I. Interpretation of Article 43

Article 43 of the "Judicial Interpretation (I) on Construction Engineering Contracts" stipulates: "Where an actual constructor initiates a lawsuit against the subcontractor or illegal subcontractor, the people's court shall accept the case in accordance with the law. Where an actual constructor claims rights against the project owner by taking it as the defendant, the people's court shall add the subcontractor or illegal subcontractor as a third party in the case, and after ascertaining the amount of the construction project price owed by the project owner to the subcontractor or illegal subcontractor, render a judgment ordering the project owner to be liable to the actual constructor within the scope of the unpaid construction project price".

This clause aims to break through the relativity of contracts to protect the legitimate rights and interests of actual constructors, enabling them to directly claim rights against the project owner when the subcontractor or illegal subcontractor is negligent in exercising their rights. However, the clause itself does not clearly state whether the interest on the project price is included.

II. Nature of Interest on Construction Project Price

The interest on the construction project price is essentially statutory fruits arising from the project owner's failure to pay the construction project price in a timely manner.

From the perspective of contract law principles, when one party fails to perform its monetary payment obligation, it shall pay the principal plus corresponding interest to compensate the other party for the loss during the period when the funds are occupied. In a construction project contract, the payment of the project price is the main obligation of the project owner, and it is reasonable for interest to accrue if the payment is not made on time. The interest not only compensates the actual constructor for the capital cost, but also has a certain punitive nature, urging the project owner to fulfill the payment obligation in a timely manner.

III. Case Support

In the case of Civil Judgment (2021) ZuiGaoFa MinZhong No. 983 of the Supreme People's Court, Leng Li, Jiang Jiawen and Huang Jun, as the actual constructors by way of affiliation, claimed the project price and interest from the project owner Hechuan Chengtou Company in accordance with Article 43 of the "Judicial Interpretation on Construction Engineering Contracts".

After trial, the court held that the " unpaid project price " as stipulated in Paragraph 2 of Article 26 of the "Judicial Interpretation on Construction Engineering Contracts" (the current Article 43 of the "Judicial Interpretation (I) on Construction Engineering Contracts") shall include the reasonable interest arising from the unpaid project price. The standard of such reasonable interest shall be calculated in accordance with the benchmark lending rate of the same grade and term issued by the People's Bank of China. Finally, the court ruled that the project owner shall pay the project price and corresponding interest to the affiliated persons within the scope of the unpaid project price.

Similar cases also include (2020) ZuiGaoFa MinShen No. 3929 and (2020) MinMinZhong No. 1674 of the Higher People's Court of Fujian Province, etc.

IV. Conclusions and Suggestions

Although Article 43 of the "Judicial Interpretation (I) on Construction Engineering Contracts" does not explicitly stipulate whether the interest on the project price is included when an affiliated person claims the project price from the project owner, from a practical perspective, especially with reference to the relevant judicial precedents of the Supreme People's Court, most people's courts support including the interest on the construction project price in the scope of claims.

These authoritative and guiding judicial precedents fully consider the nature of the interest on the construction project price as statutory fruits and the application of the principle of fairness in handling disputes in the field of construction projects, aiming to comprehensively protect the legitimate rights and interests of actual constructors (affiliated persons) and compensate for the loss of fund occupation suffered by them due to the project owner's delayed payment.

This also provides clear guidance for all parties in the field of construction projects:

• For project owners, they shall strictly pay the construction project price and interest in accordance with the contract agreement, avoid initiating litigation due to overdue payment, and thus bear additional capital costs and legal risks;
• Subcontractors and illegal subcontractors must earnestly perform their contractual obligations, actively settle accounts with the project owner and claim their rights to prevent the legitimate rights and interests of actual constructors from being damaged due to their own negligence;
• Affiliated persons as actual constructors shall strengthen their awareness of evidence preservation during the construction process, and properly retain various types of evidence related to the project price and interest, so as to provide sufficient and powerful support when claiming their rights.

Against the background that the legal provisions are yet to be further refined, all parties involved in construction projects should further refine contract terms and strengthen communication and coordination to reduce disputes from the source and jointly maintain the healthy and orderly development of the construction project market.