Changed principles of the investor’s and the contractor’s liability towards subcontractors

What are the conditions of the joint and several liability of the investor and the contractor? How far does this liability extend? When it may be presumed that consent for participation of third parties in the construction process has been given? Answers to these come with recent amendments to legislation.

With an aim to facilitate the enforcement of claims, on 9 March 2017, the Sejm adopted the new law amending certain acts. The amendment which came into force on 1 June 2017 affected, among other acts, the Civil Code’s provisions governing the liability of the investor and the contractor towards subcontractors, in particular its Article 647 (1) which provides for joint and several liability of the investor and the contractor for payment of remuneration for the construction works performed by the subcontractor.

Under the previous regime, the execution of a contract between the contractor and the subcontractor required the consent of an investor. If an investor has given its consent (actively or passively) for the subcontractor’s performance of works exceeding the scope of the said contract, and provided that other conditions were met, the investor could bear joint and several liability towards subcontractors with the general contractor. Furthermore, the so far binding Article 647(1) § 2 Civil Code required that a contract with subcontractor or a draft contract be submitted to the investor, together with part of documentation concerning performance of the works set forth in the contract or in the draft.

According to the new wording of Article 647(1) Civil Code, the joint and several liability of the investor and the (general) contractor will arise if a detailed scope of construction works has been notified to the investor by the contractor or the subcontractor before commencing these works or has been set out in writing in the general contract under the sanction of nullity. Furthermore, the scope of investor’s liability will be limited only to the scope of works specified in the notice delivered to the investor or in the general contract executed with the contractor. In addition, submitting a contract with the subcontractor or design documentation to the investor will no longer be required, as long as the concrete scope of subcontractor’s works has been specified in the notice.

According to the new regulation, the investor will not bear liability if, within 30 days of receiving the notice, the investor submits to the subcontractor and the contractor objections for the subcontractor to perform these works. It is worth noting that no reaction of the investor will be deemed as if no objections have been raised, thereby making the investor liable for payment of remuneration to the subcontractors.

In the previous wording of Article 647(1) Civil Code, two terms were used: “objections” and “reservations”, however, the amended act provides less ambiguous interpretation by introducing only one term “objections”.

The amendment also comes with the changes in remuneration due to subcontractor under the investor’s joint and several liability.  The amended Article 647(1) §3 Civil Code, provides that maximum liability of the investor for the subcontractor’s remuneration is limited to remuneration due to the contractor for comparable scope of works under the general contract. Therefore, if the contractor agrees with the subcontractor remuneration higher than provided in the general contract for the same scope of works, the investor will only bear joint and several liability up to the amount due to the contractor under the general contract for the given scope of works and will be released from liability in excess of this amount.

The changes in the joint and several liability of the investor and the subcontractor are designed mainly to balance the interests of the parties and ensure appropriate protection of the investor and the subcontractor as participants of the construction process in connection with liability of the investor for the contractor’s obligations towards the subcontractor. Recapitulating, the amendment introduces simplified procedure for notifying the investor about the subcontractor, lack of obligation to submit a contract with the subcontractor and presumption of investor’s consent for participation of third parties in the construction process, as well as no need to notify about the subcontractors already specified in the general contract with the investor.

The discussed changes should contribute to more unified judgments of the Polish courts regarding the investor’s liability towards the subcontractors, which at times are considerably divergent.

Author:

Piotr Jakubowski
Senior Associate, Advocate
TGC Corporate Lawyers

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