Work Contract Dispute Overturned on Appeal, Design Institute Avoids 500,000 RMB in Losses! Shenzhen Contract Dispute Victory Case
Business owners all fear lawsuits, and even more so losing a case when they're clearly in the right. A Shanghai architectural design firm went through just such a rollercoaster: in the first instance, it was found to have breached its contract and ordered to pay over 260,000 yuan; in the second instance, it hired a lawyer from Shenzhen, overturned the ruling, paid not a single cent, and even recovered the fees the other party had owed.
Case review
Shanghai XX Design Institute accepted a commission from Shenzhen XX Investment Company to undertake the interior and exterior decoration design work for a real estate project in Shenzhen. The design scope includes construction drawings for concealed works such as plumbing, electrical, HVAC, and fire protection systems, with a total contract value of approximately 800,000 RMB.
After the design institute completed 60% of the total design work as agreed, Shenzhen Investment Company sued the design institute in court, citing "delayed performance of the contract" and "unauthorized transfer of the mechanical, electrical, and plumbing design to a third party," demanding the return of the paid design fee of 201,000 yuan, payment of liquidated damages of 292,500 yuan, and coverage of litigation costs. The court of first instance adopted the investment company's arguments and ruled that the design institute should return the design fee of 201,000 yuan, pay liquidated damages of 52,500 yuan, and bear the acceptance fee of 9,913 yuan, totaling over 260,000 yuan.
The head of the design institute was almost in despair upon receiving the judgment: "We worked hard and completed 60% of the work, yet we didn't get a single penny and instead have to pay 260,000 in compensation?"
Case handling process
After the design institute filed an appeal, it entrusted Jia Runlian, a lawyer from Guangdong Zhiming Law Firm, to represent it in the second-instance trial. The first thing Lawyer Jia did upon taking over the case was to request from the design institute all correspondence, payment records, and records of design deliverables.
After careful review, she uncovered the key to the case: the investment company had only paid the initial installment of 201,000 yuan. According to the contract, the second installment was due when the design progress reached 50%, but the investment company never paid it. The design institute had issued multiple written reminders, all of which were delayed by the other party citing "internal procedures." In other words, the investment company was the party that breached the contract first.
Regarding the "unauthorized transfer of design to others," Attorney Jia's investigation found that the design institute subcontracted specialized designs such as electrical, plumbing, and fire protection to professional agencies with the appropriate qualifications, which is a common practice in the industry, and the contract did not explicitly prohibit subcontracting. More importantly, all subcontracted deliverables were reviewed and stamped by the design institute before delivery, with the design institute retaining responsibility, and there was no circumstance that harmed the investment company's interests.
During the second-instance trial, Attorney Jia submitted three sets of key evidence: design progress confirmation forms (signed and acknowledged by the investment company, confirming 60% completion), demand letters and courier receipts (proving the investment company's arrears on the second installment), and qualification certificates and cooperation agreements of subcontracting institutions (proving the legality and compliance of the subcontracting). Meanwhile, Attorney Jia pointed out two errors in the first-instance judgment in court: first, it failed to ascertain the fact that the investment company had breached the contract first; second, the determination of "delayed performance" lacked contractual basis—the design institute had repeatedly urged payment, but the investment company refused to pay, and per the contract, the design institute was entitled to extend the construction period, which did not constitute delayed performance.
Legal Analysis
This case involves the core rules of a work contract, with the main legal bases being:
First, Article 770 of the Civil Code: A work contract is a contract under which the contractor, in accordance with the requirements of the client, completes the work and delivers the work product, and the client pays remuneration. Payment of remuneration by the client is a fundamental obligation. If the client fails to pay remuneration as agreed, the contractor may refuse to deliver the work product or claim an extension of the performance period.
Second, Article 526 of the Civil Code concerning the defense right of prior performance: where the parties owe debts to each other and there is a sequence of performance, if the party obligated to perform first has not performed, the party obligated to perform later has the right to refuse the other party's request for performance. In this case, the contract explicitly stipulates that "the second installment shall be paid when the design progress reaches 50%." Since the investment company failed to fulfill its payment obligation first, the design firm is entitled to postpone subsequent design progress, which does not constitute a breach of contract.
