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Copyright 2016 by Stanford University
The Fuzhou Wuyi Sub-Branch of Fujian Haixia Bank Co., Ltd.
v.
Changle Yaxin Sewage Treatment Co., Ltd. and
Fuzhou Municipal Administration and Engineering Co., Ltd.,
A Dispute over a Financial Borrowing Contract
Guiding Case No. 53
(Discussed and Passed by the Adjudication Committee of the Supreme People’s Court
Released on November 19, 2015)
CHINA GUIDING CASES PROJECT
English Guiding Case (EGC53)
October 28, 2016 Edition∗
∗
The citation of this translation of the Guiding Case is:《福建海峡银行股份有限公司福州五一支行诉长
乐亚新污水处理有限公司、福州市政工程有限公司金融借款合同纠纷案》 (The Fuzhou Wuyi Sub-Branch of
Fujian Haixia Bank Co., Ltd. v. Changle Yaxin Sewage Treatment Co., Ltd. and Fuzhou Municipal Administration
Engineering Co., Ltd., A Dispute over a Financial Borrowing Contract), STANFORD LAW SCHOOL CHINA GUIDING
CASES PROJECT, English Guiding Case (EGC53), Oct. 28, 2016 Edition, http://cgc.law.stanford.edu/guiding-
cases/guiding-case-53. The original, Chinese version of this case is available at 《 中 国 法 院 网 》
(WWW.CHINACOURT.ORG), http://www.chinacourt.org/article/detail/2015/11/id/1756741.shtml. See also 《最高人
民法院关于发布第 11批指导性案例的通知》 (The Supreme People’s Court’s Notice Concerning the Release of
the 11th
Batch of Guiding Cases), Nov. 19, 2015, http://www.chinacourt.org/article/detail/2015/11/id/1756734.shtml.
This document was primarily prepared by Nathan Harpainter, Sean Webb, and Dr. Mei Gechlik; it was
finalized by Dimitri Phillips and Dr. Mei Gechlik. We thank Yeshu Yang for her research assistance. Minor editing,
such as splitting long paragraphs, adding a few words included in square brackets, and boldfacing the headings, was
done to make the piece more comprehensible to readers; all footnotes, unless otherwise noted, have been added by
the China Guiding Cases Project. The following text is otherwise a direct translation of the original text released by
the Supreme People’s Court.
2016.10.28 Edition
Copyright 2016 by Stanford University
2
Keywords
Civil Financial Borrowing Contract Pledge of the Right to Proceeds
Registration of a Pledge Realization of Pledge Rights
Main Points of the Adjudication
1. The right to proceeds [associated with] a concession right to operate [a project]
may be pledged and may be treated as an account receivable in the registration of the pledge.
2. Given the nature of the right to proceeds [associated with] a concession right to
operate [a project], it is not appropriate to convert [the right to proceeds] into money, auction it
off, or sell it off. Where the pledgee alleges that he1 has priority for payment, a people’s court
may order the debtor who has pledged [his] debt claims to pay the pledgee in priority out of the
account receivable [reflecting] the right to proceeds.
Related Legal Rule(s)
Article 208, Article 223, and Article 228, Paragraph 1 of the Property Law of the
People’s Republic of China2
Basic Facts of the Case
The Fuzhou Wuyi Sub-Branch of Fujian Haixia Bank Co., Ltd.3 (hereinafter referred to
as “Haixia Bank Wuyi Sub-Branch”), the plaintiff, claimed: After the plaintiff and defendant
Changle Yaxin Sewage Treatment Co., Ltd.4
(hereinafter referred to as “Changle Yaxin
Company”) signed a [certain] Entity Borrowing Contract,5 [the former] loaned RMB 30 million
to [the latter]. Defendant Fuzhou Municipal Administration and Engineering Co., Ltd.6
1 The terms “he” and “his” as used herein are gender-neutral terms that may refer to “she” and “her” or “it
and “its”. 2 《中华人民共和国物权法》(Property Law of the People’s Republic of China), passed and issued on
Mar. 16, 2007, effective as of Oct. 1, 2007, http://www.gov.cn/flfg/2007-03/19/content_554452.htm. 3 The name “福建海峡银行股份有限公司” is translated here as “Fujian Haixia Bank Co., Ltd.” in accordance
with the translation used on the company’s website, at http://www.fjhxbank.com/index.php?do=news&ntid=10&id=417. 4 The name “长乐亚新污水处理有限公司” is translated here literally as “Changle Yaxin Sewage Treatment
Co., Ltd.” 5 The original text reads “单位借款合同” (“Entity Borrowing Contract”). For details about this contract, see
infra text accompanying notes 8 and 9. 6 The name “福州市政工程有限公司” is translated here literally as “Fuzhou Municipal Adminisration and
Engineering Co., Ltd.”
