With over 15 million RMB of construction payment in arrears, the priority right to compensation is approching to a close. Lawyer Jingzhan Wang from Tianjin Bozhuan Law Firm of China, helped the enterprise successfully safeguard its right.

In the field of construction engineering, the most common legal risks faced by enterprises include delayed project payments, difficulties in obtaining refunds of performance bonds, and disputes over the exercise period of priority compensation rights. In a construction engineering contract dispute case with a huge subject matter value that was adjudicated by the Jiuquan Intermediate People’s Court in Gansu Province,China, the lawyer Wang Jingzhan from Tianjin Bozhuan Law Firm, acting as the entrusted attorney of the plaintiff Meihua Construction Co., Ltd. (hereinafter referred to as “Meihua Company”), after several years efforts, had won a comprehensive victory judgment through precise legal strategies and solid evidence organization.

Case review:

Background: The disputed project is suspended because the director of the Employer company has been arrested for suspecion of illegal collcetion of money, and the contractor’s refusal to pay a huge amount of construction funds In 2017, Meihua Company signed a construction contract with Jiuquan New Generation Real Estate Development Co., Ltd. (hereinafter referred to as “New Generation Company”) to undertake the glass curtain wall and aluminum alloy door and window projects for the Jiuquan Seed Industrial Park. After Meihua Company entered the site to commence construction as agreed, the project was forced to suspend at the end of September 2018 due to the financial chain breakdown of the contractor, New Generation Company.

In January 2019, both parties verified the output value of the completed projects and confirmed that the total completed output value amounted to over 24.56 million yuan. However, New Generation Company only paid over 9.19 million yuan, still owing over 15.36 million yuan in unpaid project funds. Additionally, there was an unreturned performance bond of 950,000 yuan. After multiple unsuccessful attempts to recover the funds, Meihua Company entrusted lawyer Wang Jingzhan and his colleague Song Lihua to initiate legal proceedings.

Three major points of contention, lawyer Wang Jingzhan addressed one by one. During the trial of this case, the defendant, New Generation Company, raised multiple defenses: it did not recognize the amount of unpaid engineering fees, refused to return the performance bond, and claimed that the plaintiff had lost the priority right to be repaid with the engineering fees. Faced with the complex situation, lawyer Wang Jingzhan responded forcefully based on contract provisions, legal provisions, and the integrity of the evidence chain.

1. Successfully securing the project payment and interest: The defendant argued that the “Summary Table of Completed Output Value Review” signed and sealed by both parties was only a “preliminary accounting”. Lawyer Wang Jingzhan pointed out that no further progress was made in the project after the formation of this summary table, and the defendant confirmed it with its official seal, which should be regarded as the final recognition of the project cost. The court adopted this opinion and fully supported the claim for a project payment of over 15.36 million yuan. At the same time, the court recognized Lawyer Wang’s calculation method for the starting point of interest, and ordered the defendant to pay over 400,000 yuan in early interest and subsequent LPR interest.

2. Successfully recovered 950,000 yuan of performance bond: The defendant refused to return the bond on the grounds of “the contract has not been terminated and the project quality has not been confirmed”. Lawyer Wang Jingzhan pointed out that the suspension of the project was caused by the financial reasons of the contracting party, and the contract has met the statutory conditions for termination. The conditions for the return of the bond should be deemed to have been fulfilled. The court ultimately ruled that the defendant should return the full amount of 950,000 yuan of performance bond.

3. Reversing the limitation crisis of “priority of compensation”: The most crucial point for winning this case lies in the recognition of the priority of compensation for construction project costs. The defendant claims that the parties confirmed the output value on January 10, 2019, and Meihua Company did not claim priority until it filed a lawsuit in August 2020, which has exceeded the statutory six-month exercise period.

Lawyer Wang Jingzhan from Tianjin Bozhuan Law Firm,China, looking into the legislative intent, raised an imporrtant argument: as the project was suspended due to the contractor’s reasons, the subsequent resumption of work and completion settlement are both in an uncertain state. The reasonable period for the construction personnel to exercise the priority right to compensation should be calculated from the time of contract termination or lawsuit filing. The court ultimately adopted this viewpoint, determining that Meihua Company did not exceed the deadline, and ruled to confirm that Meihua Company has a priority right to compensation for the contracted project within the scope of more than 15.36 million yuan. This judgment directly guarantees Meihua Company’s compensation priority in the subsequent enforcement stage.

Judgment result: The first-instance judgment of the Jiuquan Intermediate People’s Court of Gansu Province (case number: (2020) Gansu 09 Civil No. 71) was fully upheld:

Terminate the construction contract between both parties;

The defendant shall pay the project payment of 15,367,687.68 yuan and corresponding interest;

The defendant shall return the performance bond of 950,000 yuan;

Confirm that the plaintiff has the priority right to be repaid within the range of 15,367,687.68 yuan for the discounted or auctioned price of the project.

In this case, Lawyer Wang had demonstrated “Professional Guidance”. This case is a typical composite dispute arising from the suspension of a project, involving multiple complex legal issues such as contract termination, project payment settlement, return of performance bond, and exercise of priority right to compensation. Especially in the situation where the “6-month” priority right to compensation is about to expire, lawyer Wang Jingzhan and his collegue from Tianjin Bozhuan Law Firm, accurately grasped the spirit of judicial interpretation of China Supreme Court and, taking into account the particularities of the suspended project, successfully persuaded the court to make a determination favorable to the construction party, avoiding the risk of the client’s tens of millions of creditor’s rights becoming ordinary creditor’s rights.

The professional judgment, evidence organization skills, and courtroom response abilities demonstrated by lawyer Wang Jingzhan and his colleague in the field of construction engineering disputes were very important to securing victory in this case. For the vast majority of construction enterprises, choosing a professional lawyer who is familiar with industry rules and proficient in legal practice is to secure the greatest legal protection for themselves when project risks arise.

(Case number: Civil Judgment (2020) Gansu 09 Min Chu No. 71 of the Jiuquan Intermediate People’s Court of Gansu Province.)