages, so the parties should advocate the most favorable calculation method. The method of appraisal calculation requires the parties to apply to the people's court. From this point of view, the parties still have some initiative in applying the appraisal calculation method, but they must have the complete materials needed for appraisal and choose the authoritative appraisal institution. In addition, for the technical problems that may exist in the appraisal, it is not appropriate to just listen to the "one family's words". When the basis and standards of the appraisal are controversial or unclear, especially for contracts with a large amount of subject matter involved, the appraiser should be applied to appear in court in accordance with the provisions of the procedural law to explain the situation. For highly professional issues, an expert assistant can be applied for cross-examination. For the parties to the claim for damages for expected benefits, the application for appraisal is a preferred method of application. If the court agrees to the appraisal application for the expected loss of interest, it will generally adopt the appraisal conclusion of the expected interest as the basis for determining the facts of the case; if the court rejects the appraisal application, it is equivalent to sending a signal to the parties that they are "looking for another basis. Therefore, in the absence of a clear agreement on the amount or calculation of the expected loss of interest and no other evidence to prove the existence and amount of the expected loss of interest, the appraisal opinion, as a type of statutory evidence, will undoubtedly become an important basis for the decision. Although the method of comparative calculation and analogy calculation can calculate specific results according to specific data or formulas, the choice of "reference" in analogy calculation has become a more critical issue than whether to choose this method. If the profit difference between the completed part of the project and the uncompleted part or between different projects is too large, if the application of the analogy calculation method is obviously unfair to a party. Therefore, if the income of each unit project or sub-project in a single project is relatively balanced, the method of comparative calculation can be selected. For similar construction projects with relatively stable income and little change, the expected benefits are better in the calculation of the profit margin of the construction project by analogy. For individual enterprises whose profit level is comparable to the development of the industry, there is also room for analogy with the profit margin of the same industry. The difference calculation method is in line with the reasonable expectations of the parties, and to a certain extent can also be regarded as the agreement of the parties for future profits, in line with the requirement of predictability of the expected benefit damage. Therefore, if the tenderer in the tender documents set a reasonable minimum price for the construction project, the difference between the bid price and the reasonable minimum price as the specific amount of the expected benefits in the selection and application of the above-mentioned method has incomparable advantages. The estimation method and the discretionary method are flexible and can adapt to the specific circumstances of the case to the greatest extent. Although there is a problem of too much subjectivity, if the amount of the subject matter involved is not too large, it will not draw excessive discretionary results, and it will help improve the efficiency of dispute resolution, and will not cause new losses. It has the advantages of application. Thus, the imputation or discretionary approach would provide a "reluctant" relief to the party losing the expected benefit if it could be proved that the loss of the expected benefit did exist or that the same conclusion could be reached through a presumption of fact, even if the fact became an immune fact for reasons of common knowledge or other statutory reasons, and the exact amount could not be calculated. In addition, also based on the characteristics of too strong subjectivity, these two methods should be "final" in the choice of application, that is, the exhaustion of the above-mentioned methods still can not calculate the amount of compensation for the loss of expected benefits, but there is an expected loss of benefits can choose to apply. Different calculation methods in the choice of application and no difference, need to be based on the principle of fairness and good faith, combined with the specific circumstances of the case, the performance of the contract, the degree of fault of the parties and other comprehensive factors to make a better balance of interests of both sides of the judgment, choose one application or combination of use.

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