II. Answers of the Higher People’s Court of Hunan Province on Several Issues in Adjudicating Disputes over Construction Project Contracting (Xiang Gao Fa [2022] No. 102)

02. How should it be handled when a party, having already reached a settlement agreement, subsequently reneges on it by claiming the contract is invalid?

Answer: Where the parties have independently reached a settlement agreement on the construction project price and subsequently seek to invalidate the agreed-upon price on the ground that the construction contract is void, such a claim shall not be upheld.

III. Hebei Provincial Higher People’s Court, “Guidelines for the Adjudication of Construction Contract Cases” (Hebei High People’s Court Document No. 30 [2023]) (adopted at the 18th Plenary Meeting of the Judicial Committee on May 10, 2023)

03. Where the parties have already conofficeed the project settlement amount through a settlement agreement and have substantially performed their obligations thereunder, any audit conclusions or fiscal review opinions issued by the state auditing authority shall not affect the validity of the settlement agreement between the parties.

IV. The Shandong Provincial Higher People’s Court’s “Answers to Several Questions Concerning the Adjudication of Disputes over Construction Project Contracting Agreements”

04. How should the court review and handle a situation where a party seeks to use a settlement agreement reached prior to litigation as the basis for settling the project payment?

Where the parties have reached a settlement agreement prior to litigation and, upon review, the agreement is found to be valid, such settlement agreement shall serve as the basis for settling the project payment. In assessing the settlement agreement and its validity, particular attention shall be paid to whether it reflects the true intentions of the parties.

(1) Where the parties have jointly signed and sealed a settlement agreement, a claim by one party that the agreement is invalid on the ground of fraud, coercion, or other such conduct shall not be upheld unless sufficient evidence is provided to substantiate such claim.

(2) Where both parties, prior to litigation, jointly engage a relevant institution or individual to issue a consulting opinion on the project’s construction cost or to accept a cost report, but fail to reach a written settlement agreement, and one party refuses to recognize such document, it shall not be deemed a settlement agreement.

(3) Where multiple settlement agreements exist, the true intentions of the parties shall be determined by considering their respective claims and evidence.

V. Answers of the First Civil Division of the Shandong Provincial Higher People’s Court on Several Issues in Adjudicating Disputes over Construction Project Contracting Agreements

05. If the construction contract is invalid, and a party seeks to use a separately executed settlement agreement as the basis for settling the project payment, how should this be handled?

A settlement agreement entered into by the parties outside the scope of the construction contract is independent; the validity of the construction contract does not affect the validity of the settlement agreement, and the settlement agreement may serve as the basis for determining the project price.

VI. The Jiangsu Provincial Higher People’s Court’s “Answers to Several Questions Concerning the Adjudication of Disputes over Construction Project Contracting” (Minutes of the Judicial Committee [2018] No. 3)

06. Upon completion of contract performance, the settlement agreement reached by the parties is independent; the validity of the construction contract does not affect the enforceability of the settlement agreement.

VII. The Shaanxi Provincial Higher People’s Court’s “Answers to Several Questions Concerning the Adjudication of Disputes over Construction Project Contracting (2020)”

07. If the parties have entered into a separate settlement agreement outside the construction contract, and that agreement serves as the basis for settling the project payment, does the validity of such settlement agreement remain unaffected if the construction contract itself is invalid?

A settlement agreement entered into by the parties outside the construction contract is independent; the validity of the construction contract does not affect the validity of the settlement agreement, and the settlement agreement may serve as the basis for determining the project price.

08. How should a case be handled when the parties, having reached agreement on the settlement of construction payments, subsequently assert claims for damages?

After the settlement agreement takes effect, if the contractor requests payment of the project funds in accordance with the agreement, and the employer seeks to refuse or reduce such payments or to claim damages on the ground that quality defects or delayed completion were caused by the contractor, such claims shall not be upheld, unless otherwise provided in the settlement agreement.

After the settlement agreement takes effect, if the contractor seeks compensation for losses arising from work stoppages and idle time on the grounds that the delay was caused by the employer, such claim shall be rejected, unless otherwise provided in the settlement agreement.

The parties’ execution of a settlement agreement shall not affect the contractor’s obligation to assume quality‑warranty liability as stipulated in the contract or pursuant to laws and administrative regulations.

VIII. The Shenzhen Intermediate People’s Court’s “Guiding Principles for Adjudicating Disputes over Construction Project Contracting” (Second Revision at the 23rd Meeting of the Civil, Administrative, and Enforcement Specialized Committee of the Judicial Committee of the Shenzhen Intermediate People’s Court, August 28, 2014)

09. Where the parties have entered into a settlement agreement regarding the project payment pursuant to an invalid construction contract, and the project has passed竣工验收 (completion acceptance) and been found to be compliant, the project payment may be determined in accordance with such settlement agreement.

