Investor cannot always claim reimbursement for replacement work from the contractor

The advocates and attorneys from the Law Firm represented a Client, a general contractor for construction works involving the construction of a warehouse using sandwich panels.

The Investor filed a lawsuit against the Client for the reimbursement of costs for the replacement removal of defects in the roof covering of the warehouse and a contractual penalty for the delay in removing the defects.

The lawsuit was dismissed in its entirety.

The Court highlighted that a claim for the reimbursement of costs for replacement work is based on Article 480 of the Civil Code. According to this provision, in case of the debtor’s delay in fulfilling an obligation to perform an action, the creditor may, while retaining the claim for damages, request court authorization to perform the action at the debtor’s expense.

The Court considered that the provision clearly indicates that a claim for replacement performance applies when the debtor has failed to fulfil their obligation to act, and thus pertains to non-performance of an obligation.

The Court also noted that replacement performance under Article 480 § 1 of the Civil Code requires court authorization, although the provision does not exclude the possibility that the parties may, in the contract, allow the creditor to perform replacement work in the case of the debtor’s delay, without the need for court authorization, based on the freedom of contracts (Article 353¹ of the Civil Code).

In the contract between the Client and the Investor, it was agreed that if the Client (as the contractor) did not remove the defects within the time agreed upon by the parties, the Investor would have the right to carry out the defect removal at their own expense and charge the Client.

However, the Court determined that the Investor could only proceed with the replacement removal of defects after the agreed deadline had passed. In this case, the parties had not agreed upon such a deadline, and therefore, the Investor did not have the right to exercise the contractual entitlement for replacement work.

The Court found that the purpose of the contractual provision regarding replacement work was to make the defendant aware that failure to remove defects within the agreed period would result in costs being incurred by that party. Additionally, the deadline the parties should have agreed upon had to be realistic for the defect removal.

Since the conditions set out in the contract between the Client and the Investor had not been met, the Court ruled that there were no grounds for charging the Client with the costs of replacement work.

Regarding the contractual penalty for delay, the Court found that the Client was not in delay, as they had taken steps to remove the defects and had carried out certain repairs. The Court pointed out that delay and default are cases of failure to perform an obligation within the agreed time, but only default constitutes improper performance of the obligation.

This ruling from the District Court is an important reminder for investors to call upon contractors to remedy defects in construction works/objects before resorting to replacement work at the contractor’s expense.

Thanks to effective factual and legal arguments, the Law Firm’s lawyers succeeded in having the claim dismissed in its entirety.

The judgement is not final