Legal basis for the investor's recourse to the contractor for paying the subcontractor's remuneration

In civil law relations resulting from the construction contract, the investor shall be jointly liable with the contractor for the payment of the remuneration of the subcontractor due. This means that subcontractors are entitled to a claim for payment of remuneration also to the investor.

The investor who has paid the remuneration due to the subcontractor is entitled to a regress claim against the contractor. However, is the legal basis for such a regress claim and the principles of mutual settlement always seen in a uniform manner?

There is no doubt that there is a regressive claim on the part of the investor against the contractor if the investor pays the remuneration due to the subcontractor.

However, the analysis of the case law and the review of the positions of the representatives of the doctrine presented in this regard may lead to the conclusion that the legal basis of the investor's regress claim remains disputed, as do the rules of mutual settlement of such a claim between the investor and the contractor seem to be cumbersome.

The purpose of this study is primarily to approximate the jurisprudence in this respect and to present the possible consequences of the application of different legal bases or different interpretations of the legal bases of the investor's regressive claim.

This study will also present the most popular acceptable contractual clauses safeguarding the economic interest of the investor.

The joint and several liability of the investor in the construction contract

By way of introduction, it is worth recalling that the contractor undertakes, by means of a contract, to donate a facility carried out in accordance with the project and with the principles of technical knowledge, and the investor undertakes to carry out the work preparation required by the relevant provisions, in particular the transfer of the construction site and the delivery of the project, and to collect the facility and to pay the agreed remuneration [1] . The question of the correct classification of a given civil relations relationship as a contract for construction works is – in the context of the joint and several liability of the investor for paying the remuneration of the subcontractor – extremely important from two reasons.

Namely, the rules on the joint and several liability of the investor for the payment of the subcontractor's remuneration apply only to the works contract, which means that in the case of a contract by the contractor to the person third (the subcontractor) of all or part of the work resulting from another type of contract (mainly from a similar in many respects of the contract for a work), the investor (and in fact in the said contract for a work – the contracting entity) will not be liable.

To clarify, it should be indicated that if the subject of the contract is the execution of works in accordance with the technical design and the principles of technical knowledge, then we are dealing with a work contract rather than a work contract.

[2] , and the main criterion for distinguishing these two contracts is the assessment of the investment under construction law [3] .

Second, where the investor and the contractor in fact combine a contract for works, however, the contractor orders the person third (the subcontractor) part of the work resulting from it, but not constituting works (e.g.

cleaning the construction site), then the investor is also not responsible for paying the remuneration due to the subcontractor performing works other than works.

Such a person third While participating in an economic relationship arising from the contract concluded between the investor and the contractor, the type of contract concluded between the contractor and the subcontractor should not prejudge the participation in the investment process itself [4] .

The liability of the investor shall only be activated in cases where the subcontractor is engaged in the execution of works and not in other services. The subcontractor and the contractor should therefore also combine a contract that can be qualified as a works contract [5] .

As it follows from the above, the parties (basic) to the construction contract are always the investor and contractor, but it is common practice to appear in civil relations bound on the basis of the construction contract also subcontractors.

In the light of the current rules, the investor shall jointly and severally be liable to the contractor (general contractor) for the payment of the remuneration due to the subcontractor in respect of the works carried out by him, the specific subject of which has been notified to the investor by the contractor or subcontractor prior to the completion of those works, unless within the time limit thirty days from the date of delivery to the investor of the notification, the investor submitted an objection to the subcontractor’s performance of these works [6] .

The liability of the investor is therefore related to construction works, the specific object of which was notified to the investor prior to their execution (unless the contract specifies the specific object of the works carried out by the designated subcontractor [7] ).

However, the investor is entitled to submit a subcontractor and contractor within thirty the days from the date of notification of the opposition to the performance of those works by the subcontractor.

This objection is a declaration of intent which undermines the investor's joint responsibility for paying the subcontractor's remuneration [8] .

In the context of the amount of the subcontractor’s claim against the investor and, consequently, the amount of the investor’s regress claim against the contractor, it must be stressed that where the amount of the subcontractor’s remuneration exceeds the amount of the contractor’s remuneration, the investor’s liability shall be limited to the amount of the remuneration due to the contractor for the works whose specific subject matter derives from the notification or from the contract, respectively. [9] .