IX. Answers of the First Civil Division of the Sichuan Provincial Higher People’s Court on Several Difficult Issues in Adjudicating Disputes over Construction Project Contracting (Sichuan High People’s Court, Civil Division I [2015] No. 3)

10. How should a settlement agreement reached by the parties prior to litigation be handled?

If the parties have already reached an agreement on the settlement of the project price prior to litigation, a request by one party for a re‑settlement during the proceedings shall not be granted, unless the settlement agreement has been declared invalid or rescinded by a people’s court or an arbitration institution.

X. The Beijing Higher People’s Court’s “Answers to Several Difficult Issues in the Adjudication of Disputes over Construction Project Contracting”

11. If the parties have already reached an agreement on the settlement of the project payment prior to litigation, how should a request by one party for a re‑settlement be handled?

Where the parties have already reached an agreement on the settlement of the project price prior to litigation, a request by one party for a re‑settlement during the proceedings shall not be granted, unless the settlement agreement has been declared invalid or rescinded by a court or an arbitral tribunal.

Where a construction contract is deemed invalid, but the project has passed竣工验收 and been found to be compliant, a party’s claim to invalidate the settlement agreement on the ground that the construction contract is invalid shall not be upheld.

12. How should it be handled when a party, having reached an agreement on the settlement of construction payments, subsequently asserts claims for damages?

After the settlement agreement takes effect, if the contractor requests payment of the project price in accordance with the agreement, and the employer seeks to refuse or reduce such payment or to claim damages on the ground that quality defects or delayed completion were caused by the contractor, such claims shall not be upheld, unless otherwise provided in the settlement agreement. The execution of a settlement agreement shall not preclude the contractor from assuming its obligations for quality warranty as stipulated in the agreement or under applicable laws and administrative regulations.

After the settlement agreement takes effect, if the contractor seeks compensation for losses arising from work stoppages and idle time on the grounds that the delay was caused by the employer, such claim shall be rejected, unless otherwise provided in the settlement agreement.

XI. Shanghai Higher People’s Court, “Answers to Difficult and Controversial Issues in the Adjudication of Construction Project Contract Disputes (2015)”

13. If the parties have already reached an agreement on the settlement of the project price prior to litigation, how should a request by one party for a re‑settlement be handled?

Answer: If the parties have already reached an agreement on the settlement of the project price prior to litigation, a request by one party during the proceedings for a re‑settlement shall not be upheld, unless the settlement agreement has been declared invalid or rescinded by a court or an arbitration institution.

Where a construction contract is deemed invalid, but the project has passed竣工验收 and been found to be compliant, a party’s claim to invalidate the settlement agreement on the ground that the construction contract is invalid shall not be upheld.

Reason: The settlement agreement reached by the parties prior to litigation regarding the project payment constitutes, in essence, a contract entered into by both sides. A contract duly concluded in accordance with the law is protected by law; unless the settlement agreement is rescinded or declared invalid, the parties are bound by it and must perform their obligations as stipulated therein.

14. If the parties, having reached an agreement on the settlement of the project payment, subsequently assert claims for damages, should such claims be upheld?

Answer: After the settlement agreement takes effect, if the contractor requests payment of the project price pursuant to the agreement and the employer refuses to pay or seeks a reduction in the payment or compensation for losses on the ground that the project has quality defects or was completed late due to the contractor’s fault, such claims shall not be upheld, unless otherwise provided in the settlement agreement. The execution of a settlement agreement does not preclude the contractor from assuming its obligations to provide warranty for quality in accordance with the agreement or as prescribed by laws and administrative regulations.

After the settlement agreement takes effect, if the contractor seeks compensation for losses arising from work stoppages and idle time on the grounds that the delay was caused by the employer, such claim shall be rejected, unless otherwise provided in the settlement agreement.

Reason: The settlement agreement reached by the parties prior to litigation regarding the project price essentially constitutes a new contract governing the performance of the entire project. Unless otherwise specifically agreed, at the time of settlement the parties should have already taken into account all factors affecting the price; accordingly, they are bound by the agreement and must perform in accordance with its terms. Any subsequent claims by either party for an increase or decrease in the price should not be upheld.