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3
(hereinafter referred to as “Fuzhou Municipal Administration Company”) provided a surety7
with joint and several liability for the aforementioned borrowed amount. The four parties,
[namely,] plaintiff Haixia Bank Wuyi Sub-Branch, defendants Changle Yaxin Company and
Fuzhou Municipal Administration Company, and the Construction Bureau of Changle
Municipality, which was a party external to the case, signed a [certain] Guarantee Agreement for
the Pledge of the Concession Right to Operate. [According to this agreement,] Fuzhou
Municipal Administration Company provided a guarantee by pledging the concession right to
operate Changle Municipality’s sewage treatment project.
Because Changle Yaxin Company could not repay the principal and interest of the loan
according to the schedule, [the plaintiff] sued and requested [that the court] order:
[1] Changle Yaxin Company to repay the plaintiff the principal and interest of the
borrowed amount;
[2] that the legality and validity of the Guarantee Agreement for the Pledge of the
Concession Right to Operate and the plaintiff’s priority for payment [when] the
pledged item listed on the agreement was auctioned or sold off [were] confirmed;
[3] the use, in priority to settle all of the amounts that should be repaid to the plaintiff, of
the sewage treatment service fees paid to the two defendants by the Construction
Bureau of Changle Municipality; [and]
[4] Fuzhou Municipal Company to bear joint and several liability for the clearance of
debts.
Defendants Changle Yaxin Company and Fuzhou Municipal Administration Company
defended their positions, claiming: The concession right to operate the Urban Sewage Treatment
Plant of Changle Municipality was not a statutory right that could be pledged. In addition, the
pledge of the concession right to operate had not been registered. Therefore, the plaintiff’s
litigation request for auctioning and selling off the concession right to operate the Urban Sewage
Treatment Plant of Changle Municipality had no legal basis.
The court handled the case and ascertained:8 In 2003, the three parties, [namely,] the
Construction Bureau of Changle Municipality as the transferor, Fuzhou Municipal
Administration Company as the transferee, and the Finance Bureau of Changle Municipality as
the witnessing party, signed a [certain] Concession Contract for the Construction and Operation
7 The original text reads “保证” (“surety”), which, in China’s law concerning guarantees, is defined as a type
of guarantee. See 《中华人民共和国担保法》(Guarantee Law of the People’s Republic of China), Articles 6–32,
passed and issued on June 30, 1995, effective as of Oct. 1, 1995, http://www.npc.gov.cn/wxzl/wxzl/2000-
12/05/content_4645.htm. 8 The original text does not specify which court is referred to here. It is likely meant to be the first-instance
court of this case, namely, the Intermediate People’s Court of Fuzhou Municipality, Fujian Province.
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4
of the Urban Sewage Treatment Plant of Changle Municipality, stipulating: the Construction
Bureau of Changle Municipality conferred to Fuzhou Municipal Administration Company the
concession rights to be in charge of the investment, construction, operation, and maintenance of
the Urban Sewage Treatment Plant of Changle Municipality project and its associated facilities.
[The contract] stipulated details concerning the rights and obligations of the two parties to the
contract [i.e., the transferor and the transferee]. On October 22, 2004, Changle Yaxin Company
was established. The company was a project company established by Fuzhou Municipal
Administration Company for the performance of the Concession Contract for the Construction
and Operation of the Urban Sewage Treatment Plant of Changle Municipality.
