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The Warsaw Voice » Real Estate » April 16, 2008
SPECIAL REPORT - Residential Market: Changing Times
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EXPERT OPINION: The Investor's Liability for Payments to Subcontractors
April 16, 2008   
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Under article 647(1) of the Civil Code, investors are jointly liable with general contractors towards subcontractors for the payments of remuneration for construction works performed. Based on the above, entering into an agreement for the execution of construction works with a subcontractor must be approved by the investor. The investor's approval may be explicit (a positive response) or implicit (lack of objections to the general contractor's request).

There is some ambiguity and conflicting opinions about the acceptance procedure of subcontractor agreements. According to the wording of Article 647(1), the general contractor must inform the investor about the intention to enter into a construction agreement with a subcontractor, presenting the agreed wording of the agreement to be signed, together with technical documentation of the works to be executed by the subcontractor.

The investor has 14 days in which to present objections or reservations about the employment of the subcontractor based on the provided agreement and documentation. The same procedure is applicable for the conclusion of an agreement with further subcontractors.

This interpretation of article 647(1) of the Civil Code has been supported by Supreme Court verdicts. Resolution no. III CZP 36/06 dated June 26, 2006 (OSNC 2007/4/52) states: "The investor's consent to the conclusion of an agreement by the contractor concerning the performance of tasks falling within the scope of the agreement on construction works requires that the former be provided with the agreement made with the subcontractor, or a draft of the same, and relevant documentation in order to be effective."

Consequently, verdict no. V CSK 256/06 dated Nov. 15, 2006 (LEX nr 276247) reads: "If such an agreement, or a draft thereof, or the entire relevant documentation is not presented when requesting the consent of the investor referred to in art. 647(1) § 2 of the Civil Code, then the implications of concluding the agreement with the subcontractor, also in terms of its remuneration, are binding only on the parties to this agreement, whereas joint and several liability of the investor within the meaning of art. 647(1) § 5 of the Civil Code is not established."

Unfortunately, this literal interpretation of article 647(1) of the Civil Code has come up against a more aims-based reading of its provisions presented by the Supreme Court, which considers that an investor may permit the conclusion of a contract with a subcontractor without seeing the agreement or a draft.

This is confirmed by Supreme Court verdict no. II CSK 108/07 dated June 20, 2007 (Biul. SN 2007/11/14): "The investor's consent to the conclusion of the agreement for construction works with a subcontractor (art. 647 § 1 of the Civil Code) may take any form (art. 60 of the Civil Code), and does not require that the investor be provided with the agreement with the subcontractor or a draft thereof, together with relevant documentation."

This conflict of opinion leaves investors unsure where they stand in terms of their liability for the remuneration of their subcontractors.

Generally, if the investor does not raise any reservations or objections towards a subcontractor within 14 days from being presented with the agreement or from receiving information about the subcontractor executing works on the site, the investor may become jointly responsible with the general contractor for the payment of the subcontractor's remuneration.

The investor's liability only extends to subcontractors executing works based on the construction agreement. Construction works are understood to be activities that lead to the delivery of the building or structure to the investor. Therefore the investor's liability must be checked against the subject of the agreement concluded with the subcontractor, to see whether it is related to construction elements. Article 647(1) of the Civil Code does not provide protection for agreements entered into with parties providing services as architects, designers, producers and suppliers of goods and materials.

Once the investor becomes jointly liable for a subcontractor's remuneration, they cannot refuse to pay the fees for the construction works performed. Of course, the investor may demand documents confirming the execution of the works and the lack of payment from the general contractor. In addition, the investor may check the quality of the executed works. Any money paid directly to the subcontractor may be deducted from the payment made to the general contractor, or claims raised in court.

Anna Jönsson, legal advisor, Senior Associate, GLN law firm
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