XII. The Shenyang Intermediate People’s Court’s “Answers to Difficult and Controversial Issues in the Adjudication of Construction Project Contract Disputes (2015)” (adopted at the 23rd Judicial Committee Meeting of the Shenyang Courts on October 22, 2015)

15. If the parties have already reached an agreement on the settlement of the project price prior to litigation, how should a request by one party for a re‑settlement be handled?

Answer: If the parties have already reached an agreement on the settlement of the project price prior to litigation, a request by one party during the proceedings for a re‑settlement shall not be upheld, unless the settlement agreement has been declared invalid or rescinded by a court or an arbitration institution.

Where a construction contract is deemed invalid, but the project has passed竣工验收 and been found to be compliant, a party’s claim to invalidate the settlement agreement on the ground that the construction contract is invalid shall not be upheld.

Reason:

A settlement agreement reached by the parties prior to litigation regarding the project’s contract price is, in essence, a contract entered into by both sides. Such a contract, duly concluded in accordance with the law, is protected by law; unless the settlement agreement is rescinded or declared invalid, the parties are bound by it and must perform their obligations as stipulated therein.

16. If the parties have reached a settlement regarding the payment of construction costs but subsequently assert claims for damages, should such claims be upheld?

Answer: After the settlement agreement takes effect, if the contractor requests payment of the project price pursuant to the agreement and the employer refuses to pay or seeks a reduction in the payment or compensation for losses on the ground that the project has quality defects or was completed late due to the contractor’s fault, such claims shall not be upheld, unless otherwise provided in the settlement agreement. The execution of a settlement agreement does not preclude the contractor from assuming its obligations to provide warranty for quality in accordance with the agreement or as prescribed by laws and administrative regulations.

After the settlement agreement takes effect, if the contractor seeks compensation for losses arising from work stoppages and idle time on the grounds that the delay was caused by the employer, such claim shall be rejected, unless otherwise provided in the settlement agreement.

Reason:

A settlement agreement reached by the parties prior to litigation regarding the project price essentially constitutes a new contract governing the performance of the entire project. Unless otherwise specifically agreed, at the time of settlement the parties are deemed to have already taken into account all factors affecting the price, and they are bound by that agreement and required to perform in accordance with it. Any subsequent claims by either party for an increase or decrease in the price shall not be upheld.

Thirteen. The Ningbo Intermediate People’s Court’s “Answers to Difficult Issues in the Adjudication of Disputes over Construction Project Contracting (2018)”

17. If a construction contract is invalid, may the claim by one party that the settlement agreement executed pursuant to that contract is also invalid be upheld?

Answer: Where a construction contract is invalid, but the project has passed竣工验收 and been deemed qualified, a party’s claim in litigation to invalidate a settlement agreement on the ground that the construction contract is invalid shall not be upheld.

XIV. Minutes of the Joint Meeting of Presiding Judges on the Adjudication of Construction Contract Dispute Cases, issued by the Intermediate People’s Court of Quanzhou City (adopted at the 2021 meeting of the Judicial Professional Committee of the Intermediate People’s Court of Quanzhou City)

18. How is the validity of a settlement agreement determined?

Once a settlement agreement is executed, it shall be binding on both parties, and neither party may seek to reopen the settlement unless the agreement is declared invalid or rescinded by a court or an arbitral tribunal. If the construction contract entered into by the parties is subsequently held invalid, but the works have nonetheless passed final acceptance, such determination shall not affect the validity of the settlement agreement, unless the agreement itself contains grounds for invalidity or rescission.

Typical Case Adjudication Rules

19. Construction Project Contract Dispute Case

[Summary of the Judgment]:

Where the parties have already conofficeed the project settlement amount through a settlement agreement and have substantially performed their obligations thereunder, an audit report issued by the state auditing authority shall not affect the validity of such settlement agreement.

Case No.: (2012) Min Ti Zi No. 205

Source of the case: Gazette of the Supreme People’s Court, Issue No. 4, 2014.

20. Settlement agreements reached by the parties during litigation shall serve as the basis for determining the construction project payment.

Case No.: (2017) Supreme People’s Court Min Zhong No. 20.

21. After the employer issued a letter of commitment conofficeing the settlement price, and the contracting parties did not subsequently settle the project again, it may be determined that the two parties have reached an agreement on the settlement of the project payment.

[Summary of the Judgment]:

On January 11, 2015, Fulian Company issued a Letter of Commitment to Huiwu Company, stating that, following mutual settlement, the total project value amounted to RMB 65.54 million. The company undertook to make a payment of RMB 2.11 million by February 19, 2015, bringing the total payments to 96% of the contract sum; to remit an additional RMB 660,000 on March 12, 2015, thereby reaching 97% of the total; and to pay the remaining 3%—RMB 1.97 million—as a retention bond no later than January 12, 2016. In light of Huiwu Company’s acceptance of this Letter of Commitment, coupled with the fact that the parties subsequently did not conduct any further final settlement for the project in question, it can be concluded that the two parties had reached an agreement on the settlement of the project’s contract price.