On March 24, 2005, the Wuyi Sub-Branch of Fuzhou City Commercial Bank9 and
Changle Yaxin Company signed the Entity Borrowing Contract, stipulating: Changle Yaxin
Company borrowed RMB 30 million from the Wuyi Sub-Branch of Fuzhou City Commercial
Bank; the borrowed amount was to be used for the Urban Sewage Treatment Plant of Changle
Municipality BOT10
project; the time limit for the borrowed amount was 13 years, beginning on
March 25, 2005 [and ending on] March 25, 2018. [The two parties] also made clear stipulations
on the method of calculating interest and interest on overdue [payments]. Fuzhou Municipal
Administration Company [provided] a surety, bearing joint and several liability for Changle
Yaxin Company’s aforementioned borrowed amount.
On the same day, the Wuyi Sub-Branch of Fuzhou City Commercial Bank, Changle
Yaxin Company, Fuzhou Municipal Administration Company, and the Construction Bureau of
Changle Municipality jointly signed the Guarantee Agreement for the Pledge of the Concession
Right to Operate, stipulating: Fuzhou Municipal Administration Company provided a guarantee
for Changle Yaxin Company’s borrowed amount from the Wuyi Sub-Branch of Fuzhou City
Commercial Bank by pledging the concession right to operate conferred by the Concession
Agreement for the Construction and Operation of the Urban Sewage Treatment Plant of Changle
Municipality.11
The Construction Bureau of Changle Municipality agreed to the guarantee.
Fuzhou Municipal Administration Company agreed to use, in priority, the proceeds from the
concession right to operate [the project] for clearing Changle Yaxin Company’s debts listed
9 The name “福州市商业银行” is translated here as “Fuzhou City Commercial Bank” in accordance with the
translation used on the bank’s website, at http://www.fjhxbank.com/index.php?do=news&ntid=12&id=277. 10
The original, Chinese text reads “BOT”, which means “Build-Operate-Transfer”. A BOT project usually
involves a public-private partnership in which a private company agrees to build public infrastructure and, in return,
is granted the right to operate the infrastructure for a period of time and the right to proceeds from the infrastructure
so as to recover the cost of the project. At the end of this concession period, the private company transfers the
infrastructure to the government. For more discussion of the topic, see, e.g., World Bank, Concessions, Build-
Operate-Transfer (BOT) and Design-Build-Operate (DBO) Projects, http://ppp.worldbank.org/public-private-
partnership/agreements/concessions-bots-dbos#BOT_projects. 11
The original text reads “《长乐市城区污水处理厂特许建设经营协议》” (“Concession Agreement for
the Construction and Operation of the Urban Sewage Treatment Plant of Changle Municipality”), which is likely
meant to be “《长乐市城区污水处理厂特许建设经营合同》” (“Concession Contract for the Construction and
Operation of the Urban Sewage Treatment Plant of Changle Municipality”), as mentioned earlier in the Guiding
Case.
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5
under the borrowing contract. The Construction Bureau of Changle Municipality and Fuzhou
Municipal Administration Company agreed to use sewage treatment fees in priority for clearing
Changle Yaxin Company’s debts listed under the borrowing contract. [The parties also agreed
that] where [debts owed to] the Wuyi Sub-Branch of Fuzhou City Commercial Bank were still
not cleared, [the Sub-Branch] had the right to realize, in accordance with law, [its] pledge rights
by various methods, including auctioning off [the rights].
After the aforementioned contract was signed, the Wuyi Sub-Branch of Fuzhou City
Commercial Bank released, in accordance with the contract, a loan of RMB 30 million to
Changle Yaxin Company. Beginning on October 21, 2007, Changle Yaxin Company did not
repay the full amount of principal and interest according to the schedule in the contract.
[The court] also ascertained that the Wuyi Sub-Branch of Fuzhou City Commercial Bank
was renamed the Wuyi Sub-Branch of Fuzhou City Commercial Bank Co., Ltd. on April 28,
2007 and then further renamed the Wuyi Sub-Branch of Fujian Haixia Bank Co., Ltd.12
on
December 1, 2009.
Results of the Adjudication
On May 16, 2013, the Intermediate People’s Court of Fuzhou Municipality, Fujian
Province, rendered the (2012) Rong Min Chu Zi No. 661 Civil Judgment:
1. Changle Yaxin Sewage Treatment Co., Ltd. should, within ten days of the judgment’s
coming into effect,13
repay the Fuzhou Wuyi Sub-Branch of Fujian Haixia Bank Co.,
Ltd. RMB 28,714,764.43, as principal of the borrowed amount, plus interest (RMB
2,142,597.60, as tentatively calculated up to August 21, 2012; afterwards, the interest
is to be calculated in accordance with the stipulations of the Entity Borrowing
Contract until the principal and interest of the borrowed amount are all repaid).
