Construction Engineering Environmental Capital Law Review (No. 15)... "The reminder of the priority of compensation for construction projects" analysis.

Basic Interpretation of 1.

According to the basic theory of civil law, a notice is a notice of the creditor or its agent requesting the debtor to perform the debt. It is generally held that, because the reminder is not aimed at the occurrence of the effect of delay, the reminder is not a legal act, in theory, is a type of quasi-legal act, and the relevant provisions on the expression of meaning can be used. The content of the reminder is limited to the scope of the subject matter of the debt, and if the content of the reminder exceeds the debt, it shall be effective within the scope of the amount of the debt; if the content of the reminder is less than the debt, if the subject matter of the debt is divided, it shall be regarded as a valid part of the request. The reminder may be in the form of oral or written form. If the debtor's domicile is unknown, the creditor may make a notice by public announcement.

According to the current legal provisions on the priority compensation right of the contractor's construction project, there are two kinds of reminders for the right holder of the priority compensation right of the construction project, that is, the reminder to require the contractor to perform the project debt and the reminder to claim the priority of the construction project to the contractor, the two kinds of reminders can be issued separately or combined in practice. Although reminders can be oral or written, due to the difficulty of obtaining evidence and identifying difficulties in oral reminders, in practice, reminders for priority compensation for construction projects should often take the form of written reminders.

(I) performance project debt reminder

From the interpretation of the text provided for in article 807 of the Civil Code, "if the contractor fails to pay the price in accordance with the agreement, the contractor may urge the contractor to pay the price within a reasonable period of time", the contractor's reminder is a reminder that requires the contractor to perform the project debt within a certain period of time.

The reminder issued by the Contractor to the Employer for the performance of the project debt involves issues such as "can be called," "project settlement" and "reasonable period", I .e. whether the reminder for the performance of the project debt is a necessary procedure for exercising the contractor's priority right to compensation for the construction project, whether the reminder for the performance of the project debt should be issued after the completion of the project settlement, and how to determine the reasonable period for the performance of the reminder for the payment of the project debt to the employer.

(II) claim that the contractor's construction project priority compensation right reminder.

The claim of the contractor's priority compensation right for the construction project refers to the notice that the contractor, as the right holder of the priority compensation right for the construction project, claims to the contractor's priority compensation right for the construction project within the exercise period prescribed by law.

The contractor's right of priority compensation for construction projects is a special right subordinate to engineering claims. Article 807 of the Civil Code does not impose a time limit on the contractor's right of priority compensation for construction projects. It can be understood that as long as the contractor's engineering claims are legal and valid (and does not exceed the limitation period), the contractor can enjoy and exercise the contractor's right of priority compensation for construction projects. According to this understanding, on the basis that the contractor's claim for the project is legal and valid (and does not exceed the limitation period), whether or when the contractor issues a notice to the contractor claiming the right of priority compensation for the construction project shall not affect the validity and exercise of the contractor's right of priority compensation for the construction project. However, due to the current laws and regulations and the practical problems of construction projects, in practice, a large number of contractors have sent letters to the contractor claiming the contractor's priority compensation for construction projects.

Some issues 2. the performance of project debt reminders

Whether the (I) performance of the project debt reminder is a necessary procedure for exercising the contractor's priority right to compensation for the construction project.

One view is that reminders should be a prerequisite for the contractor to exercise the right of priority compensation for construction works. Although Article 807 of the Civil Code stipulates that "the contractor may make a notice", the interpretation of the contract Law compiled by the Legislative Affairs Committee of the standing Committee of the National people's Congress clearly states: "if the contractor does not pay the price, the contractor cannot immediately discount or auction the project, but shall urge the contractor to pay the price within a reasonable period of time. If, within the period, the contractor has paid the price, the contractor can only require the contractor to bear the liability for breach of contract such as payment of the agreed breach of contract or payment of overdue interest and compensation for other losses. If, within a reasonable period of time after the reminder, the contractor is still unable to pay the price, the contractor can discount or auction the project for priority compensation", the explanation makes it clear that the reminder is the contractor to exercise the right of priority compensation for the construction project.

Professor Liang Huixing also believes that "the draft of the contract law on May 14, 1997 adopts the provisions that directly stipulate its content, effectiveness and realization method. Its Article 161 stipulates: after the completion of the construction project, if the construction party fails to pay the price in accordance with the agreement, the contractor shall urge the construction party to pay the price, and the time limit for the notice shall not be less than two months." In view of the property that the right of priority payment of the project price can be defined as a "legal mortgage", Professor Liang Huixing further explained that "the condition for the exercise of the legal mortgage is that a reasonable period of time has passed after the contractor has issued a notice to the contractor, and the contractor has not yet paid."

Another view is that if the contractor fails to pay the price as agreed, the contractor may urge the contractor to pay the price within a reasonable period of time. As to whether or not to urge the contractor, the nature of the law is an authorized norm, not a mandatory norm, so the contractor can either urge or not urge before exercising the right of priority compensation for construction projects, in other words, whether or not to urge depends entirely on the contractor's choice and has no impact on the exercise of the contractor's right of priority compensation for construction projects. If the reminder is regarded as a pre-procedure, it is not conducive to the protection of the contractor's interests.

Whether the (II) performance of the project debt reminder should be issued after the completion of the project settlement.