Case No.: (2019) Min Min Shen No. 3694

22. The provisions of Article 567 of the Civil Code do not apply to cases where a contract is invalid; if a construction contract is invalid, the “settlement clauses” contained therein are likewise invalid.

[Summary of the Judgment]:

The Supreme People’s Court holds that Article 567 of the Civil Code (formerly Article 98 of the Contract Law), which provides that “the termination of the rights and obligations under a contract shall not affect the validity of the settlement and liquidation provisions therein,” does not extend to cases where a contract is invalid. Accordingly, the parties’ assertion that, although a construction contract is invalid, its liquidation provisions remain valid lacks legal basis. Consequently, any agreement in a construction contract regarding the calculation of liquidated damages for delayed payment of project funds is unenforceable due to the contract’s invalidity.

Case No.: (2020) Supreme People’s Court Min Shen No. 331

23. The invalidity of the construction contract does not affect the validity of the Settlement Agreement.

[Summary of the Judgment]:

The parties have the right to determine, by agreement, their respective rights and obligations following the invalidity of a contract. The invalidity of a construction contract does not necessarily render void any subsequent agreement entered into by the parties regarding the method and timing of payment of the project price (or compensation for reduced value), nor the liability for breach arising from failure to make such payments as agreed. Article 793, Paragraph 1 of the Civil Code of the People’s Republic of China provides: “If a construction contract is invalid but the construction project has passed acceptance inspection, the employer may, by reference to the provisions in the contract concerning the project price, compensate the contractor at a reduced value.” In accordance with this provision, where a construction contract is invalid yet the project has been accepted as compliant, it is the parties’ right—reflecting the principle of voluntariness—to agree on the amount, method, and timing of payment of the project price (or compensation for reduced value). Such agreements do not contravene mandatory legal provisions; therefore, the invalidity of the construction contract does not affect the validity of the settlement agreement.

Source of the view: Minutes of the Third Judicial Conference of the First Civil Adjudication Division of the Supreme People’s Court, 2022 (Civil Judgment Guidance and Reference, Series No. 89).

24. The Settlement Agreement is independent; the invalidity of the construction contract does not affect the validity of the Settlement Agreement.

[Summary of the Judgment]:

I . The law does not preclude the employer and the contractor from making separate agreements, with the mutual consent of both parties, regarding losses arising from delayed payment of construction costs; even if the construction contract is invalid, the Settlement Agreement, reflecting the true intentions of both parties, constitutes an independent arrangement concerning the outstanding amounts owed by the employer and interest damages, which does not violate mandatory legal provisions and thus has legal effect, unaffected by the invalidity of the underlying construction contract. Where a construction contract is invalid, the Settlement Agreement shall be deemed valid so long as it does not contravene the mandatory provisions of laws or administrative regulations, and its stipulations on the project price and the procedures for settling the account are binding upon the parties.

Case No.: (2021) Supreme People’s Court Min Shen No. 3325

II. In form, Supplementary Agreement No. 2 is a supplementary agreement to the Construction Project Contract; however, it possesses independent legal status. First, considering the background of its conclusion, as of April 30, 2013, Guangjiaxin Company had failed to make progress payments, return the performance bond, or pay the corresponding interest as agreed by both parties. Second, in terms of its purpose and content, the agreement conoffices the scope and value of the works completed by Bokun Company, specifies the outstanding debt amount, delineates Guangjiaxin Company’s liability for compensation arising from late payment, sets forth its liability for liquidated damages for delayed payment, and records Guan Guangsheng’s consent to provide joint and several guarantee liability. The Court holds that, in nature, Supplementary Agreement No. 2 constitutes a settlement and clearance of the pre-existing creditor–debtor relationship between Guangjiaxin Company and Bokun Company. Recognizing its independent legal effect and binding force does not contravene any mandatory provisions of laws or administrative regulations. Accordingly, this Court finds Supplementary Agreement No. 2 to be lawful and valid.

Case No.: (2014) Min Yi Zhong Zi No. 61

25. Where the internal subcontracting agreement for construction works is invalid, any provisions in the Settlement Agreement entered into between the contractor and a sub‑contractor lacking construction qualifications regarding liability for breach of contract arising from late payment of project funds shall likewise be deemed invalid.

