Foreword

Within the construction industry, there exists a group of vulnerable individuals, often with limited legal awareness and lower levels of education. When their rights are infringed upon, they may resort to extreme measures to seek justice. Therefore, better protection of the legal rights of vulnerable groups, such as migrant workers, is of paramount importance.

I. Scope of Eligible Subjects for the Priority Right of Payment in Construction Projects

1. The Contractor as an Eligible Subject for Priority Right of Payment

According to relevant laws in China, contractors, as parties to a construction contract, are eligible subjects for the priority right of payment in construction projects. As stated in Article 35 of the Interpretation on Issues Concerning the Application of Law in the Trial of Construction Contract Dispute Cases (I) by the Supreme People's Court, contractors who enter into construction contracts with employers may request priority payment from the project’s resale or auction proceeds, as provided by Article 807 of the Civil Code. Should the employer fail to make timely payments, the contractor can notify them to settle within a reasonable timeframe. If the employer defaults, the contractor may negotiate with the employer for a discount on the project value or request the court to auction the project, granting the contractor a priority right of payment from the proceeds.

2. Whether Actual Workers Can Be Eligible for Priority Right of Payment

3. Whether Surveyors and Designers of Construction Projects Can Claim Priority Right. Some argue that surveyors and designers should not be considered eligible for priority right due to their relative social equality with employers and their higher legal awareness. These professionals can exercise a right to withhold survey results if payments are delayed, which acts as a self-remedy. However, the amount involved typically relates to early-stage work when funds are more readily available. Nevertheless, the right to priority payment should not be determined based on payment size or the education level of the workers. Given that surveying and design costs are recognized as part of construction costs, surveyors and designers should be entitled to the priority right of payment in construction projects.

II. Start Time for the Priority Right of Payment in Construction Projects

1. As Agreed in the Construction Contract

If a valid construction contract specifies a payment schedule, the priority right of payment may commence from this date. Where no time is specified, the Interpretation (I), Article 27, stipulates that interest accrues from the due date of payment. If no payment date is specified or is unclear, the following dates may apply: (1) for delivered projects, the delivery date; (2) for undelivered projects, the submission date of the completion settlement document; (3) if both are pending, the date on which a lawsuit is filed.

2. Termination or Discontinuation of the Construction Contract

In situations where the construction contract is terminated, priority right for completed and quality-approved work can commence from the date stipulated by law or contract. If the contractor and employer have a supplemental agreement regarding payment, the priority right can commence based on this new agreement. If a dispute over the project payment arises, judicial or arbitration bodies may determine the payment date as the date the lawsuit is filed.

3. Phased Construction and Payment in Installments

In phased construction with staged payments, the priority right can commence from: (1) the final payment date for a unified project, if there are phased settlements; or (2) separate start dates for priority rights if different projects under the same contract are individually billed.

III. Priority Order of Construction Project Payment Priority Rights

The priority order of construction project payment rights mainly involves the relationship between the rights of residential property consumers and the priority right of payment. When purchasing residential property, consumers acquire two types of claims: one for property delivery and another for the refund of the purchase price. The distinction between these claims depends on whether the property is completed and ready for delivery. In relevant cases, China’s Supreme Court has determined that claims for a refund of the purchase price are classified as ordinary creditor claims. According to Chinese law, if a consumer has fully paid for a residential property, either before or by the end of the first trial, and claims the right to delivery over the priority right of construction project payment, the court should uphold this right. Therefore, the priority order of rights for payment is as illustrated below:

Referenced Cases:

(2020) Yu 03 Min Chu 213

(2021) Supreme Court Min Shen 4949

(2021) Yu 03 Min Chu 29

(2018) Supreme Court Min Zhong 638

(2019) Ji Min Zhong 577

(2021) Supreme Court Min Shen 5141

Author Profile

Yan Xiao, Attorney

Yan Xiao, a licensed attorney at Guoyao Qindao Law Firm, holds a Master’s in Law. Specializing in corporate legal affairs, construction engineering, and civil and commercial matters, Attorney Yan has accumulated extensive legal service experience through in-depth research and client engagements. With a rigorous approach and professional skills, Yan has earned trust and commendations from clients.

Contact: 19861251197