Construction Environmental Capital Law Review (Issue 7) On the Application of Circumstances Change Clauses in Judicial Practice

[Abstract]]:2020The causes of the annual epidemic and the nature of the market economy are bound to have an impact on construction projects. In judicial practice, the change of circumstances clause also protects the balance of the rights and interests of both parties to the contract in practice, and plays a role in adjusting the contractual relationship. This paper mainly takes the author's own agent case as an example to explain the specific application of the change of circumstances clause in judicial practice. The salient point is that the provisions of laws and regulations should be combined with the predictability of both parties at the time of the conclusion of the contract and the guidance documents of the relevant government policies afterwards. Due to the gap between the change of circumstances and the basic principles of civil law, the author defines the change of circumstances as a clause in this paper.

 

Key words: Circumstances change; Fairness principle; Force majeure; Commercial risk; Judicial practice.

1. Overview Change of Situation

Origin of (I)

The change of circumstances originated12To13The annotated school of jurisprudence of the century was later renamed by other doctrines as the "situation-invariant clause theory", I .e. the conclusion of each contract is assumed to have a corresponding clause and business environment, which is the basis on which the contract can be concluded and effectively survive, and the parties to the contract can perform the contract. In the event of a significant change or loss of these foundations, the parties may be permitted to modify or terminate the contract. It includes a series of legal principles on which national and international contracts deal with changes in economic, legal and commercial practice, such as the "commercial impracticality" of the United States, the "abolition of the basis of transactions" of Germany, the "force majeure" and "unforeseen" of France, the "failure of the contract" of Anglo-American law and the "failure to perform without fault" of Switzerland.

(II)Concept

The so-called change of circumstances clause refers to the legal system in which the contract cannot be performed due to the fault of both parties after the contract is effectively established, or the continued performance will show fairness. According to the principle of good faith, the parties can request to change or terminate the contract.

(III) the legal provisions of our country

2009Year5Month13The Supreme People's Court<(II) for the Interpretation of Certain Issues Concerning the Application of the the People's Republic of China Contract Law (hereinafter referred to as the (II) for the Judicial Interpretation of Contract Law)26The article stipulates: "after the establishment of the contract, there have been major changes in the objective circumstances that the parties could not foresee at the time of the conclusion of the contract and were not caused by force majeure, and the continued performance of the contract is obviously unfair to one party or cannot achieve the purpose of the contract. If the parties request the people's court to change or terminate the contract, the people's court shall determine whether to change or terminate the contract in accordance with the principle of fairness".

2009Year7Month7The Guiding Opinions of the Supreme People's Court on Several Issues Concerning the Trial of Civil and Commercial Contract Disputes under the Current Situation, issued an opinion on the principle of change of circumstances as the first item, "1. prudently apply the principle of change of circumstances and reasonably adjust the interests of both parties", namely:

1.At present, product transactions and capital flows between market entities have caused a large number of disputes due to the drastic fluctuations in raw material prices, changes in market demand relations, insufficient liquidity and many other factors. For some parties in litigation, the application of the principle of change of circumstances to change or The people's court shall strictly review the request to terminate the contract based on the principle of fairness and the principle of change of circumstances.

2.When applying the principle of change of circumstances, the people's courts should pay full attention to the fact that the global financial crisis and changes in the domestic macroeconomic situation are not entirely a sudden process that caught all market players off guard, but a process of gradual evolution. In the process of evolution, market participants should have a certain degree of foresight and judgment of market risks. The people's court shall grasp the applicable conditions of the principle of change of circumstances in accordance with the law, strictly examine the "unforeseen" claims put forward by the parties, and apply the principle of change of circumstances to contracts involving the subject matter of commodities with lively market attributes such as oil, coke and non-ferrous metals and large price fluctuations for a long time, as well as the subject matter of risk investment financial products such as stocks and futures.

3.The people's court shall reasonably distinguish between changes of circumstances and commercial risks. Business risk is an inherent risk of engaging in business activities, such as changes in supply and demand that have not yet reached an abnormal level of change, price fluctuations, etc. Circumstances change is a risk inherent in non-market systems that the parties cannot foresee at the time of contracting. When judging whether a major objective change belongs to a change of situation, the people's court should pay attention to such factors as measuring whether the type of risk is unforeseeable in advance in the general concept of society, whether the degree of risk far exceeds the reasonable expectation of normal people, whether the risk can be prevented and controlled, and whether the nature of the transaction belongs to the usual "high risk and high return" range, and identify the change of situation and commercial risk in individual cases in combination with the specific market conditions.