The liability of the investor for paying the remuneration of the subcontractor is a specific legal structure of the nature of ius cogens [10] , a Contractual provisions contrary to content Article 6471(1-5) k.c. are invalid [11] .

This means that the investor and the contractor are not entitled to modify the joint and several liability of the investor and the contractor for paying the subcontractor's remuneration. However, this does not prevent the investor's interests from being secured in the construction contract otherwise, i.e.

By applying the relevant contractual clauses which, although not excluding the investor's joint and several liability, protect it from double payment of remuneration for certain works (more generally with standard contractual clauses in this respect in the following part of this study).

The essence of the joint liability is that several debtors may be obliged to require that the creditor may require all or part of the benefit from all debtors together, from several of them or from each individual, and the satisfaction of the creditor by any of the debtors relieves the others (solidity of the debtors) [12] .

From the subcontractor's point of view, particularly in the context of the multiple need for judicial investigation of the remuneration due to him, it is vital that the liability of the investor is not exempted from the rule and is not subsidiary, thus giving the subcontractor the freedom to select the debtor from whom he will require payment of the remuneration [13] .

The liability of the investor is the liability of the guarantee type for other people's debt arising under the Act and may even be obliged to pay twice for the same works – both to the contractor and subcontractor [14] .

In the event that the conditions of the investor's joint and several liability and the investor's payment of the remuneration of the subcontractor are fulfilled, the investor's side shall be regressive towards the contractor.

Legal basis for the regression claim — divergent positions

Predicting the joint liability of the investor for the payment of the remuneration of the subcontractor of the provision Article 6471 k.c. was entered into the Civil Code Act dated 14 February 2003 amending the Act – Civil Code and some other laws (Journal of Laws of 2003, item 408 late.

Although the original wording of the provision differed from that of the present (introduced) Act dated 7 April 2017 amending certain laws to facilitate the recovery of claims (Journal of Laws of 2017, item 933) in view of the many controversy surrounding its application both in business practice and in doctrine [15] ), However, these differences referred to elements such as the consent of the subcontractor, and the legal standard itself concerning the joint and several liability of the investor and contractor remained unchanged.

Despite the functioning of this provision for almost a period of time twenty years, the judicature has not yet reached a uniform position on the legal basis of the investor's regress claim against the contractor and on the principles of their mutual settlement.

In this context, it should be noted that, despite the detailed rules on the liability of the investor for paying the remuneration of the subcontractor, the provisions of the Civil Code concerning strict works contracts do not specify the rules on the settlement of the regressive claim between the investor and the contractor.

The lack of specific regulation requires the finding of a legal basis for such settlements in the general civil code.

Given that the liability of the investor and the contractor for paying the remuneration of the subcontractor is defined as a joint and several liability, it should appear that the legal basis for the investor's regress claim towards the contractor should be the rules on settlement rules between joint and several debtors.

In accordance with the applicable legislation, if one of the joint debtors he fulfilled the benefit, the content of the existing legal relationship between the co-debtors determines whether and in which parts he can claim a refund from the co-debtors.

If there is nothing else from the content of that relationship, the debtor who has fulfilled the benefit may request a refund in equal parts [16] .

The doctrine noted doubts about the method of settlement between the investor who satisfied the subcontractor and the contractor. The failure to comply shall be clearly indicated. Article 376(1) k.c.

to regress settlements between them, pointing out the appropriateness of regulating this issue directly in the construction contract, so as not to take advantage of a solution affecting the sense of fairness [17] .

The Doctrine indicates that the absence of a specific provision to determine whether and in which parts of the investor's claims for regress should be based on Article 376(1) k.c., at the same time, it is signalled that applying directly the rules on the solidarity of debtors to the responsibility of the investor may, however, lead to results which seem difficult to accept.

Namely, mechanical use Article 376(1) k.c.

may give rise to the possibility, in the absence of a different definition of the scope of the recourse claims in the contract for works, of the payment by any of the entities jointly and severally liable to the subcontractor of the remuneration to which he is entitled to claim reimbursement of the remuneration paid by the other entities in equal parts.

