Construction Engineering Environmental Capital Law Review (Phase III) on the construction project judicial interpretation II on the construction project price priority compensation rights of a number of issues.

[Abstract] Since Article 286 of the Contract Law stipulates the priority right to compensation for the price of construction projects, there have been continuous disputes in theory and practice. The Interpretation (II) of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Construction Contract Disputes (hereinafter referred to as "Construction Project Interpretation II") has responded to some previous disputes and corrected some previous cognitive deviations, some new provisions have been made on the priority compensation right of construction project price, including the subject of the exercise of the priority compensation right, the conditions for the exercise, the scope of the compensation, the duration of the exercise, the limitation of the right and the waiver, but there are also unresolved problems. This paper mainly analyzes the relevant problems of the priority compensation right of construction project in the Interpretation of Construction Project II, and puts forward the corresponding opinions.
 

Key words: construction project priority compensation right, the subject of rights, the exercise of conditions, the scope of compensation, exercise period, the right to limit and give up
 

The priority of compensation for construction projects (hereinafter referred to as the priority of compensation) is an important right of the contractor of the construction contract for construction projects. This right even determines whether the construction contractor can realize its creditor's rights for project funds, which involves the core interests of the construction contractor. Therefore, this right has attracted wide attention in practice. At the same time, due to the lack of theoretical and practical research and preparation when Article 286 of the Contract Law stipulates the priority of compensation, there are also deficiencies in legislative technology, and new and old problems in judicial practice emerge in endlessly, so it has been quite controversial. The Construction Project Interpretation II, which came into effect on February 1, 2019, makes some new provisions on the right of priority compensation, which needs to be reviewed and analyzed.

The legislative context of 1. on the right of priority compensation.
 

The legislative context of the priority right of compensation is reviewed in terms of the scope, duration, limitation and waiver of rights.

The law on priority of compensation provides that:

Article 286 of the the People's Republic of China Contract Law: 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. If the contractor fails to pay within the time limit, the contractor may, in addition to the nature of the construction project, agree with the contractor to discount the project, or apply to the people's court to auction the project in accordance with the law. The price of the construction project shall be paid in priority for the discount or auction price of the project.

The scope of the right of priority of compensation stipulates:

Article 3 of the 2002 Approval of the Supreme People's Court on the Priority Right to Compensation for the Price of Construction Projects: The price of construction projects includes the actual expenses of staff remuneration, materials, etc. that the contractor shall pay for the construction project, and does not include the losses caused by the contractor's breach of contract.

Article 21 of the (II) for the Interpretation of Construction Projects... The people's court shall not support the contractor's claim for priority payment of interest, liquidated damages, damages, etc. on the overdue payment of the construction project price.

The provisions of the relevant administrative departments of the State Council on the scope of the construction project price include:

Notice of the Ministry of Housing and Urban-Rural Development of the Ministry of Finance on the issuance of the "Composition of Construction and Installation Project Costs" Jianbiao [2013] No. 44 "Construction and installation project costs are divided into labor costs, material costs, construction equipment use fees, enterprise management fees, profits, fees and taxes according to the composition of the cost components."

Notice of the former Ministry of Construction on the issuance of the "Interim Measures for the Administration of Construction Contracting and Contracting Prices" Jianbiao [1999] No. 1 "The price of the project consists of costs (direct costs, indirect costs), profits (fees) and taxes."

The administrative department stipulates that the construction price includes costs, profits, fees, taxes, etc.

The duration of the right of priority is stipulated:

Article 4 of the 2002 Approval of the Supreme People's Court on the Priority of Compensation for the Price of Construction Projects: The period for which the contractor of a construction project exercises priority shall be six months, calculated from the date of completion of the construction project or the date of completion as agreed in the construction project contract.