4.In adjusting the value orientation of the scale, the people's court should still follow the principle of focusing on the protection of the contract-keeping party. The application of the principle of change of circumstances is not simply to exempt the debtor from its obligations and make creditors suffer adverse consequences, but to pay full attention to the balance of interests and adjust the interests of both parties fairly and reasonably. In the course of litigation, the people's court should actively guide the parties to renegotiate and revise the contract; if the renegotiation fails, strive for mediation. In order to prevent the abuse of the principle of change of circumstances and affect the normal trading order of the market, if the people's court decides to apply the principle of change of circumstances to make a judgment, it shall, in accordance with the notice of the Supreme People's Court on the interpretation of several issues concerning the correct application of the the People's Republic of China contract Law (II) serving the overall situation of the work of the party and the state (law[2009]165No.), strictly implement the relevant audit procedures applicable to the change of circumstances.

(IV) applicable conditions

The conditions for the application of the principle of change of circumstances are:

1.The objective fact that a change of circumstances has occurred, generally speaking, the reasons for the change of circumstances in the course of the performance of the contract include:

(1) the nature of the commodity economy and the risks inherent in the market;

(2) Price increases;

(3) Adjustment of the economy due to changes in national economic policies;

(4) Various economic and administrative measures;

(5) Changes in the international market;

(6) Significant depreciation or appreciation of foreign currency;

2.The change of circumstances must be after the legal act is established and before the debt relationship is extinguished;

3.The change of circumstances must be unforeseeable by the party concerned;

4.The occurrence of a change of circumstances causes the continued performance of the contract to be manifestly unfair to a party or unable to achieve the purpose of the contract.

(V) legal effect

The legal effect of the application of the principle of change of circumstances is simply reduced to change or discharge.

Protection of (VI) legal interests

The principle of change of circumstances is to some extent a breakthrough in the theory of strict adherence to contracts. The establishment of the principle of change of circumstances is aimed at maintaining the principle of fairness in the field of civil and commercial affairs and avoiding significant changes in the objective circumstances on which the contract is concluded or on which the performance of the contract is based, which may result in the failure to achieve the purpose of the contract or the occurrence of a situation that is not fair.

The distinction between 2. and force majeure and commercial risk.

According to the (II) for Judicial Interpretation of Contract Law, No.26A change of circumstances is a material change not caused by non-force majeure that is not a commercial risk. Non force majeure and non commercial risk is the "exclusion" of the change of circumstances.

(I) and Force Majeure

China's "General Principles of Civil Law" No.180Article 2, paragraph 2, and Article 2 of the Contract Law117The second paragraph of article 2 provides for force majeure, which refers to objective circumstances that cannot be foreseen, unavoidable and insurmountable. From the judicial judgment of the Supreme People's Court of our country, force majeure mainly refers to the following four categories: first, natural disasters; second, legal mandatory requirements; third, government behavior; fourth, abnormal social events.

In essence, the change of situation is an objective situation, which mainly consists of the following four categories: first, the risks caused by the nature of the commodity economy, including currency devaluation and inflation; second, the changes in national fiscal, price, monetary and other policies and major events; third, major natural disasters; fourth, the purpose of the contract no longer exists, and the interests of both parties are out of balance.

In his General Theory of Contract Law (Fourth Edition), Professor Han Shiyuan defined the change of circumstances as an obstacle to the performance of the contract. He believed that the "dualism" legislative model should be applied to the change of circumstances and force majeure, and China's legislation is also so formulated. He also advocated that in many cases, force majeure may lead to unfair performance of the contract, and the change of circumstances should be applied first.

From the point of view of the change of circumstances and the cause of force majeure, there is a mutual intersection. The author thinks that the classification of the objective situation should be combined with the specific to judge the specific application.

(II) and Business Risk

Commercial risk refers to all objective economic phenomena that can be caused by various unknown factors in the commercial activities of the market, which can bring the opportunity or possibility of profit or loss to the commercial subject. In a market economy, business risks are always present, fluctuations in market prices, prices, etc., changes in consumer values, etc.,It can lead to business risks.

Of course, the reasons for business risk and change of circumstances in the performance of a contract may be the same. However, the reason for the change of circumstances request should be an abnormal change in the basis for the formation of the contract, and the resulting risk is an unexpected risk.;Commercial risk, on the other hand, is a risk unique to engaging in commercial activities, where changes in the objective circumstances underlying the contract have not reached an abnormal level, general changes in market supply and demand, price fluctuations, etc.