Regress settlement models in equal parts may vary depending on the number of entities jointly and severally obliged to subcontractors. Where the subcontractor’s remuneration is paid by the investor in the light of Article 376(1) k.c.

it may require the contractor to reimburse half of the paid remuneration, while when the investor pays the remuneration to a further subcontractor, it will be able to make recourses to both the contractor and the subcontractor, and therefore only to reimburse part of the paid remuneration 1/3 from each of them [18] .

Other doctrinaries also note that the application of the provisions on solidarity obligations in question may lead to the recognition that, after payment of the contractor's and subcontractor's remuneration, the investor will be entitled to a regressive claim to the contractor only half the remuneration of the subcontractor paid, which, of course, gives rise to unfair effects.

This may even make it necessary to find another legal basis for demanding the remainder of the contractor's claim. Often, such a basis is sought in rules on unjust enrichment.

In view of the above, the doctrine repeatedly mentions that the issue of regressive settlements between the investor and the contractor requires the intervention of the legislator [19] .

In turn, the case law indicates that the claim from Article 376(1) k.c. is not a claim for damages, and is intended merely to settle one another between joint and several debtors. The reason for his inception is the fulfillment of the benefit by one of the joint debtors.

Its function is therefore to restore the balance of assets between the reporting debtor and the non-certification debtor. In fact, it is pointed out that this function brings the claim closer to the context of unwarranted enrichment.

However, if you were to try to make this claim in terms of compensation, the damage to the investor would have to be described as a damage caused by the necessity for the subcontractor to meet the benefit to which the contractor who failed to fulfil his obligation was obliged.

Thus, it must be stated that the investor bears statutory joint liability for other persons' debt, but this is the contractor's debt only formally, in the light of Article 6471(5) K.c. of the investor imposes a materially own debt. This consideration leads to the acceptance that the investor's regressive claims apply Article 376(1) k.c.

[20] . General position that the joint debtor is not a person third, who pays someone else's debt within the meaning of Article 518(1)(1) k.c., was expressed frequently, also in the context of the joint and several liability of the investor and contractor.

This position leads to the conclusion that the basis for the settlement between the jointly and severally obliged investor and contractor for the payment of the remuneration of the subcontractor should indeed be the provision Article 376(1) k.c. [21] .

The above argument that the basis for the mutual settlement between the jointly and severally obliged investor and contractor is Article 376(1) k.c. does seem reasonable, in particular on grounds justifying it. This view seems to be the dominant one (although not the only one mentioned in the further part of this study).

Nevertheless, as already indicated above, the application of the provision Article 376(1) k.c. to settle the investor's regression claim may raise a number of doubts in the context of the principles of social coexistence.

Namely, a sentence second The provision in question provides that, if there is nothing else from the content of that relationship, the debtor who has fulfilled the benefit may demand a return in equal parts.

The application of this standard also to investor and contractor settlements confirms the case-law, indicating that if, in a contract between the investor and the contractor of a party not regulated by mutual settlements in the event of the fulfilment of the benefit by any of the jointly and severally obliged, the co-debtors correspond in equal parts, which means that the investor who has paid the subcontractor's remuneration may demand payment from the contractor only in part attributable to him according to the internal breakdown of the debt [22] .

Given that an investor pays to a subcontractor the remuneration resulting from a legal relationship which is not a party, this view is not acceptable.

However, it is worth noting that an often emerging position is different, that the investor does not apply the opinion at all second under Article 376(1) k.c., as it refers to consolidated debtors corresponding to, according to Article 366 k.c., jointly for its own debt, having a source in their undertaking to a particular creditor [23] .

This argument is extremely important from an economic point of view for those investors who did not regulate issues relating to mutual settlement with the contractor in the case of the investor paying the remuneration to the subcontractor, in particular as regards the amount of the investor's regressive claim.

This means that the lack of regulation of this issue in the works contract does not have to be equivalent to the possibility of recovering only an appropriate part of the paid subcontractor's remuneration.

This appears to be, at least indirectly, to correspond with the right expressly authorised by the judicature of the investor to deduct his claims (for the reimbursement of the remuneration paid to the subcontractor) from the contractor's claim (for the payment of the remuneration provided for in the works contract).

It is assumed that by the investor’s fulfilment of the contractor’s, investor’s and contractor’s benefits they become debtors and creditors to each other, which in turn justifies the investor’s deduction of his claims with the contractor’s claim for payment for works [24] .

