Background
Foncière de Beaugrenelle, the project owner, undertook the restructuring and extension of a building for use as a hotel. Cef Construction, now in judicial liquidation, served as the general contractor; Calq served as the execution project manager; and Face Ile-de-France performed several work packages as a subcontractor. Face’s subcontract was later amended to include additional work.
After Cef failed to pay Face in full, Face sued Foncière for damages. Foncière, in turn, sought indemnification from Calq. The Paris Court of Appeal awarded Face €57,213.60, representing only the unpaid balance under the original subcontract, reasoning that Foncière could not be liable for additional work unless it knew that Face was actually performing that work. Face and Foncière filed separate appeals in cassation, which the Court joined; Face withdrew its appeal as against Calq.
The Court’s Holding
The Court of Cassation rejected Foncière’s appeal but partially quashed the judgment on Face’s appeal. It held that when a project owner has approved a subcontractor and accepted its payment terms, Article 14-1 of the December 31, 1975 Subcontracting Law requires the owner—unless a payment delegation exists—to demand proof that the general contractor has furnished the required payment bond. An owner that fails to meet this obligation may incur noncontractual liability under former Civil Code Article 1382, now Article 1240.
The resulting compensable loss is the difference between the amount the subcontractor would have received had a payment delegation or financial-institution guarantee secured its subcontract and the amount it actually received. Because the Court of Appeal found that Foncière had approved Face for the main contract and had failed to require a bond, it was required to determine whether the additional work had been entrusted to Face for the performance of that main contract. Its failure to make that inquiry deprived its decision of a sufficient legal basis.
The Court therefore vacated only the portion limiting Foncière’s payment obligation to €57,213.60 and remanded that issue to a differently constituted panel of the Paris Court of Appeal. It left the appellate costs and fee rulings undisturbed because they were independently supported by portions of the judgment not challenged successfully.
Key Takeaways
- Once a subcontractor and its payment terms have been approved, the project owner must require the general contractor to show a payment bond unless the subcontractor benefits from a payment delegation.
- Failure to secure that protection may expose the owner to damages equal to the subcontractor’s secured-but-unpaid contract balance, less amounts actually received.
- A court may not exclude additional work solely because the owner lacked specific knowledge that the approved subcontractor performed it; it must examine whether the work was entrusted to the subcontractor for performance of the main contract.
Why It Matters
The ruling clarifies that an owner’s failure to enforce statutory payment-security requirements can extend beyond the original subcontract price. Additional work may enter the damages calculation when it was assigned to the approved subcontractor in carrying out the main contract, even if the owner did not specifically know that the subcontractor was performing that additional work.
For owners and construction counsel, the decision underscores the need to verify payment bonds or establish payment delegations once a subcontractor and its payment terms are approved. For subcontractors, it identifies the proper damages measure and the factual connection that must be established between additional work and the main contract.