Property law: Responsibility of investor vs. contractor and subcontractor - part I

One of the most important aspects is the financial settlement between the parties involved. Polish regulations regarding such payments include the Act on Payment Periods in Commercial Transactions (Polish: ustawa o terminach zapłaty w transakcjach handlowych) dated June 12, 2003 (Journal of Laws 2003, No. 139, item 1323) and the Act on Warranty of Payment for Construction Work (Polish: ustawa o gwarancji zapłaty za roboty budowlane) dated July 9, 2003 (Journal of Laws 2003, No. 180, item 1758).

However, from the investor's perspective, Article 647 [1] of the Polish Civil Code (the "PCC"), which introduces the concept of joint and several liability of the investor with the contractor for the payments due to the subcontractor, is of particular importance (this came into force on April 24, 2003). The explanation and reasoning provided in the draft of this provision suggests that its purpose was to prevent the negative phenomenon whereby contractors withhold payment of remuneration due to subcontractors, especially small businesses.

The provision lays down statutory passive joint and several liability, which possesses the nature of a guarantee and assumes the form of ex lege liability for someone else's debt. This is a departure from the principle of the law of obligations, whereby the validity of contractual obligations is limited solely to the parties to the contract. For an investor, joint and several liability is an additional encumbrance because it may require the investor to pay for work for which he has already paid the contractor.

Controversial solution

This solution has been deemed controversial in the legal literature. Due to its unclear wording, there is much doubt in practice.

According to Article 647 [1] of the PCC, the investor will be jointly and severally liable with the contractor for the payment due to the subcontractor, subject to the following conditions:

1) the scope of the work which may be mandated (transferred) to the subcontractor should be specified in a contract between the investor and the contractor;

2) a contract between the contractor and subcontractor can only be concluded upon the consent of the investor. The above regulation lays down the following terms and conditions for obtaining such consent:

l the contractor and/or subcontractor should provide the investor with a contract (which should be in writing, otherwise being null and void) or its draft. The contractor or subcontractor should be able to prove that the contract or its draft was "presented" by, for example, providing evidence that the documents were sent by registered mail or by delivering them personally, with proof of delivery.

l the contractor and/or subcontractor is obliged to attach part of the documentation related to the work which will be performed by the subcontractor.

If the investor, within 14 days of receipt of the above contract or a draft thereof, does not raise any written objections, it will be assumed that the investor agrees to the contract with the subcontractor.

The permissibility of presenting the draft contract by the contractor suggests that the investor's consent may be granted either in advance, or after the contract has been concluded (Article 63 par. 1 of the PCC should apply respectively).

Consent from the investor or contractor is not an action on which the effectiveness or validity of a contract with a subcontractor depends (Supreme Court ruling of May 30, 2006, IV CSK 61/04, Wokanda 2006 No.12, p. 7).

Supreme Court rulings

On the basis of the regulation being considered, and in light of the Supreme Court's rulings, the following points should be considered.

Firstly, it must be determined to what contracts the regulation in question will apply. Pursuant to the Supreme Court's rulings, it is important to establish the date of execution of the contract between the contractor and subcontractor, regardless of the date of signing of the main contract between the investor and contractor.

Secondly, it is important to determine how the investor's consent should be acquired (insofar as the investor's mere knowledge of the subcontractor's work or the investor's participation in on-site negotiations in the subcontractor's presence does not signify the consent required under Article 647 par. 2 PCC).

Agnieszka Koniewicz is an Associate with Linklaters law firm, e-mail: agneszka.koniewicz@linklaters.com