Jordan ... need to work with the grain of decennial liability.
Hidden elements of latent defect liability
01 April 2016
STUART JORDAN* elaborates on the intricacies of decennial liability, highlighting that contractors and architects need to be well aware of the extent to which they are liable for defects in buildings.
It’s sometimes a shock to overseas construction people working in the Middle East, to find out the real extent of liability for latent defects – that is, defects in buildings that were not apparent at the time of completion.
The big issue is, of course, decennial liability, which is a statutory feature across the Gulf although its exact form differs between countries. Almost everyone has heard of decennial liability and understands it, correctly, to be something which lasts for 10 years following completion.
Many people in the industry don’t look any further than that, taking the view that it isn’t anything different or more onerous than the position elsewhere, under contracts which provide for lengthy processes for defects correction and in countries where there are long periods of contractual limitation of actions.
In the UK, for instance, a party is “on the hook” for any breach of contract (including latent defects) for either six or 12 years after completion, depending on how the contract was executed, at least if “close-out” of liability isn’t expressly agreed in a different way. It’s easy to conclude: 10 years is less than 12 in the UK (or 15 in UAE), so what’s the problem?
The problem is that decennial liability works in a different way; it isn’t limited to instances of breach of the relevant design and construction contracts and it doesn’t only place liability on those in breach.
It is an example of “strict liability”, that is, if it happens, you pay regardless of the fault. Also, a claim can be brought within three years of discovery of the defect – so that’s a potential 13 years. All this is a scary prospect for people brought up on the idea that they will always stay out of trouble if they keep to the contract and reach close-out of contractual liability. Outside of the contract, there have always been other potential risks of exposure to liability but the idea of negligence, as a non-contractual wrong, is now closely reflected in contractual obligations; for instance, to design with skill and care, or to build in line with good practice. Generally, the risks are all pretty much in the contract.
Given that decennial liability is so different from contract liability, the most noticeable aspect is that the contracts still generally deal with issues of breach, defects, defects correction and liability in the same way as they do everywhere else.
Decennial liability in the UAE is contained in articles 880 to 883 of the Civil Code. Article 880 provides that the contractor and the architect who has drawn up the plans and has supervised the work, will be jointly liable to the employer for a period of 10 years from “delivery of the work” in the event of a partial or total collapse of the building or there being a defect which threatens the structural stability or safety of it. This liability remains notwithstanding the defect or the collapse arises out of a defect in the land or if the employer consented to the construction of the defective building.
So, even if the employer says: “Yes, I understand the problem but please build my castle on sand”, you really should not!
Interestingly, within this strict liability law, Article 881 recognises degrees and types of fault. If the architect (or engineer, for these purposes) only drew up the plans and did not supervise the construction, then he will only be liable for “design defects” and not structural defects; meaning that he is not responsible for defective construction if the designs themselves were not defective.
This leaves a lot of questions, and there is limited assistance from UAE court decisions in clarifying them. Firstly, what defines the beginning of the 10-year period upon “delivery of the work”; the consensus is that this equates to practical completion or taking over – the point at which the employer takes possession and use of the built asset. Also, the point of “discovery” of the problem can be anything from small suspicion to full knowledge of the defect, the damage and all cost arising.
In my view, the most interesting question is the concept of “defective land” and how it relates to defective design. If a design is good for some but not the actual geological conditions, where is the fault?
Decennial liability is a fact of life in the Middle East. Parties cannot contract out of it, at least not directly. As part of public law, of course, it applies automatically to construction in the relevant country and cannot be avoided by specifying a different contract governing law.
Certain aspects of the exposure can be helped, for instance in relation to ground conditions. Whilst a contractor or designer will remain strictly liable to compensate a building owner for collapse due to “defective” ground conditions, they could hold specific indemnities against this risk from (for instance) geotechnical surveyors who did pre-construction surveys. There could also be contractual cross indemnities between parties who might find themselves jointly liable under this law, so that the party actually at fault (or most at fault) if anyone is, must reimburse the other.
Parties need to consider decennial liability and to work with the grain of it, in terms of setting out which parties hold contractual obligations to ensure structural stability; which of them hold the contractual risk of ground conditions; and whether anyone is contractually responsible for investigating and reporting on ground conditions. If the set-up doesn’t work this way, it is likely that some parties will have a false sense of security. Also, since all risk has a price, the project will be inherently inefficient in allocating money to parties who are not wholly and exclusively holding certain risks.
*Stuart Jordan is partner and co-head construction for the international law firm King & Wood Mallesons (KWM). Based largely in Dubai, UAE, he specialises in engineering and construction matters, cross border, both front end and disputes.
