1. A retainage (guarantee withholding) and the party’s failure of releasing it after expiration of warranty period are enforceable with economic courts.

The facts of the case

The company (subcontractor) and the enterprise (general contractor) concluded a construction contract. The contract provides that retainage (guarantee withholding) will be released within a year after the expiration of warranty period.

The company asked the court to recover from the enterprise a principal debt and contractual penalties.

The court of first instance fully recovered the principal debt and partially* the contractual penalties.

The court of [appeal] instance upheld the decision of the court of first instance.

The Supreme Court’s position

The completion of work and payment documents are to be executed in accordance with Ch. 37 CC and terms of the contract. An act of reconciliation is comprised of a mutual comparison of mutual calculations for a certain date, and the information [mentioned in such act] shall be based on the relevant documents mentioned above.

The contract does not clearly and strictly define the terms of the enterprise’s service fees**, that is the general contractor’s service fee rates. In addition, the general contractor’s service fee is not specified in the act of acceptance and transfer of construction works signed by the parties. The enterprise did not prove its [the general contractor’s] own fee retention and its contractual rate and thus did not agree on the [essentialia negotii] of the contract.

In addition, the contract stipulates that 5 % of the amount [of fees for construction works] will be retained until the warranty period expires***, which shall not exceed 12 months. Warranty period starts when the construction object is transferred to use based on the decision of the mayor of the city on determination of the right of ownership. Although the warranty period expired, the enterprise did not return [5% of fees for construction works].

The Supreme Court upholds the decisions of the lower courts.

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*) Based on Art. 326 CC and Nr. 4 RPL SCC dd 15 June 2007 No. 163.

**) The enterprise seemingly claimed to withhold its own service fees from the retainage (guarantee withholding) amount.

***) The Model turnkey contract used in state-funded construction projects expressly provided for such retainage (Schedule 3 to RCabMin dd 12 September 2003 No. 395 repealed with RCabMin dd 20 May 2021 No. 321), albeit it was neither expressly regulated, nor prohibited in Chs. 22 and 37 CC.