Guo Jinhui, senior partner of Gaopeng Law Firm, was entrusted by the legal team during the second trial stage to act as an agent for clients who lost the first trial. Recently, the case obtained a second instance revised judgment from a certain intermediate court in Inner Mongolia. Guo Jinhui's team of lawyers helped the client successfully reverse the verdict, reducing the client's losses by about 136 million yuan and gaining high recognition and gratitude from the client.

1、 Background of the Case and Controversy Focus

This case is a contract dispute arising from the "Three Supplies and One Industry" project. "Three Supplies and One Industry" refers to the separation of social functions such as water supply, power supply, heating (gas supply), and property management in the residential areas of employees by state-owned enterprises in accordance with the policy requirements of the State Council, and the transfer to professional companies for management services. In this case, the client (appellant) is the receiving company of "three supplies and one business", and the counterparty (respondent) is the transferring company of "three supplies and one business". The customer and the counterparty have signed a separation and transfer agreement for water supply, heating, and property management. The agreement stipulates that the counterparty will transfer the functions and assets of water supply, heating, and property management in the employee's family area to the customer. The customer will organize a bidding process to determine the design, construction, and supervision units, and manage the construction units to repair and transform the water supply, heating, and property equipment and facilities in the employee's family area, ensuring that the maintenance quality meets the technical requirements and relevant standards for the separation and transfer of "three supplies and one industry" in the country and project location. The maintenance and renovation costs will be paid by the counterparty to the customer, who will then pay the design, construction, and supervision units. The customer only collects project construction management fees.

The agreement signed by both parties stipulates that design changes and visas should not occur during the maintenance and renovation process. If they must occur, the customer needs to submit a necessity statement, construction plan, and budget to the counterparty for approval before implementation. Design changes and visa engineering acceptance need to be confirmed by the counterparty.

However, during the implementation of the maintenance and renovation project, due to the outdated information on which the design drawings are based, there are multiple discrepancies between the design drawings and the actual situation, and the construction unit cannot fully follow the design drawings for construction. Therefore, the client and the counterparty have held multiple meetings to discuss the actual construction plan and form meeting minutes. The counterparty agreed to the changes and additions needed based on the design drawings during the meetings. However, due to various reasons, the client did not submit a written explanation of the necessity of the changes, construction plan, and budget as agreed in the aforementioned agreement for approval by the counterparty. Additionally, some of the projects in the design drawings were reduced, and some projects were not actually constructed. Regarding the maintenance and renovation costs, the counterparty has paid a total of approximately 327 million yuan to the customer based on the progress payment application materials submitted by the customer.

There is a dispute between the customer and the counterparty regarding the cost of maintenance and renovation. The focus of the dispute is whether the customer should refund the counterparty the corresponding project funds for changes or additional maintenance and renovation projects that have not been confirmed in writing by the counterparty. The other party claims that according to the contract, they should only pay the customer for the maintenance and renovation projects within the scope of the design drawings and confirmed in writing by the other party. For maintenance and renovation projects that are added or changed without written confirmation from the client, if the customer fails to submit relevant materials to the other party as agreed in the contract and confirmed in writing by the other party, the corresponding project funds should be refunded by the customer. The customer claims that although the relevant materials for the modified and added maintenance and renovation projects were not submitted to the other party as agreed in the contract and confirmed in writing by the other party, the other party had agreed to carry out the construction during the meeting and there were meeting minutes to prove the above facts. At the first instance stage of this case, both the counterparty and the client applied to the first instance court for an appraisal of the cost of the "three supplies and one industry" maintenance and renovation project involved in the case. The appraisal conclusion was that the total cost of the project was approximately 318 million yuan, with a confirmed cost of approximately 182 million yuan and an unconfirmed cost of approximately 136 million yuan.

The first instance judgment, based on the fact that the client did not obtain the written consent of the other party in accordance with the agreement when the construction content was changed in this case, and this part of the project did not have legal effect on the other party, held that the engineering costs corresponding to this part of the project should not be borne by the other party. The judgment ruled that the client should return the overpaid engineering fees of about 144 million yuan to the other party.

2、 Agency Strategy: Ten day Rapid Review and Multi dimensional Trial Tackle

After losing the first instance, the client changed their legal representative and entrusted a team of lawyers, including Gao Peng and Guo Jinhui, to represent them in the second instance of this case. The team of lawyers took on the task of comprehensively reviewing and analyzing thousands of pages of case files, meeting minutes between the client and the opposing party, and the first instance judgment within less than ten days. They also conducted thorough research on the legal issues involved and collected relevant reference cases. On this basis, we formulated an appeal strategy and a second instance strategy, proposed targeted reasons for appeal, and drafted an appeal complaint for the client.

In the second trial, the lawyer team of Guo Jinhui made sufficient preparations and elaborated on the appeal request and dispute focus from multiple perspectives such as procedure, facts, evidence, legal application, and social effects of the case.

3、 The core of the second instance revision: a breakthrough in the judgment from "written confirmation" to "substantive performance"

In the end, the judgment of the second instance court almost entirely adopted the agency opinion of Guo Jinhui's legal team. The judgment stated that: (1) the cost bearing subject of the maintenance and renovation project is the counterparty; (2) The counterparty acknowledges that it has already paid approximately 327 million yuan for the project, which is basically consistent with the total project cost stated in the appraisal opinion and within the budget range. Moreover, the counterparty has no evidence to prove that the customer needs to follow relevant procedures when making payment, indicating that the counterparty acknowledges the increase or change in project cost without its written confirmation; (3) The increased or changed engineering clients and counterparties have been recorded in multiple meetings, and the counterparties should be aware of it. However, no evidence has been provided to prove that this part of the project has quality problems or is an unnecessary construction project; (4) The increase or change in the project without written confirmation from the other party objectively exists, and the cost has been confirmed through appraisal. It is inappropriate for the first instance judgment to order the customer to return this part of the project funds solely on the grounds of lack of written confirmation from the other party. In summary, the second instance judgment has been revised to require the client to return the excess amount of approximately 8.76 million yuan between the engineering funds already paid by the counterparty and the total engineering cost in the appraisal opinion (note: this amount is the extra engineering funds paid by the counterparty beyond the actual engineering cost). The 136 million yuan engineering cost that the client needs to return without the written consent of the counterparty in the first instance judgment does not need to be returned to the counterparty.

4、 Social Value and Judicial Reference

Our client is a service-oriented light asset property company with net assets of less than RMB 10 million. If the first instance judgment is upheld in the second instance, the client will be directly trapped in the dilemma of insolvency and face bankruptcy, which will result in the inability to continue providing property, water supply, heating and other services in hundreds of "three supplies and one industry" communities across the country that they are currently taking over. This will affect the normal lives of tens of thousands of residents and lead to the unemployment of hundreds of employees of the client. The revised verdict of the second instance helps clients avoid falling into the aforementioned predicament.

At the same time, in judicial practice, there are very few cases involving disputes over maintenance and renovation project funds for the "three supplies and one industry", and there is no consensus on the nature of the legal relationship of the separation and transfer agreement for the "three supplies and one industry". Currently, there are no relevant judicial interpretations related to disputes over the "three supplies and one industry". The second instance judgment of this case has certain reference significance for the handling of disputes related to the "three supplies and one industry" project.