On Wed, Jan 2, 2019 at 2:00 PM Alice Walker <[email protected]> wrote:

Case Analysis: Determination of settlement price under changed circumstances caused by rise in the price of building materials

[Case Briefing]

X Company (the defendant) in Jinan City in Shandong Province as employer signed a construction contract with Y Construction Company in April 4, 2008 with respect to the construction of workshops and office buildings. According to the contract, the construction shall be conducted at a fixed cost, totaling RMB 19,660,000 Yuan. Later, the Y construction company delivered the project to Ms. Li (the plaintiff). The two parties agreed to complete the project together, with a condition that “Party A (Y construction company) being responsible for the project management and Party B (Ms. Li) being responsible for project construction, settlement with the employer, work coordination and financing. The profit or loss of the project shall be borne by Party B alone.”

In April 2008, Ms. Li entered the site for construction. Work of the first few months was conducted smoothly; however, starting from July 2008, the price of building materials surged up dramatically. For example, the bid price of the steel bar was about RMB 3,000 Yuan per ton, till July, the price increased to as high as RMB 6,800 Yuan per ton. Till the suspension of construction in December 2008, the actual cost of the project had reached to about RMB 30,000,000 Yuan. Although the employer had been allocating fund according to the project progress, the fund was far from enough. Ms. Li had to use her own money to cover the deficiency, totaling seven million. The construction had to be shut down in December 2008, when the project had been basically completed, with only winding up projects left, such as roads and greening.

During such period, Ms. Li had negotiated many times with the employer X and Y Construction Company to request price adjustment. On July 16, 2008, Y Construction Company issued a work contract list “to the employer X, listing the prices of some major building materials. At the end of November 2008, the construction party calculated the actual cost of the project, the actual cost price of this project is RMB 29,860,000 Yuan”. Y Construction Company thus requests the employer X to change the price of building materials specified in the original contract.

Considering the risks caused by abnormal price fluctuations of building materials, the Jinan Construction Committee issued [2008] No. 4 Document on April 30, 2008. According to the Document, with respect to projects that are completed after January 1, 2008 and contracted at a fixed cost, if both parties have not agreed upon the range of price risks of major building materials, such as steels, to be untaken by the contractor, and if the falling or rising range of prices of major building materials is within 5%, the price difference shall be borne or benefited by the contractor. If the falling or rising range of prices exceeds 5%, the price difference (the part in excess of 5%) “shall be borne or benefited by the employer if the construction contract does not include provisions concerning the coefficient of risks to be borne by the contractor.” Ms. Li claimed that the variation range stipulated by Jinan Construction Committee is just 5%, however, the price variation range in the second half of last year was far more than the figure. To carry out construction at a fixed cost is very risky, Ms. Li said she had considered the risks at the beginning and proposed to settle the project according to the market price. The person assigned by Y Construction Company to the site promised her that the settlement will be conducted based on the actual cost. But this is just an oral guarantee. Later the employer X agreed to adjust the price, but the price has not been adjusted.

Therefore, Ms. Li filed a lawsuit against X Company in Jinan, claiming for the money she advanced and the profits she deserves.

[Question]

1. How to differentiate the commercial risk and change of circumstance (principle of clausula rebus sic stantibus)?

2. Which kinds of remedies does the plaintiff have if the change of circumstance could be ascertained?

3. If this case happened in your jurisdiction, what would be the right decision? What are the substantial differences between your contract law and Chinese contract law in this matter?

[Requirements]

1. Please analyses this case based on the related provisions in Chinese Contract Law and the Interoperations. (Notice No. 165 [2009] of the Supreme People's Court on Correctly Applying the Interpretation II of Several Issues concerning the Contract Law of the People's Republic of China So As to Serve the Primary Objectives of the Party and the State (available at: http://en.pkulaw.cn/display.aspx?cgid=125761&lib=law) art. 26)

2. Please give your arguments in detail.

3. The paper should not be less than 4 pages.

The deadline for this final exam is January 10 2019. Please mail you final paper