Logically, the contractor shall urge the contractor to perform the project debt within a reasonable period of time, provided that the project debt has been determined and has expired, that is, the contractor shall not issue a notice to perform the project debt until the contracting parties have completed the settlement of the project.

However, in practice, there are a large number of problems such as long-term delays in project settlement and long-term suspension of work. If all requirements are handled in accordance with the above logic, the consequences may be detrimental to the legitimate rights and interests of the contractor. Moreover, the existing laws and regulations do not clearly stipulate that the contractor may issue a reminder to perform the project debt only after the contracting parties have completed the settlement of the project. Therefore, in practice, in the case of the contracting parties not completing the settlement of the project, the contractor issued a reminder of the project debt, generally should not deny its legal effect.

How to determine the reasonable period of time for the (III) to perform the project debt to urge the contractor to pay the price.

Article 807 of the Civil Code only provides that the contractor may urge the contractor to pay the price within a "reasonable period", but does not clearly define the "reasonable period".

There are different views on the reasonable period of time for the contractor to perform the project debt. The view was expressed that reference should be made to article 87 of the Security Act, which stipulated that the period of notice should be two months. Taking into account practice, and taking into account the "two-month" rule for the realization of a lien on security interests, it is more appropriate to define the "reasonable period" as two months. Professor Liang Huixing also pointed out that in accordance with the contents of the legal mortgage right, the draft of the 1997 contract law stipulates that the time limit for notice shall not be less than two months. Another view is that, according to the Ministry of Construction "1999 version of the construction contract model text" and FIDIC text provisions, "reasonable notice period" should be understood as 28 days is appropriate.

In addition, there is also a dispute as to whether the reasonable period for urging the contractor to pay the price should be included in the period of exercise of the contractor's construction priority. It is considered that the reasonable period for the performance of the project debt to urge the contractor to pay the price is two different periods from the period for the exercise of the priority of the contractor's construction project, and the two cannot be confused.

Some issues 3. the contractor's claim for priority compensation for construction projects.

As mentioned earlier, if the contractor's right of priority compensation for construction works is not limited by the time limit, whether or when the contractor issues a notice to the contractor claiming the priority of construction works shall not affect the validity and exercise of the contractor's priority of construction works. However, the priority of the contractor's construction project directly affects the realization of the rights of other right holders of the construction project. If a certain period of exercise is not set for the priority of the contractor's construction project, it will be based on the construction project itself. The mortgagee and other creditors will have a greater risk of uncertainty for a long period of time, which is also unfair to the mortgagee and other creditors. Article 41 of the (I) for Judicial Interpretation of Construction Projects (Law Interpretation No. 25) stipulates: "The contractor shall exercise the right of priority compensation for the price of the construction project within a reasonable period of time, but not more than eighteen months, from the date on which the contractor shall pay the price of the construction project."

The Supreme Court's Priority Approval (Law Interpretation No. 16) sets a period for the exercise of the priority of the contractor's construction project, and the period is clearly defined as the period of exclusion. However, due to the objective existence of practical problems such as the long settlement period of construction projects, it often results in the situation that the priority compensation right of construction projects has been exercised for more than 6 months before the completion of the settlement, but in the settlement process of both parties, especially before the breakdown of the cooperative relationship between the contracting parties, The contractor often does not choose to recover the project payment through litigation, and the possibility of agreement discount is even less. If the contractor directly claims the priority of the contractor's construction project by means of agreement discount or litigation after the employer fails to pay the project price on time, the direct consequence is that once the contractor stops work, defaults on the project payment and delays the settlement, the contractor needs to file a lawsuit to keep the priority of the construction project, which is not only not conducive to the settlement of disputes but also leads to the expansion of contradictions. On the one hand, the way of sending letters not only broadens the way for the contractor to exercise the priority of construction projects, on the other hand, it can also prevent abuse of litigation to a certain extent and maintain the harmony of the market economy. In the original (II) of Judicial Interpretation of Construction Projects (Law Interpretation No. 2018), the starting period of the priority of the construction project was changed to the date on which the contractor should pay the price of the project. Taking into account the actual situation of the contractor exercising the priority of construction projects, the period of exercising the priority of construction projects shall be changed to a maximum of eighteen months in the (I) of Judicial Interpretation of Construction Projects (Fa Shi [2020] No. 25).

In judicial practice, there are different opinions on the validity of the contractor's letter claiming the priority of compensation for construction projects. The Supreme Court (2020) Supreme Famin Shen No. 5386 holds that the priority of compensation for the project price enjoyed by the contractor is a legal right. The law stipulates that the contractor can claim the priority of compensation through agreement discount or application for auction, and does not limit the contractor to claim through litigation. The contractor shall not violate the law by claiming to the contractor the right of priority compensation for the project price by sending a letter. However, (2019) Heimin No. 23 believes that although the contractor has sent letters many times, it does not constitute a suspension or interruption of the exercise period of the priority of the construction project, and the contractor's claim to confirm the priority compensation right of the construction project has exceeded the statutory six-month protection period.

Nevertheless, under the current legal framework, the contractor's letter to the contractor claiming the contractor's priority compensation for the construction project is still the way the contractor should take, the parties can not be ignored.

(Note: The original text is contained in the Law of Construction Contracts in China, Law Press, October 2019. The present text has been partially revised)