Setoff in the case of direct claim by a subcontractor and the performance bond as ex officio measure

The subcontractor has a direct claim against the principal in the amount of what said principal owes to the general contractor at the time that this direct claim is filed / exercised (art. 1798 of the Civil Code). The principal against whom a direct claim is filed can raise against said subcontractor all of the objections that he possesses at the time the direct claim is filed. The subcontractor will thus have to allow the objections, setoff, transfer of debt claim, payments by the principal, etc. to proceed before filing the direct claim.

Moreover, the principal can also invoke the objection of non-performance after the filing of the direct claim. After all, this objection - which is based on the interdependency of the reciprocal obligations - belongs to the essence of the reciprocal agreement, so that it exists prior to the non-performance itself and prior to the exercise of the direct claim (Cass. 25 March 2005, no. C.03,0318.N, Arr. Cass. 2005, 712, JLMB 2005 (abbreviated), 1039, note P. HENRY, Pas. 2005, 714, RABG 2006, 631, note, RABG 2007, 601, note K. UYTTERHOEVEN, RCJB 2005, 450, note M. GREGOIRE, RW 2005-06, 63, note M. DEBUCQUOY, TBBR 2005, 645 and TBH 2005, 1024, note W. DERIJCKE; Brussels 18 March 2010, T.Aann. 2011, 70, note P. SCHILLINGS; Brussels 22 May 2007, T. Aann. 2008, 65, note J.P. RENARD).

By decision of 27 February 2015 (no. C.14,0344.N/1), the Court of Cassation confirmed that the principal can in general raise against the subcontractor all of the objections that he possesses at the moment the direct claim is filed of exercised. The principal can also raise the setoff as objection, such as in this case the setoff with a damages claim due to non-performances, which is based on the interdependency of the reciprocal obligations of the parties, which objection belongs to the essence of the reciprocal agreement and which therefore exists prior to the non-performances and prior to the exercise of the direct claim.

In this case, the principal of a public procurement contract invokes art. 20, §7 of the then still-applicable General Contracting Terms for public procurement contracts by collecting the amount of the fines, penalties and damages due to ex officio measures via the established performance bond. The general contractor had an outstanding debt claim against the principal in the amount of 150,787.62 EUR. This general contractor had a performance bond established in the amount of 114,080.60 EUR. The principal cited a (not more precisely defined) persistent default on the part of the general contractor and ex officio measure in order to claim the total amount of the performance bond in the amount of 114,080.60 EUR (art. 20, §6 and 7 AAV 1996). Certain subcontractors had filed direct claims for a total amount of 215,887.32 EUR. The guarantor of the performance bond objected to the payout to the principal with reference to the setoff of the claim of the principal against the general contractor in damages with the claim of the general contractor against the principal for payment of the final statement of account. The amount of the fines, penalties and damages must namely be set off first and can only then be deducted from the performance bond in the absence of sufficient claims of the general contractor in order to also be set off (C. DE KONINCK, Overheidsopdrachtenrecht [Public Procurement Law], Book II, De uitvoering van overheidsopdrachten [The execution of public procurement contracts], Antwerp, Maklu, 2002, p. 256; M.A. FLAMME et al, Praktische Commentaar bij de reglementering van de overheidsopdrachten [Practical Commentary on the regulation of public procurement contracts], Part 2, Brussels, National Confederation of the Construction Industry, 1996, "art. 20", p. 507-508, no. 25).

The Court of Appeal of Antwerp had - according to the presentation in the Cassation decision - ruled that the principal, through the direct claims of the subcontractors, could not call on setoff vis-à-vis the general contractor for the fines, penalties and damages, i.e. that these direct claims had exhausted the claim of the general contractor for payment of the final statement of account, as a result of which the principal could call on the performance bond in order see its damages due to the non-performance compensated (lump-sum).

The Court of Cassation set aside this decision, in light of the fact that the setoff between the claim of the general contractor against the principal (for payment of the final statement of account) and of the principal against the general contractor (for damages due to non-performance), is opposable as an objection against the subcontractors who filed a direct claim, and given that this setoff should have preceded the call on the performance bond.

For more information on this subject, you can consult Siegfried Busscher (the author) and Kris Lemmens and Chantal De Smedt (the department heads).