What is the subcontractor’s direct action and when can it be exercised?
The subcontractor’s direct action is a legal mechanism provided for in Article 1597 of the Civil Code, which allows anyone who has supplied labour or materials for a construction project to claim payment directly from the owner or developer in certain cases of non‑payment by the main contractor.
Context of the subcontractor’s direct action in construction
For the execution of a construction project, the owner or developer may contract directly with a construction company (the main contractor), which undertakes full responsibility for carrying out the works, or the contractor may subcontract third parties to perform all or part of the project (the subcontractor). This is a very common practice in reality.
In this context, a frequent question arises: what happens if the main contractor fails to pay the subcontractor? Can the latter claim payment directly from the owner or developer, even though there is no contractual relationship between them?
The answer lies in the subcontractor’s direct action set out in Article 1597 of the Civil Code, which serves as a protective mechanism against non‑payment by the main contractor, allowing the subcontractor or supplier of materials to proceed directly against the owner of the project within certain limits.
Legal regulation of the subcontractor’s direct action (Article 1597 of the Civil Code)
Article 1597 of the Civil Code provides:
“Those who supply their labour or materials for a work contracted at a fixed price by the contractor have no right of action against the owner thereof except up to the amount that the latter owes to the former at the time the claim is made.”
By virtue of this provision, although the subcontractor has no contractual relationship with the owner, they may exercise a direct action against the latter if the contractor fails to fulfil their payment obligation. However, such a claim is limited to the amount that the owner may owe the contractor at the time the claim is made.
Requirements for the exercise of the subcontractor’s direct action
In addition to what is stated in the legal provision, case law has established that the requirements for the exercise of the direct action are as follows:
1. Existence of a works contract
There must be a works contract between the owner and the main contractor relating to the execution of a specific project, for a fixed price that is determined or determinable.
2. Actual provision of labour or materials
The subcontractor must have been genuinely and effectively involved in the execution of the works.
3. Matured, liquid and enforceable claim
The debt owed by the main contractor to the subcontractor must be unpaid and enforceable.
4. Outstanding debt owed by the owner to the contractor
This is an essential limit, since the owner of the works is only liable up to the amount owed to the contractor at the time the claim is made.
Importance of the timing of the claim to the owner of the works
What happens if, after the claim has been made to the owner, the latter continues to pay the main contractor?
The time at which the claim is made is decisive. Any payments made by the owner to the contractor after the subcontractor’s claim do not release the owner from liability towards the subcontractor, and the owner’s liability remains in place up to the limit of the debt existing at that time. For this reason, it is very important for the claim to the owner of the works to be made in a manner that provides reliable proof of service (preferably by burofax).
Consequences of payment by the owner of the works to the subcontractor
- The main contractor’s debt to the subcontractor is extinguished.
- The owner’s debt to the main contractor is reduced or extinguished by the same amount.
Time limit for exercising the subcontractor’s direct action
The direct action under Article 1597 of the Civil Code is subject to the general five‑year limitation period, in accordance with Article 1964(2) of the Civil Code.
The limitation period begins to run from the time when the subcontractor’s claim becomes enforceable.
Subcontractor’s direct action in the event of the main contractor’s insolvency
In accordance with Article 136(3) of the recast Insolvency Act:
“The courts of first instance shall not admit for processing any claims brought in which the direct action recognised in favour of those who have supplied their labour or materials for a lump‑sum priced work contracted by the contractor is exercised against the owner of the works.”
When the main contractor is insolvent, the subcontractor’s direct action is therefore severely restricted.
Before the declaration of insolvency
If the subcontractor makes an out‑of‑court or court claim and the action is consolidated (by payment or final judgment) before the declaration of insolvency, they may obtain payment directly from the owner of the works, and the insolvency will not affect this right.
After the declaration of insolvency of the main contractor
- The direct action cannot be exercised individually outside the insolvency proceedings.
- The subcontractor must notify its claim to the insolvency administrator so that it may be recognised within the insolvency proceedings.
- The owner of the works may not make direct payment to the subcontractor, since any subsequent payment will not release the owner from liability towards the insolvency estate.
In summary, the subcontractor’s right to obtain payment directly from the owner of the works is protected only if it is exercised before the declaration of the main contractor’s insolvency; once insolvency proceedings have commenced, the claim is incorporated into the insolvency estate, and the owner must comply with the order and priority of payments laid down in the insolvency procedure.
Conclusion
The subcontractor’s direct action provided for in Article 1597 of the Civil Code is an essential instrument of protection against non‑payment in the construction sector. Its correct application requires particular attention to the legal requirements, the timing of the claim and the existence of an outstanding debt owed by the owner of the works, as well as to any insolvency situation affecting the main contractor.
Author: Raluca Constantinescu Oarga
Profession: Lawyer
Firm: Martínez Sanz Lawyers