12
The original text reads “福建海峡银行股份有限公司五一支行” (“The Wuyi Sub-Branch of Fujian Haixia
Bank Co., Ltd.”), which is likely meant to be “福建海峡银行股份有限公司福州五一支行” (“The Fuzhou Wuyi
Sub-Branch of Fujian Haixia Bank Co., Ltd.”) (emphasis added), the name of the plaintiff in the Guiding Case. 13
The original text reads “判决生效” (“the judgment’s coming into effect”). According to Article 155 of the
Civil Procedure Law of the People’s Republic of China, judgments and rulings that have come into effect are
judgments and rulings of the Supreme People’s Court as well as judgments and rulings which, according to law,
may not be appealed or which have not been appealed within the prescribed time limit. See 《中华人民共和国民
事诉讼法》 (Civil Procedure Law of the People’s Republic of China), passed, issued on, and effective as of Apr. 9,
1991, amended two times, most recently on Aug. 31, 2012, effective as of Jan. 1, 2013,
http://www.gov.cn/flfg/2012-09/01/content_2214662.htm.
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6
2. Changle Yaxin Sewage Treatment Co., Ltd. should, within ten days of the judgment’s
coming into effect, pay the Fuzhou Wuyi Sub-Branch of Fujian Haixia Bank Co., Ltd.
lawyers’ fees of RMB 123,640.
3. The Fuzhou Wuyi Sub-Branch of Fujian Haixia Bank Co., Ltd. is, immediately from
the day the judgment comes into effect, to have the right to collect directly from the
Construction Bureau of Changle Municipality the sewage treatment service fees that
should be paid to Changle Yaxin Sewage Treatment Co., Ltd. and Fuzhou Municipal
Administration and Engineering Co., Ltd. by the Construction Bureau of Changle
Municipality and exercise priority for payment [using] the sewage treatment service
fees [for clearing] the debts confirmed by the first and second items of this judgment.
4. Fuzhou Municipal Administration and Engineering Co., Ltd. is to bear joint and
several liability for the clearance of the debts confirmed by the first and second items
of this judgment.
5. [The court] rejects the other litigation requests of the Fuzhou Wuyi Sub-Branch of
Fujian Haixia Bank Co., Ltd.
After the judgment was pronounced, the two defendants appealed. On September 17, 2013, the
Higher People’s Court of Fujian Province rendered the (2013) Min Min Zhong Zi No. 870 Civil
Judgment, rejecting the appeal and upholding the original judgment.
Reasons for the Adjudication
In the effective judgment, the court opined: 14
[The fact that] defendant Changle Yaxin
Company did not repay the plaintiff the principal and interest of the borrowed amount in
accordance with the contract constituted a breach of contract. [Changle Yaxin Company] should
repay the plaintiff the principal of the borrowed amount as well as pay interest and the fees for
realizing the debt claims. As the party providing a surety with joint and several liability, Fuzhou
Municipal Administration Company should bear joint and several liability for the clearance of
the debts in dispute. The focal points of the dispute in this case were primarily the issues of
whether the pledge of the concession right to operate the sewage treatment project was valid and
of how to realize the pledge right.
1. On the issue of whether the concession right to operate the sewage treatment project
could be pledged
The concession right to operate a sewage treatment project is the right to operate and
maintain the sewage treatment plant and to obtain the corresponding proceeds. The operation
14
The original text does not specify which court opined. Given the context, this should be the Higher
People’s Court of Fujian Province.
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7
and maintenance of a sewage treatment plant is an obligation of the business operator, whereas
the right to proceeds is a right of the business operator. The operation and maintenance of a
sewage treatment plant are not transferrable property rights. Therefore, the pledge of the
concession right to operate the sewage treatment project in dispute was substantively the pledge
of the right to the proceeds of the sewage treatment project.
