In 2018, a large state-owned design institute signed a strategic co-operation agreement with a Hong Kong investment company to jointly develop a hydropower project in Nepal. The institute completed key survey and design work including both pre-feasibility and feasibility study, and passed third-party review.
However, following a strategic shift of the investor, the project was unilaterally suspended. Critically, the institute never signed a written survey and design contract with the Yunnan engineering company, the ultimate recipient and end user. By then, the institute had already booked more than RMB90 million (USD13 million) in output value and was facing internal group audit accountability.
Despite heavy losses, the legal department did not sue immediately for the following reasons:
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- Missing statutory formality. Under PRC law, a construction survey and design contract should be executed in writing, without which the legal department believed the fee claim lacked a clear basis;
- Offshore arbitration constraint. The MoU and joint development framework agreement with the Hong Kong company assigned disputes to offshore arbitration or the project’s local court, but the group required onshore litigation; and
- Cost bearing defence. The preliminary agreements stated that each party bears its own preliminary project costs, and the business team was concerned the payment conditions were unmet.
Multi-step breakthroughs
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Against these challenges, the design institute hesitated for three years and did not resolve to pursue a lawsuit until seeing litigation analysis conducted by the author’s team.
Rather than working within the existing contractual framework, the cause of action was rebuilt applying a deep, technically grounded review to dismantle each of the three obstacles in turn.
Identify the actual performing party and pin down the proper defendant. The team did not mechanically apply contractual privity. Instead, relying on article 490 of the Civil Code, an evidential chain was built around three questions: who offered?; who performed?; and who benefited?
The engineering company’s feasibility study engagement letter constituted an offer; the design institute’s pre-feasibility study, feasibility study report and drawings evidenced performance of the core obligations; and the engineering company’s organisation of expert review and requests for revisions evidenced an intention to accept performance.
The court ultimately held that, although no written contract was signed, the parties had formed a de facto construction survey and design contract relationship.
Turn the conflicting dispute resolution clauses into an argument for onshore litigation. The team first argued that the debt claim for survey and design fees was independent of the investment co-operation agreements and arose from a standalone contractual relationship created by the engineering company’s engagement letter.
It was then pointed out that jurisdiction clauses across the documents conflicted, ranging from offshore arbitration, CIETAC arbitration, and litigation in the defendant’s local courts.
In the absence of a definitive venue, article 24 of the Civil Procedure Law was relied upon to assert jurisdiction of the court at the defendant’s domicile or the place of contract performance.
As the engineering company was domiciled in Yunnan, and the main design work was completed in the Chinese mainland, the court was persuaded to accept PRC jurisdiction. This saved the client millions of US dollars in offshore arbitration costs and avoided the uncertainty of applying Nepalese law.
Quantifying the loss and shifting from a one-sided calculation to third-party affirmation. Survey and design fee calculation is highly technical. The claimant sought RMB110 million by reference to the repealed 2002 fee standard, which the defendant challenged on the basis that the standard was no longer valid, and the level of completion could not be verified.
The author’s team reviewed the Engineering Survey and Design Fee Standards and other industry rules, developing a detailed understanding of the investigation accuracy requirements and design depth benchmarks at the pre-feasibility and feasibility stages, and the relevant discipline breakdown.
Extensive primary materials including original exploration logs and hydrogeological reports were taken to the appraisal body, Chongqing Municipal Design Institute, to work through technical items with the experts – including structural stability assessment of the hub area and geological conditions for dam site comparison – on an item-by-item basis.
Drawing on a firm grasp of hydropower geological survey specifications, design labour hour standards and professional factor adjustments, the team persuaded the appraisal body to adopt an approach of “referencing the 2002 standard but adjusting to current market rates”.
The expert opinion ultimately confirmed that, based on the level of completion, total survey and design fees for the pre-feasibility and feasibility stages exceeded RMB65 million. The independent expert conclusion also effectively neutered any challenges to the credibility of a one-sided calculation.
In December 2025, Kunming Intermediate People’s Court at first instance upheld the design institute’s claim for more than RMB65 million in design fees.
Takeaways
This case confirms that complex cross-border engineering disputes can be turned around through finely calibrated legal reasoning.
Even where the absence of a signed contract appears to be an insurmountable statutory formality hurdle, a targeted litigation strategy with specialist research driving the judicial appraisal process can still reverse an unfavourable position.
For large state-owned enterprises, where “work first, contract later” has become an industry reality, only rigorous process management coupled with competent specialist work enables the leap from “impossible to sue” to an eventual win.
Resolving an overseas engineering dispute through domestic proceedings also offers a valuable reference for dispute resolution in China’s Belt and Road infrastructure projects.
For Chinese companies expanding overseas, legal risk control is not a single act of signing the contract, but dynamic management across the entire project lifecycle. In the early stages of overseas projects, there is often an emphasis on “intent” over substance leading to missing contracts, an emphasis on progress over record keeping leading to weak evidence, and an emphasis on entry over exit, leaving no basis for settlement.
It is advisable to ensure that the party performing the work, signing the contract and making payment is the same, and that milestone deliverables are promptly confirmed in writing.
Where arbitration is agreed, the institution, seat and governing law should be clearly specified, with preference given to a China-based arbitral institution and PRC law. As a fallback, retain connecting factors for court jurisdiction, such as the defendant’s domicile and the place of performance.
Cindy Ge is a senior partner at Hiways Law Firm. She can be contacted by phone at +86 21 5877 3177 *8867/+86 135 6438 0840 and by email at gxp@hiwayslaw.com
