In case of a dispute with a contractor, the investor may deposit funds in an escrow account

In case of a dispute with a contractor, the investor may deposit funds in an escrow account

The Court of Appeal dismissed an appeal brought by a construction contractor in which it challenged the Court’s decision allowing the investor to deposit the funds due to the contractor in an escrow account.

Contrary to the obligations provided for in the parties’ agreement (performed pursuant to the Public Procurement Law), the contractor, when demanding payment of the remuneration due to it, failed to submit to the investor full documentation needed by the investor to make the payment. In order to avoid double payment of the remuneration, i.e. to the contractor and – under joint and several liability with the contractor – to the subcontractors, the investor applied to the Court for permission to deposit the disputed funds in an escrow account. Payment of the funds to the contractor was to take place after the contractor submitted the documents required under the parties’ agreement.

The court granted the abovementioned motion of the investor, indicating that in accordance with the agreement between the parties, in the event of failure to submit certain documents to the investor, the investor was entitled to withhold payment or to deposit the amount in an escrow account. At the same time, the prerequisites for depositing the payment in an escrow account specified in the provisions of the Civil Code were met. This judgment was upheld by the Court of Appeal.

Disputes between the investor, contractor and subcontractor regarding payment of remuneration under ongoing contracts are very common in practice. They arise primarily against the background of subcontractors’ claims for direct payment of their remuneration by investors when contractors – for various reasons – refuse to pay them. Investors are then faced with a difficult choice as claims are submitted to them by both the contractor and the subcontractor. It is often impossible to determine which of the entities is right, due to the complexity of the facts surrounding the works performed. Moreover, it is not the investor, but the court that should resolve disputes between participants in the construction process. This ruling may serve as a guideline for investors who wish to protect their interests as much as possible and avoid paying for the same works twice.

The investor in the dispute was represented by attorney Paweł Sowisło.

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