[Summary of the Judgment]:

The Supreme People’s Court held that, based on the established facts, during the reconciliation process with Guizhou Eighth Construction Company, Chen Ming acknowledged that, as of May 17, 2015, Guizhou Eighth Construction had paid a total of RMB 44,199,700 in project payments. Subsequently, Guizhou Eighth Construction made three additional payments to Chen Ming totaling RMB 3,205,000. Accordingly, the original judgment’s determination that Guizhou Eighth Construction had paid Chen Ming a total of RMB 47,404,700 is supported by factual evidence. Chen Ming contends that interest and festival allowances amounting to RMB 573,936 were unilaterally deducted by Guizhou Eighth Construction and should not be included in the total payments; however, this position contradicts the fact that both parties had previously reconciled and conofficeed the amounts already paid. Therefore, the original judgment’s decision not to deduct these sums from the total payments was proper. With regard to the calculation of interest on the outstanding project payments, Chen Ming relies on the Internal Contracting Agreement and the Settlement Agreement he entered into with Guizhou Eighth Construction, as well as the agreement concluded between Dongtai Company and Guizhou Eighth Construction… Project Settlement Agreement Pursuant to the agreement, it is contended that interest on the outstanding construction payments should be calculated at a monthly rate of 2%. However, the Internal Contracting Agreement entered into between Chen Ming and Guizhou Eighth Construction Company is invalid because Chen Ming lacks the requisite construction qualifications; accordingly, the provisions in the Settlement Agreement regarding liability for breach due to late payment are likewise void. Relying on these invalid stipulations, Chen Ming’s request that Guizhou Eighth Construction Company bear contractual liability lacks legal basis. The original judgment’s refusal to uphold Chen Ming’s claim for interest at a monthly rate of 2% was therefore proper. Furthermore, the Engineering Settlement Agreement between Dongtai Company and Guizhou Eighth Construction Company provides that Dongtai Company was to settle all outstanding payments by October 31, 2015. Based on this provision, Chen Ming argues that interest in this case should accrue from November 1, 2015; however, such a position likewise lacks legal foundation. In light of the factual circumstances of the case, the original judgment appropriately determined that interest should be calculated from the date Chen Ming filed his lawsuit.

Case No.: (2021) Supreme People’s Court Min Shen No. 5511

26 . Where a construction contract is invalid, the provisions in the contract regarding rewards and late‑payment penalties do not constitute settlement or liquidation clauses and, pursuant to law, should not be upheld.

Case No.: (2020) Supreme People’s Court Min Zhong No. 475

27 The liquidated damages clause is not an independent provision in the contract governing dispute resolution. Since a construction contract that is invalid lacks legal enforceability from the outset, the liquidated damages clause must likewise be deemed invalid. In cases where a construction contract is declared invalid, the parties are entitled to seek payment of the project price in accordance with the contractual terms, which does not include liquidated damages.

Case No.: (2019) Supreme People’s Court Min Zai No. 231

28 When the internal subcontracting agreement for construction works is invalid, the provisions in the separate Settlement Agreement entered into between the contractor and the sub‑contractor lacking construction qualifications regarding liability for late payment shall likewise be deemed invalid.

Case No.: (2021) Supreme People’s Court Min Shen No. 5511

29 Even if a construction contract is invalid, a “settlement commitment letter” issued by the employer to the contractor or the actual constructor shall be deemed valid provided it does not contravene mandatory provisions of laws or administrative regulations and does not infringe upon the legitimate rights and interests of third parties. The employer is bound by the commitments set forth in such a “settlement commitment letter” regarding the project price, security deposits, and the procedures for settling the project account. Moreover, any stipulation in the “settlement commitment letter” concerning liquidated damages is likewise enforceable against the employer.

[Summary of the Judgment]:

The Supreme People’s Court holds as follows: With respect to whether “Commitment No. 3” may serve as the basis for settling the project payment, first of all, although Lai Mingming lacks the requisite construction qualifications, the two construction contracts he entered into with the Hainan Branch of Hebei Shuangwei were deemed invalid. However, the invalidity of those contracts does not necessarily render “Commitment No. 3” invalid. “Commitment No. 3” was issued by Hebei Shuangwei and its Hainan Branch to Lai Mingming; its contents constitute commitments by both companies regarding the project payment, the security deposit, and the procedures for settling the project, among other matters. It specifies the liability for breach of contract in the event that the relevant obligations are not fulfilled as promised, and bears the official seals of both companies. Moreover, it does not contravene any mandatory provisions of laws or administrative regulations. Accordingly, this commitment is valid, and its terms should be observed. … As for the issue of liquidated damages, “Commitment No. 3” is binding on both the retrial applicant and Lai Mingming. It expressly provides for the assumption of liquidated damages: if the retrial applicant fails to make progress payments as agreed, fails to return the security deposit as agreed, or fails to complete the project settlement as agreed—any one of these three circumstances—the applicant shall pay liquidated damages to Lai Mingming, calculated at a monthly rate of 2% based on the sum of RMB 63,283,534.81, commencing from February 1, 2020. However, the retrial applicant failed to fulfill its obligations to make the progress payments and return the security deposit by January 20, 2020, thereby constituting a breach of contract and thus being required to pay liquidated damages to Lai Mingming in accordance with the terms of the commitment.