On the issue of whether the right to proceeds [associated with] the concession right to
operate a project such as a sewage treatment project could be pledged, the following aspects
should be considered: first, in this case, the Guarantee Agreement for the Pledge of the
Concession Right to Operate of the sewage treatment project in dispute was signed in 2005. The
laws, administrative regulations, and related judicial interpretations at that time did not provide
for the pledging of the right to proceeds from a sewage treatment project. However, the right to
proceeds from a sewage treatment project and the right to proceeds from a highway are similar in
nature. Article 97 of the Interpretation of the Supreme People’s Court on Several Issues
Concerning the Application of the “Guarantee Law of the People’s Republic of China”15
provides:
A pledge of a right to proceeds from immovable property, including highway
bridges, highway tunnels, or highway ferries, shall be handled in accordance with
Article 75, Item (4) of the Guarantee Law.
[Article 97] clarifies that a right to proceeds from a highway is [one of] the [“]other rights that
can be pledged in accordance with law[” stated in Article 75 Item (4) of the Guarantee Law].16
[Thus,] a right to proceeds from a sewage treatment [plant], which is similar to [a right to
proceeds from a highway], should also be allowed to be pledged.
Second, [the document titled] The Western Development Office of the State Council’s
“Implementation Opinions on Several Policies and Measures Concerning the Grand
Development of Western Regions”,17
which was forwarded by the General Office of the State
15
《最高人民法院关于适用〈中华人民共和国担保法〉若干问题的解释》(Interpretation of the Supreme
People’s Court on Several Issues Concerning the Application of the “Guarantee Law of the People’s Republic of
China”), passed by the Adjudication Committee of the Supreme People’s Court on Sept. 29, 2000, issued on Dec. 8,
2000, effective as of Dec. 13, 2000, http://www.chinacourt.org/law/detail/2000/12/id/39359.shtml. 16
Article 75, Items (1)−(3) of the Guarantee Law list different types of rights that can be pledged. These
rights include, inter alia, money orders, checks, shares, and patent rights. Item (4) is a catch-all phrase that reads
“[o]ther rights that may be pledged in accordance with law” (“依法可以质押的其他权利”). See Guarantee Law of
the People’s Republic of China, supra note 7, Article 75. 17
《国务院西部开发办〈关于西部大开发若干政策措施的实施意见〉》 (The Western Development
Office of the State Council’s “Implementation Opinions on Several Policies and Measures Concerning the Grand
Development of Western Regions”), issued on and effective as of Aug. 28, 2001,
http://news.xinhuanet.com/china/2001-12/21/content_173036.htm.
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8
Council on September 29, 2001 ([via a notice designated] Guo Ban Fa〔2001〕No. 73),18
sets
forth:
With respect to those water conservancy development projects and urban
environmental protection projects (such as urban sewage treatment, garbage
disposal, etc.) that possess certain loan repayment capacities, the gradual launch
of lending business [based on] pledging the right to proceeds or the right to charge
fees of these projects [should] be explored.
This was the first clarification that pledges of rights to proceeds of sewage treatment projects
could be tentatively implemented.
Third, although a right to proceeds from a sewage treatment project is a future monetary
claim, its exercise period and the amount of proceeds can be determined and [thus] it is a definite
property right. Fourth, because a right to proceeds from a sewage treatment project is a future
monetary claim arising from the provision of sewage treatment services, [this right] can, by its
nature, also be brought within the purview of “accounts receivable”, which are allowed to be
pledged since the promulgation of the Property Law of the People’s Republic of China
(hereinafter referred to as the “Property Law”).19
Therefore, as a particularized property right,
the right to the proceeds of the sewage treatment project in dispute could be allowed to be
pledged.
2. On the issue of announcing the pledge right over the right to the proceeds of the
sewage treatment project
With respect to the issue of announcing the pledge right over the right to the proceeds of
the sewage treatment project, because the right to proceeds has already been brought within the
purview of “accounts receivable” [provided for] in Article 223, Item (6) of the Property Law
since the law became effective on October 1, 2007, a pledge should be registered via the system
for the registration and announcement of pledges of accounts receivable at the Credit Reference
Center, the People’s Bank of China20
before the pledge right can be established in accordance
with law.
18
The original text reads “国办发〔2001〕73号” (“Guo Ban Fa〔2001〕No. 73”).