3. case as an example

(I) Practice Case Introduction

The total contract price is agreed in the Construction General Contract between Company A (the general contractor) and Company B. and pursuant to the Contract No.23.1Article stipulates that this contract adopts the fixed comprehensive unit price contract, "the fixed comprehensive unit price includes all the expenses for completing all the projects within the scope of the contract and fulfilling all the obligations and responsibilities as agreed in the contract, including all the machinery and equipment, labor costs, material costs... the comprehensive unit price of the full cost will not change due to market changes and other factors during the implementation of the contract, and will not change with the adjustment of policies, and as the basis for the final settlement".

After the start of the project to completion, labor costs and materials, especially the price of steel, there have been major changes, the contractor advocates the application of the principle of change of circumstances.

(II) agent ideas

In this case, the author, as the agent of the contractor, explained that the principle of change of circumstances should not be applied to labor and material costs mainly from the following aspects.

About labor costs

1.According to the contract agreement between the two parties, the project involved in the case adopts a fixed comprehensive unit price contract, in which the labor cost is not adjusted with the policy price adjustment of the government department.2017Year2Month20Notice on Issuing the Fixed Labor Unit Price and Fixed Price List of Construction Projects in Shandong Province (Lu Jianbiao Zi (2017)5The labor cost adjustment stipulated in document No.) is a policy adjustment, therefore, there is no labor cost adjustment in this case.

2.Notice on Issuing Fixed Labor Unit Price and Fixed Price List of Construction Projects in Shandong Province submitted by the Contractor (Lu Jianbiao Zi (2017)5Document No.) is based on Lu Jianbiao 【2016]]39No., Lu Jianbiao word 【2016]]40No.

(1) Shandong Provincial Department of Housing and Urban-Rural Development in2016Year11Month11Lu Jianbiao word 【2016]]39No., according to Lu Jianbiao 【2016]]39Article 1 of the document stipulates that "this quota is self-contained."2017Year3Month1From the day of implementation.2017Year3Month1The works that have been signed a few days ago shall still be carried out in accordance with the original contract and relevant provisions ".

(2) Shandong Provincial Department of Housing and Urban-Rural Development in2016Year11Month11On the day issued "on the issuance of the" Shandong Province construction project cost project composition and calculation rules "notice" Lu Jianbiao word 【2016]]40The first article of the article states that "the rules for the calculation of this fee shall be calculated from."2017Year3Month1From the day of implementation.2017Year3Month1The works that have been signed a few days ago shall still be carried out in accordance with the original contract and relevant provisions ".

(3) Lu Jianbiao (2017)5Article 5 of the document stipulates that "this quota labor unit price and price list from."2017Year3Month1day of implementation ".

The time of the "General Construction Contract" signed by the contracting parties is in.2016years, much earlier.2017Year3Month1The labor unit price shall still be carried out in accordance with the provisions of the "General Construction Contract" signed by both parties.

3.The contractor has never promised the contractor to adjust the labor cost, according to the contract agreement and Lu Jianbiao word 【2016]]39No., Lu Jianbiao word 【2016]]40The contractor requests the contractor to pay the amount of the labor adjustment.7477165Yuan has no factual and legal basis and should be rejected in accordance with the law.

Regarding the cost of materials (the first point is not repeated with the above-mentioned workers' fees)

2.This case does not apply the Supreme People's Court's Application.<the People's Republic of China Contract Law>Explanation of some problems(II)"No.26The principle of change of circumstances as described in article.

2.1 The principle of change of circumstances has its specific conditions of application.

AThe fact that there should be a change of circumstances, that is, the objective circumstances on which the contract is based have indeed changed;

BThe change of circumstances must be unforeseeable by the parties;

CThe change of circumstances must not be attributable to the parties, that is, caused by accidents other than force majeure. If it is attributable to the parties, they should bear the risk or liability for breach of contract, and the principle of change of circumstances does not apply;

DThe fact of the change of circumstances occurs after the establishment of the contract and before the completion of performance.

EAfter the change of circumstances, if the contract continues to maintain the validity of the contract, it will show fairness to the parties.

Combined with this case, after the establishment of the contract, although the objective situation has changed, the change has been foreseen when the parties entered into the contract and made it clear in the contract. The contractor has also taken this risk factor into account when bidding. When the price of the materials quoted is much higher than the current market price, in order to prevent the rise of the price of the materials from affecting its income. The rise and fall of steel and cement market prices is a normal commercial risk, for which both parties should foresee and have foreseen at the time of the conclusion of the contract.