Case No.: (2021) Supreme People’s Court Min Shen No. 1755

30 When a construction contract is deemed invalid, if the “settlement commitment letter” issued by the employer does not contravene any mandatory provisions of laws or administrative regulations and does not infringe upon the legitimate rights and interests of third parties, then the provisions in that letter concerning the project price, security deposits, procedures for settling the project account, and other related matters—including its liquidated damages clause—shall be binding on the employer.

Case No.: (2021) Supreme People’s Court Min Shen No. 1755

31 If the construction contract is invalid, the employer shall, in addition to paying the project price pursuant to the Settlement Agreement, also pay interest on such payment as stipulated in the Settlement Agreement.

[Summary of the Judgment]:

The Supreme People’s Court holds that, with respect to the amount of unpaid project payments owed by Carnival Company to Xinxing Company and the method for calculating interest, the Settlement Agreement and Payment Agreement entered into between the two parties were executed after Xinxing Company had withdrawn from the project. These agreements set forth the parties’ arrangements regarding the amount of payment due for the works already completed and the corresponding payment schedule, constituting a settlement and clearance of the existing creditor‑debtor relationship, and do not contravene any mandatory provisions of laws or administrative regulations. Article 2 of the Judicial Interpretation on Construction Project Contracting provides that if a construction contract is invalid but the constructed project has passed竣工验收 (completion acceptance) and is deemed qualified, the contractor’s request to be paid the project price in accordance with the contract terms shall be upheld. The Settlement Agreement and Payment Agreement signed between Carnival Company and Xinxing Company… Registered Contract The “Execution Contract” and the “Supplementary Agreement” are invalid; the project payment may be settled by reference to the contract actually performed by both parties. At the second-instance trial, both Carnival Company and Xinxing Company acknowledged that the contract they had in fact performed was the “Execution Contract” and the “Supplementary Agreement.” Moreover, the “Settlement Agreement” expressly stipulates that the amount of the project payment shall be calculated on the basis of the “Execution Contract” and the “Supplementary Agreement”; accordingly, the amount of the project payment determined in the “Settlement Agreement” complies with the law. Therefore, the first-instance court’s determination that the “Settlement Agreement” and the “Payment Agreement” are lawful and valid, and should serve as the basis for settling the project payment, is well-founded.

Case No.: (2018) Supreme People’s Court Min Zhong No. 556

32 The project at issue is subject to fiscal audit, and the settlement agreement does not involve any material misrepresentation. The court denied a party’s request for a re‑appraisal of the project’s construction costs.

[Summary of the Judgment]:

In construction project cases, where the parties have entered into a settlement agreement and partially performed it, if one party seeks to rescind the agreement and obtain an appraisal of the project’s cost on the ground that the project is subject to fiscal audit and that a material misrepresentation existed at the time the settlement agreement was concluded, the people’s court, upon review, shall reject such requests if it finds that the alleged material misrepresentation does not constitute a valid basis for rescission.

Case No.: (2014) Jin Gao Min Yi Zhong Zi No. 0079

33. The evidence submitted by the parties is insufficient to establish that the settlement agreement was entered into under duress, and, moreover, the party failed to exercise its right of rescission within one year of the agreement’s execution; accordingly, the right of rescission has lapsed—Zheng Zhikun v. Guangdong Changhong Highway Engineering Co., Ltd., Dispute over a Construction Contract.

[Summary of the Judgment]:

The evidence submitted by the parties is insufficient to establish that the settlement agreement was entered into under duress. Moreover, the party failed to exercise its right of rescission within one year of the agreement’s execution, thereby forfeiting such right. Having been signed and conofficeed by both parties, the settlement agreement reflects their true intentions and has been fully performed; accordingly, it is a valid agreement.

