Explanations will not help afterwards

Blogs August 29, 2017


Real Estate and Construction

On 25 July 2017, the Supreme Administrative Court issued a resolution (3669/17), which upheld the €10,000 and €6,000 fines given to the client company, A Ltd. The failures of A Ltd. were not considered to be negligible and the conditions for imposing the fines were not considered unreasonable when considered as a whole. There were therefore no grounds for lifting or reducing the fines.

The case involved a failure to comply with the Act’s check obligation. A Ltd. had made subcontracting agreements for facilities management services with two companies (X Ltd. and Y Ltd.). Before entering the agreement, A Ltd. had not obtained the information required by the Contractor’s Obligations Act (a prepayment register registration document, a trade register certificate, a tax debt certificate, certificates of pension insurance premiums paid, an account of the collective agreement or the principal terms of employment applicable to the work). However, A Ltd. had obtained the information after entering the contract and some of it had been previously verbally verified. A Ltd. believed that the wrongdoing was minimal and the resulting fines should be moderated. A Ltd. also claimed that it makes about 100 different subcontracting agreements annually and that the background checks required by the Contractor’s Obligations Act are obtained regularly. Consequently, A Ltd. considered that overall it has acted appropriately and in accordance with the Contractor’s Obligations Act.

However, A Ltd.’s arguments for moderation of the fines were not taken into account. Act on the Contractor’s Obligations and Liability requires that the checks are carried out prior to entering the agreement and verbal confirmation is not considered sufficient. Consequently, in the view of the Supreme Administrative Court, verbal verification or correcting the wrong doing after the fact was irrelevant. According to the Supreme Administrative Court, overall compliance is also not enough; the background check obligation must be adhered to in all situations. A Ltd. was not protected from fines even by the fact that the other subcontracting process had been carried out on A Ltd.’s behalf by A Ltd.’s contracting party and A Ltd. had trusted that the contractor concerned would obtain the required information – as a client A Ltd. was responsible for requesting the information as required by the law.

So what can we learn from this? At the very least this case demonstrates that the background check required by the Act on the Contractor’s Obligations and Liability should be taken seriously and all legal clarifications must be made before agreements are signed. Past compliance will not protect anyone from the consequences and, according to the Supreme Administrative Court, is not a valid reason to moderate fines. Just like in VR’s commuter trains, the ticket must be purchased prior to the start of the journey and consequences cannot be avoided no matter how much you try to explain to the ticket inspector that you usually have the correct ticket when boarding the train.