(I) of Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Construction Contract Disputes

Article 18 Interest shall be calculated and paid from the date of payment of the project price. If the parties have not agreed on the time of payment or the agreement is unclear, the following time shall be regarded as the time of payment:

If the (I) construction project has been actually delivered, it shall be the date of delivery;

If the (II) construction project is not delivered, the date of submission of the completion settlement documents;

If the (III) construction project has not been delivered and the project price has not been settled, it shall be the date on which the party concerned sues.

Construction Engineering Interpretation II

Article 22 The period for the contractor to exercise the right of priority compensation for the construction project price shall be six months, starting from the date on which the contractor shall pay the construction project price.

Provisions on waiver and limitation of priority of compensation:

Construction Engineering Interpretation II

Article 23 If the contractor and the contractor agree to waive or limit the right of priority compensation for the construction project price and harm the interests of construction workers, the people's court shall not support the contractor's claim that the contractor does not enjoy the right of priority compensation for the construction project price according to the agreement.

Other provisions:

According to Article 2 of the Regulations on the Quality Management of Construction Projects and Article 2 of the Regulations on the Safety Production Management of Construction Projects, construction projects refer to civil engineering, construction projects, pipeline and equipment installation projects and decoration projects.

In the Letter Reply on Whether Decoration Works Enjoy Priority of Compensation under Article 286 of the Contract Law ([2004] Min-He Zi No. 14), the Supreme People's Court pointed out that decoration works belong to construction works and the provisions of Article 286 of the Contract Law on priority of compensation can be applied, except that the employer of the decoration works is not the owner of the building or there is no contractual relationship between the contractor and the owner of the building, the contractor who enjoys the right of priority can only be paid in priority to the extent that the value of the building is increased by decoration.

Construction Engineering Interpretation (II)

Article 18 If the contractor of a decoration project requests that the price of the decoration project be paid in priority to the price of the decoration project at a discount or auction, the people's court shall support it, except where the contractor of the decoration project is not the owner of the building.

The problem of priority compensation has been solved in 2. with the Construction Engineering Interpretation II.
 

(I) the implementation of the right to priority compensation subject more clearly

1. Article 17 of the Construction Project Interpretation II: If a contractor who enters into a construction contract with the contractor requests the price of the construction project to be paid in priority in accordance with Article 286 of the Contract Law, the people's court shall support it.

The provision states that only the contractor has the right of priority compensation, excluding the right of other subjects to request priority compensation. The subject with the right of priority compensation is only the contractor who has entered into a construction contract with the contractor, excluding the surveyor, the designer, the actual builder, the sub-contractor and the legal subcontractor.

2. Article 18 of the Construction Project Interpretation II: If the contractor of the decoration project requests the price of the decoration project to be paid in priority to the price of the decoration project at a discount or auction, the people's court shall support it, except where the contractor of the decoration project is not the owner of the building.

If the contractor is not the owner of the building, it indicates that the owner of the building is not the debtor who owes the payment for the work, and it is impossible to repay the debt by discounting or auctioning the building, and the contractor cannot be determined to have a priority right to pay the price of the decoration work.

The precondition for the (II) to exercise the right of priority compensation is that the quality of the project is qualified.

Regardless of the validity of the construction contract, and regardless of whether the project is completed, as long as the quality of the project is qualified, the contractor may exercise the right of priority compensation.

1. Article 19 of the Construction Project Interpretation II: If the quality of the construction project is qualified and the contractor requests the price of the construction project to be paid in priority to the price of the project at a discount or auction, the people's court shall support it.

According to the provisions of this article, it can be seen that regardless of the validity of the contract, as long as the quality of the work is qualified, the contractor is entitled to priority compensation.

2. Article 20 of the Interpretation of Construction Projects II: If the quality of the uncompleted construction project is qualified, the people's court shall support the contractor's request for the price of the construction project to be partially discounted or the price of the auction.

This article indicates that for uncompleted construction projects, as long as the quality of the project is qualified, the contractor will have the right of priority compensation. For uncompleted construction projects, as long as the contractor can prove that the quality of the project is qualified, it can request the right of priority compensation, which shows that the quality of the construction project is qualified.