Case No.: (2018) Yue 71 Min Zhong No. 3

34 . The audit report issued by the national auditing authority on a shipbuilding project does not affect the validity of the settlement agreement between the parties to the construction contract—Jiangsu Jinyang Shipbuilding Co., Ltd. v. Shanghai Chongming Port Construction Investment Management Co., Ltd., contract dispute case

[Summary of the Judgment]:

The national auditing authority’s audit of shipbuilding projects constitutes an administrative oversight activity. The legal relationship arising between the auditor and the auditee differs in nature from the civil legal relationship among the parties to the shipbuilding contract; therefore, it is inappropriate to arbitrarily rely on audit conclusions as the basis for the final settlement of a shipbuilding project. In cases where contractual provisions are unclear, the audit report serves as crucial evidence to establish facts such as the project price and the vessel delivery date. The parties may also expressly agree to use the audit conclusions as the basis for determining the project price. However, once the parties have already agreed upon the final settlement amount through a formal agreement, the audit report should not affect the validity of that settlement agreement.

Case No.: (2013) Shanghai Maritime Court Commercial Initial Case No. 1080

35 A settlement agreement reached by the parties during litigation shall serve as the basis for determining the construction project payment—Dispute over the Construction Contract between Jiangsu Nantong Second Construction Group Co., Ltd. and Lianyungang Yuantong Real Estate Development Co., Ltd.

[Summary of the Judgment]:

In construction project contract dispute cases, where both parties independently engage a third party to issue a settlement audit report and the report is jointly conofficeed by them, such conofficeation shall be deemed to constitute a settlement agreement on the project price. Such settlement audit reports do not fall within the scope of forensic appraisal and are therefore not subject to the procedural rules governing forensic examinations. If one party subsequently reneges but fails to furnish evidence demonstrating that the settlement agreement is invalid or voidable, and instead relies solely on grounds such as the third party’s lack of proper qualifications or alleged violations of forensic‑appraisal procedures to challenge the admissibility of the settlement audit report as a basis for settlement, the people’s court will not uphold such objection. In the first instance of this case, the parties jointly engaged a third party to conduct an independent review, which reflects their autonomy of will; the settlement agreement reached on that basis represents their true intentions, does not contravene statutory provisions, and should accordingly serve as the basis for settling the project price. The judgment in this case provides clear guidance and sets an important precedent regarding the legal effect of agreements reached by the parties during litigation concerning the settlement of project costs.

Case No.: (2017) Supreme People’s Court Min Zhong No. 20

36 . Mao Shiwu, Anhui Fuhuang Steel Structure Co., Ltd. Construction Project Contract Dispute

[Summary of the Judgment]:

This Court holds that, where a construction contract is invalid, the settlement agreement entered into by the parties should generally also be deemed invalid. However, if the settlement agreement exists independently of the construction contract and constitutes a settlement and clearance of pre-existing creditor‑debtor relationships, it may be recognized as valid. In the present case, Mao Shiwu, acting as an individual without the requisite construction qualifications, undertook the project in question; accordingly, the contract he executed is void. Consequently, the “Settlement Agreement” arising from the project payment under such an invalid contract is likewise invalid. Nevertheless, the project payment may still be determined by reference to that “Settlement Agreement,” thereby effecting a valid resolution of the payment terms set forth in the invalid agreement.

Case No.: (2017) Supreme People’s Court Min Shen No. 4328

37. Where the actual contractor and the illegal subcontractor agree that the settlement of the project price shall be based on the settlement between the illegal subcontractor and its immediate upstream contractor, such agreement may serve as a basis for the people’s court’s adjudication—Zhou Degui v. Suqian Yongyang Construction Engineering Co., Ltd. Dispute over a Construction Contract.

[Summary of the Judgment]:

Pursuant to the Labor Subcontract Agreement entered into between Jieda Company and Yongyang Company, Jieda Company assigned certain labor‑related work items of the project at issue to Yongyang Company for execution; the unit price for project settlement was set at 82% of the itemized unit prices specified in the approved Bill of Quantities and Pricing Schedule. Yongyang Company entered into a contract with Zhou Degui… Subcontract Agreement It was agreed that Yongyang Company would subcontract the project modifications on Heping Road and the new construction on Yingbin Road to Zhou Degui, with pricing based on the rates charged by Jieda Company to Yongyang Company. Although the subcontracting agreement between Yongyang Company and Zhou Degui is invalid due to Zhou Degui’s lack of construction qualifications, this does not affect the validity of the settlement agreement. Accordingly, the original trial court held that the settlement of the project payments between Zhou Degui and Yongyang Company should be determined by reference to the settlement price between Jieda Company and Yongyang Company, rather than directly relying on the appraised project cost used in the settlement between the Lianshui County Government and Jieda Company. Furthermore, in accordance with the terms of the subcontracting agreement between Zhou Degui and Yongyang Company and taking into account the final arbitration award rendered between Jieda Company and Yongyang Company, the court properly ascertained the amount of project payments owed to Zhou Degui, a determination supported by factual evidence. Therefore, in accordance with the law, Zhou Degui’s application for retrial is hereby dismissed.

