An Appellate Case on the Interpretation of ‘Witness Party’ to a Contract

source：　 date：2014-05-01　 author：

[Key Point]

When interpreting a contract term or word, in addition to following the basic linguistic rules, value judgment of fairness and justice shall also be considered based on the ascertained facts, because language is the fundamental tool of legal practice.

[Basic Fact]

Group R was the employer of a hotel construction project, and designated the general contractor, Constructor J, to subcontract the decoration & fit-out works of the project to Company K. Accordingly, Constructor J concluded the Subcontract Agreement with Company K to which the Group R signed and chopped as the ‘Witness Party’. The Subcontract Agreement says in Article 4 that if the Project wins the Award of National Excellent Decoration Projects, the employer will pay the subcontractor a sum of RMB 600 thousand as bonus. While in Article 10 it says that the owner signs onto the Subcontract Agreement as witness party, and does not change the nature of the Subcontract Agreement, and does not give the subcontractor the right to claim any right against the employer.

After completion the Project won the Award of National Excellent Decoration Projects of Year 2009, but Group R refused to pay the bonus money to Company K, instead, Group R claimed that the bonus should be paid by the general contractor Constructor J. Company K brought Group R to court to claim the bonus. The first-instance court rejected the claims for the reason that there is no privity of contract between Company K and Group R. Company K hired us to represent it in the appellate proceeding.

[Dispute of the case]

Whether the Subcontract Agreement is binding upon Group R?

[Our Opinion]

Company K’s claim was based on the term of the Subcontract Agreement that if the Project wins the Award of National Excellent Decoration Projects, the employer will pay the subcontractor a sum of RMB 600 thousand as bonus. We were faced with some obstructs when claiming such term is binding upon Group R. Firstly, by appearance the parties to the Subcontract Agreement are Constructor J and Company K, while Group R signed as the witness party only. Secondly, there was another article (Article 11) to the completely opposite meaning, which says the signing by the employer does not change the nature of subcontracting and does not give the subcontractor the right to claim any right against the employer. These two contract terms are contradictory to each other. Our goal is to persuade the court to uphold the one in our favor and deny the other one adversary to us. We gave our opinion that the contract term on which we base our claims is the reflection of the true intent and meeting of minds of the parties. While the Article 11 was the tool of Group R to evade contract duties rather than the true intent of the parties.

Firstly, we analysed the Subcontract Agreement article by article and found that more than ten articles were about the rights and duties between Group R and Company J, which all gave rights to Group R and duties to Company K except for the Article 4 about the bonus money. It does not make sense if Group R is not a contract party.

Secondly, Constructor J testified to the court about the course of dealing. The decoration project was designed by Group R to be subcontracted to Company K, and the text of the Subcontract Agreement was prepared by Group R. This means the rights and duties in the Agreement was the true intention of Group R. True intention should be ultimate goal of contract interpretation. The exact wording is just an appearance and shall not be the main reason for the court to reach conclusion.

Lastly, we also elaborated that if the first-instance judgment were upheld, the plaintiff Company K would have no legal means to protect its rights, because the Agreement says it is the duty of Group R to pay the bonus while the first-instance judgment decided the Agreement was made between Company K and Constructor J. Since Company K already performed all of its duties under the Agreement, it would be unfair if Company K cannot get paid the bonus money.

[Judgment]

The court supported our opinion that Article 4 of the Agreement states that Group R as the employer of the project has certain duty if the pre-condition is satisfied, and since Group R signed and chopped on the Agreement as witness party, Group R must know and consent to such Article, and therefore, Group R shall be bound by such article.