(III) the scope of the project price to be paid first.

Article 21 The scope of priority compensation for the contractor's construction project price shall be determined in accordance with the provisions of the relevant administrative department of the State Council on the scope of the construction project price. The people's court shall not support the contractor's claim for priority payment of interest, liquidated damages, damages, etc. on the overdue payment of the construction project price.

This article expressly excludes, by way of enumeration, liquidated damages, and interest arising from late payment of the price of the work.

(IV) the starting point of the period for the exercise of the right of priority compensation to be amended.

Article 22 of the Construction Project Interpretation II: The period for the contractor to exercise the right of priority compensation for the construction project price shall be six months, starting from the date on which the contractor shall pay the construction project price.

This article amends the provisions of Article 4 of the Approval of the Supreme People's Court on the Priority Right to Compensation for the Price of Construction Projects, which "shall be calculated from the date of completion of the construction project or the date of completion as agreed in the construction project contract. Completion and settlement to determine the price is often not synchronous time, to the contractor should pay the project price from the date of calculation of priority compensation, is conducive to the further implementation of the priority compensation system.

(V) the contractor's priority right to compensation may be conditionally waived or limited.

Article 23 of the Construction Project Interpretation II: If the contractor and the contractor agree to waive or limit the right of priority compensation for the construction project price, harming the interests of construction workers, and the contractor claims that the contractor does not enjoy the right of priority compensation for the construction project price according to the agreement, the people's court shall not support it.

The article makes it clear that the contractor's waiver of the right of priority compensation is invalid if it harms the interests of the construction worker, but it also gives the contractor a greater burden of proof to prove that the waiver harms the interests of the construction worker.

3. Some Problems to be Solved after the Implementation of Construction Project Interpretation II
 

The starting point of (I) priority compensation rights is still difficult to judge.

During the performance of the contract, the project generally needs to be completed, accepted and settled before the final amount of the project price can be determined. However, in practice, some projects have not been completed at all, resulting in "unfinished", and even both parties require the termination of the contract; some projects have been completed, but there are quality problems; some projects have not been settled after acceptance; some construction contracts are invalid. Accordingly, to determine when the contractor should pay the price of the construction project, it is necessary to analyze the completion of the project in different cases and the construction contract of the construction project. It can be seen that the "date on which the price of the construction project should be paid" is not as specific as the "date of completion" seems, but the provision provides a larger application space for the specific analysis of the specific situation in the case. The "Understanding and Application of the Judicial Interpretation (II) of the Construction Contract of the Supreme People's Court" compiled by the People's Court of the Supreme People's Court introduces the starting points from "agreed", "invalid contract", "termination or termination of performance of the contract" and "no agreement or unclear agreement. These classifications are not easy to understand. Based on this situation, it is more simplified if the contract has an agreement to pay the price of the construction project and no agreement or unclear agreement to distinguish.

First, from the point of view of "agreement", that is, the contract has a clear agreement on the price payable by the contractor, can be divided into three categories:

1. If the contract is legal and valid, it shall be calculated from the date of expiration of the settlement payment payable by the employer. As long as there is a clear agreement, the priority right of compensation shall be calculated from the first day after the expiration of the payment period stipulated in the contract. No matter whether the employer timely reviews and pays within the agreed time limit, it shall be calculated from the expiration of the payment period;

2. If the contract is terminated or dissolved midway, the priority of compensation is claimed for the completed part of the project of the contractor, and the completion settlement review has not been reached from the time node, and the payment period agreed in the contract has not been reached. It is more clear to take the date of the contractor's lawsuit as the starting point. Of course, this starting point does not include the case where the parties negotiate to terminate the contract and separately agree on the payment time;

3, the contract has a clear agreement, but the contract is invalid. According to the view of "the understanding and application of the judicial interpretation (II) of the construction contract of the Supreme People's court", according to Article 2 of the judicial interpretation of construction project, "the construction contract is invalid, but the construction project has passed the completion acceptance, and the contractor requests to pay the project price with reference to the contract, which shall be supported". The term of the right of priority may refer to this provision and use the term agreement on the price payable in the invalid contract. However, through comparison, we found that the "reference" in Article 2 of the Judicial Interpretation of Construction Projects only includes "the pricing standards and principles in invalid contracts" and does not include the reference payment time. There are contradictions between the two places and they are not the same. Conceptual category, so in this case, it is necessary to look at trial practice, and opinions cannot be unified.