Third, the rules on burden of proof. Pursuant to Article 67 of the Civil Procedure Law and Article 90 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law, the party asserting the modification, rescission, termination, or revocation of a contractual relationship bears the burden of proof with respect to the facts of the change in the contractual relationship. The investment company, asserting that the design institute was "delayed in performance" and "subcontracted without authorization," should bear the burden of proof for such assertions, but the evidence it submitted fails to establish the existence of the aforementioned facts.
Judgment Result
In the second instance, the court (Shenzhen Intermediate People's Court), after trial, fully adopted the arguments presented by attorney Jia Runlian, determined that Shenzhen XX Investment Company had breached the contract first, overturned the first-instance judgment, and instead ruled that the investment company pay the design institute the outstanding design fees and corresponding interest, while dismissing all of its claims.
This case went from a first-instance award of 260,000 yuan in damages to a complete victory on appeal, where the design institute not only avoided losses of over 500,000 yuan but also recovered the compensation it was rightfully owed. After the judgment took effect, the head of the design institute flew all the way from Shanghai to Shenzhen to express gratitude, saying: "If you hadn't scrutinized every piece of evidence so meticulously, we would have had to accept defeat in this lawsuit." The adjudication principles of this case have also been cited as reference by some courts in similar work contract disputes.
Case Notes
Lawyer Jia Runlian shared this case with the team, saying: "In contract disputes over work, 'who breached first' is often the deciding factor. Many clients only focus on the grievances of doing the work, but overlook the importance of preserving evidence of the other party's breach."
Here are a few suggestions for business operators: First, during contract performance, all progress confirmations and payment reminders should preferably be in writing (emails, letters, or WeChat chat records are all acceptable), and keep proof of receipt. Second, when the other party delays payment, issue a written reminder promptly and clearly state that "failure to pay by the deadline will result in a postponement of the performance period," making use of the defense of sequential performance. Third, subcontracting or assignment of work must be clearly stipulated in the contract, or obtain the other party's written consent in advance, to avoid being blamed later. Fourth, do not give up lightly after losing in the first instance; the rate of reversal on appeal in civil and commercial cases is not low. The key is to find new evidence or a legal breakthrough.
If you are facing a contract dispute, a Shenzhen contract dispute lawyer can help you analyze the contract terms, sort out the performance history, and evaluate litigation strategies. Not an inch of the interests you deserve should be conceded.
Let me add some industry background here: subcontracting in the design industry is almost an open secret. A large-scale decorative design project typically involves multiple disciplines such as architecture, structure, plumbing and electrical, HVAC, and fire protection. No design institute can independently complete all the design work for every discipline, and entrusting qualified professional institutions to subcontract is a common industry practice. The former Ministry of Construction's "Regulations on the Depth of Compilation of Construction Engineering Design Documents" also recognizes design units' lawful subcontracting of professional design services. Therefore, "subcontracting" itself is not the issue; the real issues are whether the subcontracting has been approved by the client, whether the quality of the deliverables is up to standard, and whether responsibilities are clearly defined.
The ruling in this case carries considerable representative significance for the design industry. In many contract disputes involving work-for-hire agreements, the client often employs a strategy of "delaying payment—counterclaiming breach of contract" to put the contractor at a disadvantage. However, the adjudicative approach established in this case—whereby if the party obligated to pay first fails to fulfill its obligation, the party obligated to perform subsequently has the right to postpone its performance deadline without constituting a breach—provides a reference for similar cases. This is also why the judgment in this case has been cited by some courts when adjudicating cases of the same nature.
Attorney Jia later often used this case in corporate legal training to illustrate a point: "A contract isn't something you sign and then lock away in a cabinet. Every demand notice, every receipt, every email during performance is preparation for future disputes. You may think you're in the right, but the court only recognizes evidence."