2.2 Comparison of the winning price of the contractor's materials with the market price.

2.2.1 According to the eighth set of evidence submitted by the contractor.2, 5, 8 pages"2016Year7-8The price of steel in the "Guiding Price of Some Construction Materials in the Urban Area of Texas" in September, September-October and November-December:

2.2.2 According to the eighth set of evidence submitted by the contractor, "1, 2017-In February, March-April and May-June, the price of steel in the guiding price of some construction materials in the urban area of Texas City is:

2.2.3 According to the bid price of threaded grade III steel reflected in the seventh group of evidence "Unit Engineering Talent Machine Summary" submitted by the Contractor (the unit price of this material does not include profit, profit is calculated separately in the comprehensive unit price, and management fee and profit account for about 14.5 of the comprehensive unit price):

According to the General Construction Contract 10..According to Article 3, the completion period of the cultural center project is 450 days, of which the main capping time is 300 days after the project starts; the completion period of the tourism experience center project is 650 days, of which the main capping time is 300 days after the project starts. The commencement order for the above two projects was issued on August 15, 2016, and the main capping time was June 11, 2017. According to the steel acceptance report submitted by the contractor to the employer, the contractor's steel procurement time is concentrated in August 2016-March 2017. From the above three forms, it can be more directly reflected that the contractor can fully predict the rise of materials when bidding, and the quoted price has a large part of profit when the construction is well organized in the early stage, because the basement area of this project is large, and the underground part cost proportion in this list quotation is high, accounting for about 39% of the total cost (tender document-commercial bid). And the material price in the third table is only the material price of the competition, profit and management fee in the comprehensive unit price. Combined with this case, the contractor fully understands the "full consideration of market risk" agreed in the contract between the two parties when bidding, and the comprehensive unit price will not be adjusted due to changes in market risk.

2.3In this case, the principle of change of circumstances does not apply. If the principle of change of circumstances is adopted, it is obviously unfair and unreasonable to the contractor.

13. After the contract was signed, it was thought that the contractor, as an enterprise with strength, experience, qualification and responsibility, could play the ability to match its qualification, strength and experience in the project construction process. However, in the construction process, it was just the opposite. The project site management personnel were slack and confused in management. All the project time nodes were not completed as planned, and the completion date was delayed again and again, to the contractor caused particularly huge economic losses, and even did not cooperate with the completion acceptance, did not provide completion acceptance data, resulting in the contractor's losses have been in a state of expansion.

2In the process of project performance involved in this case, the contractor's construction progress has been delayed again and again, the site safety and civilization cannot be implemented according to the requirements of standardized construction site, the construction quality has repeatedly encountered problems, the project management personnel assigned are not bidding filing personnel, and the concrete manufacturer has been replaced (2017Year1Month17The contractor issued a "statement on the use of commercial concrete in the basic part of the east section of the tourism experience center"), the replacement of the steel supplier, the contractor for the contract filing, work injury insurance, migrant workers wage deposit account opening (the contractor's engineering business contact reply form, number isFL-LXD-2016-014) and other matters cannot be handled for a long time, resulting in a very late application for project construction. Even if the case eventually appears to continue to perform the contract for a party is obviously unfair or can not achieve the purpose of the contract, can not achieve the purpose of the contract is caused by the contractor's serious breach of contract, it should bear the adverse legal consequences.

3After the signing of the General Construction Contract between the two parties, as the contractor.2016Year9Month5Japan issued to the contractor "on a supply of materials and other matters" of the project business contact list, the contractor proposed for steel and other materials to implement a supply, but the contractor with steel and other materials have a huge profit, the contractor has carried out centralized procurement and in.2016Year9Month10On the grounds that the Japanese steel entered the market, it was not supplied by Serie A, and on2016Year9Month10The contractor's request is rejected on the day in the form of a work contact sheet.

Combined with this case, it cannot be based on Article 26 of the Judicial Interpretation of the Contract Law. "After the establishment of the contract, the objective circumstances have undergone major changes that the parties cannot foresee at the time of the conclusion of the contract and are not commercial risks caused by force majeure. If the parties request the people's court to change or terminate the contract, the people's court shall, in accordance with the principle of fairness, continue to perform the contract, and combined with the actual situation of the case to determine whether to change or terminate." If the principle of change of circumstances is applied, if the principle of change of circumstances is adopted, it is obviously unfair and unreasonable to the contractor, which seriously violates the purpose of the legislation, resulting in the breaching party being protected by law, but the breach party suffers serious losses.

(III) other trial views

As for the application of the change of circumstances clause, the Supreme Court and the provincial high courts have made their own interpretations and applicable conditions in the trial practice. In the following, the author will list the trial views of the High Court separately from the applicable conditions already listed in this article.

1.Views of the Supreme Court

The application of the change of circumstances clause should correspond to the basic principles and should be applied to the situation where the continuation of the original contract terms would be unfair to the parties to the contract. With regard to how the loss of available benefits is determined, it is necessary to examine whether the expected commercial benefits were foreseen at the time of the termination of the contract.