Case No.: (2018) Supreme People’s Court Min Shen No. 1174

38. The invalidity of the contract does not affect the validity of the settlement agreement — Beijing Badaling Jincheng Construction Co., Ltd. v. Liu Guozheng Dispute over a Construction Contract

Case No.: (2021) Yu 03 Min Zhong 3074

39. After the settlement agreement is signed, if there is evidence demonstrating that the agreement does not reflect the actual circumstances, its terms shall be adjusted—Construction Contract Dispute between Luoyang Lanjing Shengnuo Thermal Power Co., Ltd. and Henan Ju’an Heating Technology Co., Ltd.

Case No.: (2022) Yu 03 Min Zai No. 33

40 . If the content of the settlement agreement modifies the settlement provisions in the original contract, it shall be Debt Renewal The rights and obligations of both parties shall be determined by the final settlement agreement; the contractor’s claim to deduct the management fee stipulated in the original contract shall not be upheld—Case of Construction Contract Dispute between Li Honghai and the First Branch of Henan Sanjian Construction Group Co., Ltd.

Case No.: (2021) Yu 03 Min Zhong 1471

41 Where a settlement agreement is entered into prior to the completion of the project, the court has held that the priority right to payment shall be deemed to accrue from the day following the actual date of completion.

[Summary of the Judgment]:

The Supreme People’s Court held that on August 5, 2017, the two parties entered into the “Settlement Agreement for the Yujing Shangcheng Project in Kaili City,” which conofficeed the total contract price and expressly stipulated that “no separate audit‑based settlement would be conducted.” Accordingly, the payment deadline need not be determined by the date of completion of the audit as provided in the construction contract; rather, it should be fixed in accordance with the terms of the Settlement Agreement. The Settlement Agreement further provided that the parties were to reconcile and conoffice the amounts already paid by August 12, 2017. However, it also stipulated that Guangxia Company was required to complete the project’s finishing works within two months and hand them over to Xinyi Company, thereby enabling the overall completion, acceptance, and handover of the project. Under normal performance of a construction contract, the completion of the works is a prerequisite for project acceptance and for the settlement and payment of the contract price. Although the parties in this case signed an agreement conofficeing the total contract price before the works had been completed and accepted, such agreement did not relieve Guangxia Company of its obligation to continue completing the remaining finishing works. In circumstances where the original sequence of contractual obligations has been altered and no explicit provision remains regarding the payment deadline, interpreting the actual completion of the works by Guangxia Company as a precondition for the occurrence of the payment obligation and the establishment of the priority right to payment is consistent with the principles of good faith and full performance of the contract. To mechanically treat the date on which the parties executed the Settlement Agreement as the due date for payment—thereby holding that Guangxia Company’s assertion of its priority right to payment is time‑barred—would run counter to the legislative intent of safeguarding contractors’ effective recovery of their construction payments. The Court hereby conoffices that the project in question was completed on October 6, 2017, and that October 6, 2017, constitutes the date when the construction payment became due. Consequently, Guangxia Company’s filing of this lawsuit on April 4, 2018, seeking to assert its priority right to payment for the construction works, falls within the six‑month statutory limitation period.

Case No.: (2019) Supreme People’s Court Min Zhong No. 889

42 If the entity under whom the contract is registered has already completed the project settlement with the employer, the contracting party may no longer seek to settle directly with the employer.

[Summary of the Judgment]:

The project in question has been completed, passed acceptance inspection, and handed over to the owner for use. As the entity under whose name the contract was registered, Dongfang Company has already entered into an engineering settlement agreement with the contracting party, Yaxing Company, thereby settling the project payment. Huang Jianguo, as the party relying on the registration, seeks to have the project payment settled directly by him, a request that lacks legal basis. Based on the total settlement amount conofficeed by both Dongfang Company and Yaxing Company, the court of first instance, taking into account the amounts of payments already made, the outstanding balance of the project payment, the social insurance premiums already paid, and Huang Jianguo’s own admissions, and in accordance with the rules governing the allocation of the burden of proof, determined the amount of project payment that should be paid to Huang Jianguo; this determination is supported by sufficient evidence.

Case No.: (2021) Supreme People’s Court Min Shen No. 3897