Even if the investor has already paid all the remuneration due to the contractor, he is still obliged to pay the remuneration to the subcontractor.

However, in such a case, the investor is entitled to a claim on the contractor to reimburse the amount of remuneration paid to the subcontractor and this claim may be deducted from the contractor's claim for remuneration for works [25] .

It is also extremely interesting and beneficial from the point of view of the investor that the reference to the content of the existing between the investor and the contractor as joint and several debtors of the legal relationship should be understood more than as a search directly in the construction contract for appropriate regulations concerning the shape of regression claims.

Even if the construction contract does not specify the form of these claims, in the event that the subcontractor is satisfied, the investor is granted the right to regress against the contractor for reimbursement of the entire benefit. The justification for such a position is the guarantee nature of the investor's liability [26] .

Granting the nature of the liability of the investor and its grounds for the status of the key argument in favour of allowing the investor to allow the investor to recover the entire benefit of the satisfied subcontractor is not isolated. [27] .

At the same time, it is not excluded that the extent of regressive claims between the investor and the contractor may also be affected by established customs or rules of social coexistence, which could result in a full regression of the investor vis-à-vis the contractor.

These rules would also allow the investor to achieve full regression, even though there is no contractual regulation in this respect. However, it would be up to the investor to demonstrate the basis for such a full regression [28] .

In turn, a completely different legal basis, in which the judicature, too, often sought grounds for the investor's ability to pursue a regress claim from the contractor, and which allows him, even without the appropriate regulations contained directly in the contract for construction work and without the need to rely on the principles of social coexistence, to obtain a full regression, is Article 518(1)(1) k.c.

In accordance with the prescribed provision, the person third, who repays the creditor, acquires a paid claim up to the amount of the payment made if he pays another person’s debt for which he is personally or with certain assets [29] . It is indicated, as indicated above, that the provision Article 6471(5) k.c.

establishes statutory passive solidarity of a guarantee nature in the form of ex lege liability for other persons' debt, which means that payment of subcontractor's remuneration under this provision is the satisfaction of another person's debt [30] .

An interesting justification is the position to endorse the application of the legal basis in question to the investor's regressive claim against the contractor, according to which the investor's payment of the subcontractor's remuneration is indeed the satisfaction of another's debt, and the remuneration paid by the subcontractor should not be treated as a contractual injury [31] .

The same court has also previously observed that the joint and several liability of the investor towards the subcontractor is of a special nature, since it is a joint and several guarantee liability for someone else's debt, i.e. the contractor's debt which arises from the law.

In the assessment of this court, there should be no doubt that in such a situation the liability of the contractor towards the subcontractor constitutes a condition for the investor's joint and several liability for the contractor's debt.

It also confirmed in this judgment that the investor's payment of the subcontractor's remuneration is the satisfaction of another's debt, and in that case, the solution envisaged Article 518 k.c. [32] .

In the opinion of the author of this study, in view of the significant differences in both the case-law and the doctrine regarding the correct legal basis for the investor's regress claim against the contractor, and the legal basis for the settlement arrangements adopted, it seems appropriate that the investor and the contractor regulate the issue of mutual settlement of the regress claim directly in the works contract.

From the investor’s point of view, this seems to be the only sure solution to ensure that all paid-up subcontractors are recovered regardless of the legal basis adopted. In so far as it is accepted as appropriate for the mutual settlement of a provision Article 518(1)(1) k.c. or recipe Article 376(1) k.c.

(at the same time, on the basis of the principles of social coexistence), it will indeed be an obligation for the contractor to reimburse the investor for all remuneration paid to the subcontractor, by means of a literal interpretation Article 376(1) k.c.

the recovery of all paid subcontractor's remuneration will only be possible if properly constructed in a contract for works contrary to statutory accounting rules.

The direct provision in the works contract that, in the event of the investor paying the subcontractor's remuneration, the investor is entitled to demand from the contractor all remuneration paid to the subcontractor, will avoid uncertainty and possible adverse effects on the investor's application of the general rules of settlement between joint and several debtors.