For the document with this designation, see 《国务院办公厅关于转发国务院西部开发办《关于西部大
开发若干政策措施实施意见》的通知》(Notice of the General Office of the State Council on Forwarding the
Western Development Office of the State Council’s “Implementation Opinions on Several Policies and Measures
Concerning the Grand Development of Western Regions”), issued on Sept. 29, 2001,
http://caefi.mofcom.gov.cn/aarticle/diaoyan/fagsjk/zonghfg/200502/20050200344994.html. 19
Article 223, Items (1)−(7) of the Property Law of the People’s Republic of China list different types of
rights that may be pledged. Item (6) reads “accounts receivable” (“应收账款”). See Property Law of the People’s
Republic of China, supra note 2, Article 223, Items (1)−(7). 20
The name “中国人民银行征信中心” is translated here as “the Credit Reference Center, the People’s Bank
of China” in accordance with the translation used on the office’s website, at http://www.pbccrc.org.cn.
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9
Because the guarantee agreement for the pledge in this case was signed in 2005, prior to
the implementation of the Property Law, the unified registration system for accounts receivable
[provided for] in the Property Law did not apply. At that time, there were no provisions on a
unified registration and announcement system [for accounts receivable]; therefore, the then[-
effective] provisions on the registration of pledges of highway toll rights were referenced.
[According to those provisions,] the pledge was to be put on record and registered by the
department in charge and relevant stakeholders could, through the department in charge,
understand whether the right to proceeds was pledged. Once [these steps were taken,] the right
carried the effect of announcing a property right.
In this case, the Construction Bureau of Changle Municipality affixed [its] seal on the
Guarantee Agreement for the Pledge of the Concession Right to Operate and Clause 7 of the
agreement clearly stipulated that “the Construction Bureau of Changle Municipality agreed to
handle the procedures for the registration of the pledge for the plaintiff [sic] and Fuzhou
Municipal Administration Company”. Therefore, it could be determined that the department in
charge of the sewage treatment project in dispute already knew and recognized the pledge of the
right. In addition, relevant stakeholders could, through the Construction Bureau of Changle
Municipality, inquire and understand [whether or not] the relevant right of the sewage treatment
plant in dispute had been pledged. Consequently, in this case, the pledge of the right in dispute
had the elements of an announcement and the pledge right was established.
3. On the issue of the methods to realize the pledge right over the right to the proceeds of
the sewage treatment project
The Guarantee Law and the Property Law in China21
have not specifically provided
concrete methods for realizing pledge rights. They only have general provisions on the
realization of pledge rights, that is, when the pledgee exercises his pledge rights, he may [reach]
an agreement with the pledgor to convert the pledged property into money or to have priority for
payment on the amount obtained from auctioning or selling off the pledged property.
However, [because] the right to proceeds from a sewage treatment project is a future
monetary claim, the pledgee may request that the court allow his collection of money directly
from the pledgor [i.e.,] the debtor, and, with respect to that money, exercise priority for payment.
Therefore, there is no need to adopt the methods of converting [the pledged property] into money
or auctioning or selling it off. Moreover, the right to proceeds is accompanied by a certain
burden and the subject [operating] the business is of a specific nature. Given its nature, it is also
not appropriate to auction or sell it off. Therefore, the plaintiff’s requests for auctioning off or
selling off the pledged item listed in the Guarantee Agreement for the Pledge of the Concession
Right to Operate and for exercising priority for payment were not supported.
According to the stipulations in the agreement, plaintiff Haixia Bank Wuyi Sub-Branch
had the right to directly collect the sewage treatment service fees from the Construction Bureau
21
The original text reads “我国” (“my/our country”) and is translated here as “in China”.
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10
of Changle Municipality and, with respect to the sewage treatment service fees collected,
exercise priority for payment. Because the defendant should still carry out normal operation and
maintenance of the sewage treatment plant in accordance with the contract, if [the plant] could
not be normally operated, the treatment of Changle Municipality’s urban sewage would be
affected. The plaintiff's collection of the sewage treatment fees would also be affected.
Therefore, [the court decided that] when the plaintiff collected the sewage treatment service fees
from the Construction Bureau of Changle Municipality, it should exercise its rights reasonably
and reserve for the defendant necessary and reasonable expenses for operating the sewage
treatment plant.
(Adjudication personnel of the effective judgment: HE Zhong, ZHANG Qianghua, and
ZHU Honghai)