By Zhao Xianlong, Lin Jia, Zhang Mo King & Wood Mallesons’ Dispute Resolution group

zhao_xianlongA joint real estate development project usually involves two legal relationships: (1) a joint development agreement between the party who contributes the land use right (the “land owner”) and the party who finances the development (the “financier”); (2) a construction contract between the developer (usually the financier) and the contractor. In practice, the land owner is usually not a party to the construction contract and is not involved with the construction. However, if the developer defaults on its payments to the contractor, the contractor often sues both the developer and the land owner, holding the land owner jointly and severally liable. The admissibility of such a claim is determined by the court. The outcome will depend on whether the court applies the doctrine of privity to the construction contract.

In a case on which we advised recently, the courts of first and second instance broadened the doctrine of privity and ruled in favour of the contractor. There was no clear legal basis for this decision.

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