Second, from the point of view of "no agreement or unclear agreement", it can be divided into two categories:

1. If the project has been actually delivered, the date of actual delivery of the project shall be taken as the priority starting date;

2, the project has not yet been delivered, should be sued by the contractor, there is no need to distinguish whether the quality of the project is qualified, because the quality of the project is qualified is the premise of the exercise of the right of priority compensation, unqualified project of course should not pay the project price, not to mention the right of priority compensation of unqualified projects.

Whether the (II) project progress payment can claim the right of priority compensation.

According to the provisions of the Contract Law No. 286, 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..., According to the provision from the literal interpretation of the progress payment is also included in the construction project price, the clause also states that the contractor does not pay the project, can auction, discount the construction project, but in the payment of progress within the time limit of the project has not been completed, of course, the project can not be auctioned, discount. The contractor may, by exercising the right to terminate the contract, claim to the contractor together with the progress of the project and the remaining works, at which point the situation in this article regarding the termination of the contract to exercise the right of priority compensation can be applied from the date of the contractor's prosecution.

It is difficult to determine the criteria for determining the damage to the interests of construction workers (III) the contractor's waiver of the right of priority compensation.

Whether the interests of construction workers are damaged depends on whether the contractor's abandonment or restriction affects its overall solvency. The contractor's overall assets and liabilities and whether the cash flow situation has deteriorated to the extent that it affects the payment of construction workers' wages should be taken as the main consideration factors. Of course, it cannot be judged by whether the wages owed to a construction worker are owed. However, the question of whether the abandonment affects the overall solvency of the contractor and whether it deteriorates to the extent that it affects the payment of wages to construction workers is not further elaborated in the Construction Works Interpretation II.

The interests of construction workers are concentrated in the timely and full payment of wages. If the contractor defaults on the wages of workers, on the one hand, the default on individual workers' wages does not mean that the contractor's ability to pay is insufficient to the extent that it will harm the interests of construction workers. On the other hand, the reasons for the default on workers' wages involve all aspects, including the temporary shortage of funds of the contractor, which is not enough to conclude that the interests of construction workers will eventually be harmed, moreover, such standards may contribute to the unhealthy culture of contractors maliciously defaulting on wages.

Therefore, the definition of the connotation of harming the interests of construction workers directly determines whether the contractor's waiver or limitation of the right of priority compensation is effective. Based on the complexity of social life, in judicial practice, it should be judged comprehensively in combination with the balance sheet of the contracting enterprise, the contractor's ability to pay, whether there are actual arrears of workers' wages, whether there are other effective safeguard measures for the payment of workers' wages, and so on. The act of giving up the priority right of compensation "affects the ability to pay workers' wages" as the judgment standard, which also gives judges and arbitrators more room for discretion.

References:

1. WeChat Public Number: Law Line World "How to determine the starting point of priority compensation right from the perspective of the second solution of the Department of Construction and Engineering", Yang Song https://mp.weixin.qq.com/ssrc=11×tamp=1581513860&ver=2154&signature=WeFI2UMwuOzrt9H3E023f3sUAR1iudyC2DnIJt2UjP9xrlR8iFKvmt4a4qHUIaPKDKBJxpKxAGldfNjWqUQcfRccV4DPu5cVoPlTCKmbN9d1ok95OyLgiHF1ktOnyaTZ&new=1

2. First Civil Trial Division of the Supreme People's Court, Understanding and Application of the Judicial Interpretation (II) of Construction Contracts of the Supreme People's Court, 1st Edition, 2019