Contractual clauses

It is worth noting that, in practice, the construction of works contracts, in order to avoid a double obligation for the contractor and subcontractor to pay remuneration for the defined scope of construction works, investors apply the relevant contractual provisions on several occasions. However, it needs to be stressed again that, given the mandatory nature of the provision Article 6471 k.c. – these are only solutions to prevent the investor from having to pay twice.

one the possibility of safeguarding the interests of the investor in the context of joint and several liability for the payment of the remuneration of the subcontractor is to reserve in the works contract the obligation for the contractor to submit to the investor a subcontractor's declaration of payment by the contractor of the remuneration due to the subcontractor for the works contract concluded between the contractor and the subcontractor.

Such a statement should be submitted by the contractor together with the application for payment of remuneration, then it will be a real safeguard for the investor’s interests.

This clause does indeed make payment of the contractor's remuneration subject to the submission by the contractor of an appropriate declaration by the subcontractor that the contractor does not comply with the subcontractor's payment of the subcontractor's remuneration, and therefore the investor, before paying the contractor's remuneration, obtains certainty that the particular work carried out by the subcontractor has been regulated.

If the contractor does not submit a statement, the payment of remuneration to the contractor shall be suspended by the investor.

It is also possible to make a reservation in the contract for works concluded between the investor and the contractor regarding guarantee bail or retention rights in order to secure possible payments to the subcontractor.

A common solution is also the obligation for the contractor to submit a bank guarantee (the bank guarantee is a unilateral obligation of the bank-guarantee that, once the rightholder (the beneficiary of the guarantee) has fulfilled certain conditions of payment, which may be specified in this provision by the documents which the beneficiary will attach to the payment request drawn up in the indicated form, the bank will carry out a cash provision to the beneficiary of the guarantee – either directly or through another bank [33] ) or an insurance guarantee.

In both cases, the contractor shall conclude a contract with a specific entity under which it undertakes to provide a certain amount to the designated beneficiary in the event of the circumstances described in the guarantee [34] .

In practice, the guarantor (a bank or insurer) will meet the benefit (payment of remuneration to the subcontractor or reimbursement of a regressive claim) to the investor as a beneficiary in the event that the contractor fails to pay the subcontractor's remuneration.

Summary

In conclusion, the question of the legal basis for the investor's recourse to the contractor in the event that it pays first the remuneration of the subcontractor due, as well as the method of mutual settlement between the jointly and severally obliged investors and the contractor, it should be pointed out that the lack of regulation of this issue directly in the specific provisions concerning the joint and several liability of the investor in the construction contract caused the need to seek an appropriate legal basis in the general civil code.

Analysis of case-law based on Article 376(1) k.c. or Article 518(1)(1) k.c. leads to the conclusion that, in fact, the legal basis for the mutual settlement of the investor and the contractor was not adopted in a uniform manner.

Furthermore, each of the legal bases used has certain inaccuracies which do not fully correspond to the nature of the investor's regress claim towards the contractor.

In the opinion of the author of this study, the provisions on the joint and several liability of the investor for the remuneration of the subcontractors are therefore subject to considerable imprecision and should be requested to supplement them.

Summary

In case of payment of the subcontractor's remuneration by the investor, he has recourse to the contractor. The analysis of the case law in this respect may lead to the conclusion that the legal basis for the investor's regressive claims is controversial, as are the disputed rules for the resolution of such regressive claims.

This article seeks to understand the case-law trends in this matter and the consequences of applying a different legal basis or a different interpretation of the legal basis for such regressive claims. The article also presents the most popular regulations of construction contracts that can safeguard investor interests.

Summary

In case the investor pays a remuneration to the subcontractor, he owes recourse claims against the contractor. Analysis of jurisprudence concerning this issue may lead to the conclusion that legal basis of recurse claims of investor is disputable, same as disputable are rules of settlements such recurse claims.

This article tries to family with judicious trends in that matter and to present consequences of application of different legal bases or different interpretation of legal bases of such recurse claims. This article also presents the most popular regulations of contracts for construction work which may secure investor’s interests.

Oliwia Wójcik

Lawyer. Graduated from the Faculty of Law and Administration at Maria Curie-Skłodowska University in Lublin and Postgraduate Studies of the Legal and Economic Fundamentals of the Investment Process organized by the Warsaw School of Economics. Its professional interests are economic law, with particular emphasis on the law of commitments. He also has practical experience in conducting litigation.