Liability of the project owner who fails to comply with obligations to guarantee payment to the subcontractor

Facts of the case :

A project owner awarded an extension and renovation contract to a main contractor, who subcontracted the electrical work.

The subcontractor was accepted and its terms of payment approved. On the other hand, the client had not required the main contractor to prove that he had provided the bond.

When the main contractor went into receivership, the unpaid subcontractor sued the client for damages.

On September 9, 2022, the Paris Court of Appeal ruled that the project owner, who had accepted and approved the subcontractor, had committed a tort by failing to require the main contractor to provide a bond or delegate payment in accordance with article 14 of the law of December 31, 1975, and that the loss suffered by the subcontractor as a result of this fault corresponded to the amount of its claim for unpaid work, excluding additional work for which the estimates had not been approved by the client, as well as additional remuneration which had not been justified by the disruption to the contract economy caused by a third party, nor approved by the client.

The decision was partially censured by the Cour de cassation.

Decision:

Pursuant to articles 14-1 of the law of December 31, 1975 and 1382, now 1240, of the French Civil Code, a client who fails to require the main contractor to provide proof of a bond, unless payment has been delegated, deprives the subcontractor of the benefit of a guarantee ensuring full payment of the balance of his work. In this case, the loss to be made good is equal to the difference between the sums that the subcontractor should have received if a delegation of payment had been granted to him or if a financial institution had guaranteed his contract, and those actually received.

The compensation awarded to the subcontractor is therefore determined in relation to the sums still owed by the main contractor to the subcontractor, regardless of whether the work had been accepted by the client, since it had been entrusted to the subcontractor for the performance of the main contract.

To remember:

The law of December 31, 1975 protects subcontractors and provides them with a number of mechanisms to guarantee payment of sums due to them.

Article 14 of the law of December 31, 1975 requires the main contractor to guarantee the contract with a bank guarantee or a delegation of payment accepted by the project owner.

Article 14-1 of the same law requires a client who becomes aware of the presence of a subcontractor on the site to give the main contractor formal notice to fulfil his obligations and, if the subcontractor has been accepted and his terms of payment have been approved, to require the main contractor, if the subcontractor does not benefit from a delegation of payment, to prove that he has provided the bond.

Confirming its previous jurisprudence, the French Supreme Court reiterates that “the subcontractor is entitled to seek the quasi-delictual liability of the project owner who has not complied with his subcontracting obligations, by providing proof of his loss“.

In addition, the Cour de cassation clarifies the reasoning used to assess compensation for the subcontractor’s loss, and makes a distinction between the 2 hypotheses listed in article 14-1:

– If the client, who was aware of the existence of a subcontractor on site, fails to give the main contractor formal notice to present the subcontractor to him, he loses the benefit of the direct action.

The subcontractor’s loss is then assessed on the basis of what the client still owed the main contractor on the date he became aware of the subcontractor’s presence on the site, or the sums paid to the main contractor after that date;

– On the other hand, if the subcontractor has been approved and accepted but does not benefit from a payment guarantee, the compensation awarded is determined in relation to the sums still owed by the main contractor to the subcontractor;

– In this case, it is irrelevant whether the work was accepted by the client, since it had been entrusted to the subcontractor for performance of the main contract.

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