This case involves a complex real estate cooperative development dispute concerning a local government resettlement housing project, with the core controversy focusing on the calculation of losses after the contract was deemed invalid. The case was under the jurisdiction of the court located in the place where the local government is situated. HongQiao ZhengHan represented the project investor and the engineering construction and management agent, while the opposing party, the project owner, was a local government platform company. The first-instance court only upheld the party’s claim for the return of the investment principal and determined that the local government platform company had suffered losses amounting to over 100 million yuan. Through rigorous and meticulous courtroom argumentation and detailed post-trial communications with the judges, HongQiao ZhengHan successfully persuaded the second-instance court to re-determine the losses, not only revoking the unfavorable first-instance judgment but also helping the client fully withdraw from the project led by the local government platform, recovering hundreds of millions of yuan in investment principal, interest and damages, thus achieving a complete reversal.
I. Basic Facts of the Case
The Appellant (Original Plaintiff), Company A (the project’s construction and management agent), entered into a real estate cooperative development agreement with the Appellee (Original Defendant), Company B (a local government platform company and the project owner), stipulating that Company A would invest in and construct a local resettlement housing project. During the project’s construction, a dispute arose between the two parties, and the agreement in question was ultimately characterized by the court as a construction project contract and deemed invalid in a separate effective judgment due to the project’s violation of the mandatory provisions of the Tendering and Bidding Law.
As the project could not proceed further, Company A had already incurred substantial upfront costs and faced huge losses. Accordingly, Company A filed a lawsuit with the court, demanding that Company B return Company A’s investment funds and compensate for losses arising from the occupancy of funds, as well as reimburse Company A for upfront investment cost losses. Company B, through a counterclaim, asserted that it had also suffered losses and demanded that Company A bear liability.
The first-instance court upheld Company A’s claim for the return of the investment principal but completely dismissed Company A’s request for losses arising from the occupancy of funds. Meanwhile, it included all expenses incurred by Company B using the investment funds provided by Company A as part of Company B’s losses, resulting in a final determination of Company B’s losses of up to over 100 million yuan, even though Company B’s counterclaim only sought more than 20 million yuan. Since the court’s judgment allocated and offset the losses of Company A and Company B in proportion to their respective faults, Company A was required to make additional payments to Company B for losses beyond the investment funds, placing Company A in an extremely unfavorable position.
II. Key Points and Difficulties
1. The opposing party had a government background, making litigation away from home extremely challenging
The opposing party, Company B, was a platform company backed by the local government, and the project involved a major local livelihood project (resettlement housing construction). Litigation was conducted in the local court, and an unfavorable judgment had already been issued in the first instance. Overturning the original findings on appeal faced enormous pressure from the opposing party’s “home-court advantage.”
2. The complexity of proving losses
As the investor, Company A had invested a large amount of upfront costs in the project, whereas Company B, as the owner, had actually invested very little in the project. The first-instance court mechanically applied the law, excluding a significant portion of Company A’s actually incurred expenses on the grounds of insufficient relevance of evidence, and instead recognized expenses that Company B had not even raised in its counterclaim as losses. Another major difficulty was how to construct a complete chain of evidence and logic in the second instance to reduce the opposing party’s loss amount and increase our client’s loss amount.
3. The fault game after the contract was deemed invalid
It was an established fact that the contract in question was deemed invalid due to a violation of the Tendering and Bidding Law. The difficulty lay in how to argue that Company A, as the investor and construction/management agent, was less at fault than Company B, as the owner, thereby reducing the proportion of fault liability borne by Company A.
III. Highlights of Representation
1. Detailed communication and professional argumentation reshaped the judges’ inner conviction
Faced with the opposing party with a government background, the acting lawyers persuaded the judges through multiple rounds of professional, detailed and well-organized communications both in court and after the trial to recognize that the court should not adjudicate beyond the claims or recognize losses exceeding the amount claimed in Company B’s counterclaim.
2. Visual charts clearly presenting the specific composition of losses
The legal team produced detailed visual charts that corresponded the complex project costs with thousands of pages of evidence, clearly presenting the name, amount, payment date, etc., of each expense, and strongly proved that Company A’s expenditures were directly related to the project and should be recognized as losses.
3. Precisely identifying the liable subject and reducing the proportion of fault liability
The legal team conducted in-depth legal research on the issue of liability for invalidity of a contract due to failure to tender when required, and provided a legal research report for the judges’ reference. During the trial, through rigorous logical deduction, the team clarified to the judges that Company B, as the employer and the government-backed party, held an absolutely dominant position in the project, and its “failure to tender when required” was the fundamental cause of the contract’s invalidity; Company A, as the bidder, had no right to decide on the tendering and bidding procedures and should not bear primary liability.
4. Arguing vigorously and persuading the court to uphold claims for losses arising from fund occupancy
Regarding the fund occupancy fees dismissed in the first instance, the acting lawyers cited the latest judicial interpretations to argue that even if the contract was invalid, losses arising from fund occupancy should still be compensated. Ultimately, the second-instance court upheld the fund occupancy interest calculated based on the Loan Prime Rate (LPR).
IV. Key Adjudication Points
1. Fault determination for an invalid contract
In a case involving the invalidity of a real estate development contract subject to mandatory tendering, the employer (tenderer) is obligated to organize the tendering and bidding process. Its failure to tender in accordance with the law leading to the contract’s invalidity shall bear primary fault liability.
2. Scope of compensation for losses
Compensation for reliance interest losses shall cover the necessary expenses incurred by the parties in performing the contract, including upfront start-up fees, management fees and project investments, and shall not be limited to the actual project construction cost. Meanwhile, the court’s determination of losses shall not exceed the scope of the claims raised in the plaintiff’s complaint or the defendant’s counterclaim.
3. Nature of fund occupancy fees
After a contract is deemed invalid, the compensated losses shall include interest losses during the period of fund occupancy.
V. Case Implications
This case is a typical example of disputes arising from social capital’s participation in local government infrastructure projects. For investors, it is essential to attach great importance to the compliance of tendering and bidding procedures in the early stages of a project; otherwise, once the contract is deemed invalid due to procedural violations, they will face huge risks in claiming compensation. At the same time, the second-instance reversal in this case also demonstrates that through the precise analysis of legal issues by professional lawyers, even when facing a powerful local government platform company, one can still protect their legitimate rights and interests through judicial channels. This case provides important reference significance for the liability settlement after the invalidity of contracts in similar “government-enterprise cooperation” projects.