2.Views of Shandong Provincial High Court

When a party to a contract makes a claim for damages, it should be determined whether the claim is contrary to the original intention of the parties at the beginning of the contract. If contrary, and not contrary to the principle of good faith is not a change of circumstances.

In a sales contract, when the contract is performed, the market price of raw materials, power and energy prices, labor costs, etc. have all increased significantly compared with when the contract is concluded. When the continued performance of the original contract will lead to an increase in production and transportation costs, it should be reviewed. Whether the cost change will cause abnormal changes in the basis of the contract, and whether it is a normal commercial risk that the parties to the contract should foresee when concluding the contract.

3.Viewpoint of Jiangsu Provincial High Court

Jiangsu Provincial High Court in (2014) Su Shang Final Word No.0259In case No. 26, according to the provisions of Article 26 of the (II) of the Supreme People's Court on the Interpretation of Certain Issues Concerning the Application of the the People's Republic of China Contract Law, the conditions for the application of the principle of change of circumstances were set out in detail: first, in the process of performance after the conclusion of the contract. The performance process referred to herein shall refer to the normal performance of the contract by both parties to the contract. If a cause of change of circumstances occurs during the period of delay in the performance of the contract by one party, the breaching party shall not have the right to claim the application of the principle of change of circumstances. Because if the contract is performed normally, the contractual relationship is terminated, when the principle of ruthless potential change applies the conditions. Furthermore, if the defaulting party is allowed to profit from its own default, there is the possibility of encouraging default. Second, there have been significant changes that are not commercial risks caused by force majeure that the parties could not foresee at the time of the conclusion of the contract. Third, the continued performance of the contract is clearly unfair to a party or does not achieve the purpose of the contract.

And when signing the contract of sale and purchase, the market price of the subject matter is determined by both parties based on their judgment of market conditions and their own marketing capabilities. Therefore, in the transaction, that is, to deal with the potential market risk with commercial judgment, the subject matter of the market price of the natural rise and fall should be a normal commercial risk.

3. Summary

(I) judicial practice

In judicial practice, the application of the provisions of the change of circumstances, should pay attention to its applicable conditions, should also pay attention to the relevant national policies and local policies. At present, in our country's judicial practice and market economy, when encountering relatively large non-commercial risks and non-force majeure changes in the situation, the government will issue relevant guidance documents to guide the operation. In judicial practice, attention should be paid to the applicable time and field. Attention should be paid to whether the price and the change of specific circumstances are foreseeable, whether they are natural market price changes, and whether they have a significant impact on the basis of the formation of the contract.

perfection of (II) legislation

In legislation, contemporary Anglo-American law and many countries of civil law system have determined the change of circumstances as a principle in their civil code or contract law. However, at present, in addition to Article 26 of the Interpretation (II) of the Supreme People's Court on the Application of the the People's Republic of China Contract Law and the Guidance of the Supreme People's Court on Several Issues Concerning the Trial of Civil and Commercial Contract Disputes under the Current Situation, the change of circumstances has been explained, there is no other legal provision to specify it. The author suggests that with the rapid development of China's economic situation and changes in the economic market, it is necessary to make clear legislation on the change of situation. The conditions of its application are clearly detailed, and the legal consequences are clearly defined.

Such legislation can more effectively fill the gaps in the law, but also effectively protect the legitimate rights and interests of the parties to the contract, to avoid the court nowhere to invoke or abuse of discretion, through the change of circumstances of this provision reflects the most basic principles in the field of civil and commercial affairs-fairness and justice.

Reference Articles

Hu qi-jin: a brief discussion on the historical origin of the principle of change of circumstances, [J], China Court Network,2014，0219。

Liang Huixing: Issues of Chinese Civil Law and Economic Law, Law Press1989Year Edition, No.200Page.

See (2012) Min Shen Zi No.695-1Civil judgment No.: According to the judgment of the Supreme People's Court, force majeure mainly includes natural disasters such as floods, fires, earthquakes, and changes in laws and government orders.

Li Xiaoyu, "Research on the System of Contract Rescission", Law Press.2018Year Edition, No.133Page.

Han Shiyuan, General Theory of Contract Law, Law Press.2018Year Edition, No.495Page.

See (2014) Minyi Final Word157No.: Dispute over the transfer of mining rights contract.

See: (2015) Minyi Final Word No.226Number: Contract Dispute.

See (2016) Lu Min Final499No.: Disputes over rural land contracts.

See (2016) Lu Min Final569No.: Dispute over sales contract.

See: (2014) Su Shang Final Word No.0259No.: Dispute over sales contract.