Background
Considerations
Defence alternatives
Under Albanian law, a construction contractor is solely responsible for its commercial liabilities towards third parties (ie, its subcontractors). Moreover, a contractor which hires workers shall be solely responsible for the payment of their wages, as well as other contributions such as social insurance and healthcare contributions.
However, in certain circumstances the contractor's employees or subcontractors which are engaged in the performance of works or services (ie, general contractor construction works) for the benefit of a third party (ie, the principal) may make direct claims to the principal for the payment of moneys.
Article 875 of the Civil Code provides that persons taken on by a contractor for the performance of certain works or services (ie, a subcontractor) may directly claim from the principal payment of what is owed to them, up to the outstanding obligations that the principal has towards the contractor at the moment when such claim is raised.
In the light of this provision, the principal that commissioned the works may be directly liable towards the subcontractor of the construction contractor if it has not been paid by the contractor under the respective agreements (including amounts due under the law).
Nevertheless, the code provides that direct claims made by the subcontractor shall be subject to the following conditions and limitations:
- The subcontractor was effectively engaged in the performance of works for the benefit of the principal;
- The subcontractor has not been paid by the contractor for its work;
- The principal has outstanding obligations towards the contractor in relation to the commissioned works; and
- The direct claim shall not exceed the amount of the outstanding obligations that the principal has towards the contractor at the moment when the claim is raised.
Article 875 of the Civil Code would not apply to employees of subcontractors.
In order to limit the potential risks of such a claim, the principal may include in the agreement with the contractor a specific obligation for the contractor to pay any amount due to its subcontractor or employees in a timely manner and to comply with all other employee-related requirements under Albanian law and the relevant employment agreements.
However, this clause would avoid claims being made directly to the principal if the contractor became insolvent due to the principal's failure to pay relevant amounts to the contractor.
Moreover, as the principal has no direct contractual relations with subcontractors or employees, the principal may deal contractually with such matters only through the imposition of general contract terms with respect to the entire subcontractor chain agreements with the contractor. This may be achieved by imposing on the contractor a 'pay when paid' clause in its entire subcontractor chain agreements. This would virtually cancel the direct claim towards the principal, as it would require the subcontractor's claim against the contractor to become due. Another alternative would be to require the contractor to include in its entire subcontractor chain agreements clauses whereby the subcontractors relinquished their direct claims towards the principal.
However, as the courts have rarely ruled on this issue, the limitation of the possibility of direct claims against the principal through the insertion of relevant clauses in the subcontractor chain agreements may risk being declared void under Article 686(2) of the code, which provides that general contract terms (pre-arranged by one party) that cause a disproportionate loss to the contracting parties shall be null, particularly if the clause conflicts with the principles of equality and impartiality set out in the code.
With regard to employees, the prior relinquishment of claims would be prohibited under Articles 11(4) and 121 of the Labour Code, and therefore the relevant contractual clause limiting the rights of the employee would be declared invalid.
For further information on this topic please contact Dorant Ekmekçiu at Hoxha Memi & Hoxha by telephone (+355 4 227 4558), fax (+355 4 224 4047) or email ([email protected]).