REALWorld Law

Construction

Other liability to end user

To what extent would an architect, another designer, the building contractor or any subcontractor have liability for any physical damage or economic loss suffered by the end-user(s) of a completed development? Can such liability be excluded in any way?

Angola

Angola

Due to lack of a direct contractual relationship between the end user and the architect, designer, contractor and/or sub-contractor, as a general rule, no direct claims can be made by the end user against these parties, except in the circumstances where the conditions for extra-contractual liability are fulfilled. For example, architects and engineers would only be liable to the end user of a building in the event of a tort being committed alongside a breach of the technical and safety rules that have to be complied with as part of the design process. This liability cannot be excluded before the damage occurs.

Australia

Australia

In a typical development project, there is no contractual relationship between the parties employed in connection with the design and construction of the development (the architect, engineers, other consultants, main building contractor and sub-contractors) and the end-users of the completed building.

In such a case, assuming the subsequent owner does not have the benefit of any contractual warranties from the previous owner, the subsequent owner will need to rely on the law of negligence.

Over the last 20 years, Australian law has come to recognize that building owners who suffer loss because of defective building may have a cause of action against negligent builders and others, including municipalities who by negligent exercise of their statutory responsibilities (eg inspecting foundations) allowed defective building to take place.

An action in negligence offers a subsequent owner a right of recovery against the builder of, or a relevant consultant associated with the construction of, a building in circumstances where the subsequent owner suffers a particular kind of ‘economic loss’. That is, the diminution in the value of the building in that the plaintiff has acquired property of less value than was reasonably believed, and which required the expenditure of money to restore it to the contemplated standard.

It is also possible for end-users to require the main construction parties to provide them with separate collateral warranty agreements or ‘third-party-rights’. Such collateral warranties would contain exclusion and limitation clauses which restrict the damages which end-users could recover.

It is unlikely that a contractual exclusion in favour of a builder, which has the effect of excluding or modifying any duty of care between the builder and previous owner would operate to discharge the builder from a duty of care which would otherwise exist to third parties to the contract. This is because the builder’s duty of care in such circumstances is imposed by law. However there would be difficulty in holding that a builder owes a duty of care to avoid causing economic loss to a subsequent owner if performance of the duty would have required the builder to do more or different work than the contract with the original owner required or permitted.

Belgium

Belgium

Due to lack of a direct contractual relationship between the end user and the architect, designer, contractor and/or sub-contractor, no direct claims can be made by the end user against these parties, except where the conditions for extra-contractual liability would be fulfilled (in accordance with the rules of tort). Parties are extra-contractually liable for any damage suffered by an end user, to the extent the damage is of an extra-contractual character and has been caused by their respective default or negligence, other than the wrongful undertaking of their contractual obligations. In practice, this means that one can only formulate a direct claim against the sub-contractor of one’s contract party, when the sub-contractor commits a crime while executing its obligations under the sub-contract.

As for a contractual relationship, limitation of liability is, in principle, also possible in an extra-contractual context, although in practice problems will usually arise with respect to the (silent) acceptance of a limitation of liability clause for extra-contractual damage between non-contracting parties. In such circumstances, the acceptance of a limitation of a liability clause for extra-contractual damage between non-contracting parties will take place ‘silently’ since no contract actually exists between the parties. The acceptance must be extracted out of the situation and/or the behaviour of the parties. This leads in practice to interpretation and other problems. The proof of the acceptance will not be easy to ascertain.

The only affect of limitation of liability clauses between parties and the architect, designer, contractor or sub-contractor and the principal will be that they are not enforceable against any third party or end users. Furthermore, limitation of liability clauses in favour of a contractor or an architect are not regarded favourably and in particular are opposed where they relate to the quality of buildings.

Bosnia-Herzegovina

Bosnia-Herzegovina

Liability rests with parties which actually contract with the relevant end user. These contracts are normally between the developer and the end user and in such cases, liability rests with the developer. No such liability can be excluded. Third parties, such as architects, other designers, and contractors have no liability to end users.

Canada

Canada

The answer to this question depends on whether the architect, other designer, building contractor, or subcontractor is in privity with the entity advancing the claim. With the exception of builders’ liens, the answers will be the same as developer's liability to end-user explained above.

Builders’ lien legislation provides a small measure of payment security to contractors, subcontractors and workers even if they are not in privity of contract with the developer (for example, where a subcontractor is only in privity with a general contractor). In such circumstances, an unpaid subcontractor can (within strict time limits) register a claim of builders’ lien against title to the property on which the project was constructed, and secure its claim to a maximum of 10% of the value of the head contract. However, a builders’ lien cannot be claimed on federal property given that builders lien legislation creating lien rights is within provincial jurisdiction.

China

China

Architects, designers, building contractors and sub-contractors will not owe any contractual liabilities to end users suffering loss, but may have tortious liability. There are no restrictions on excluding such liability, however, in practice, counterparties would not agree to such an exclusion.

Croatia

Croatia

Any person carrying out construction works is liable to the investor as well as to any further person who acquires the building for any defect in the substantial parts of the building which appears within ten years from the completion of the construction and for any defect in other parts of the building which appears within two years from the completion of the construction. The same liability applies to the designer if the defect results from a defect in the project and to the supervisor if the defect results from a mistake in the supervision. This liability may not be excluded.

Czech Republic

Czech Republic

In a typical development project, there is no contractual relationship between the architect, designer, consultant, contractor or other such parties and the end user. Thus, they have no liability to third parties (end users).

However, the Civil Code also provides that liability can be imposed for latent defects in the project documentation or performance. Moreover, as well as the contractor, subcontractors, suppliers of project documentation and supervisors of the construction are jointly and severally liable, to the extent they are at fault, where the defect was caused by their failure to perform.

Denmark

Denmark

Under Danish law, pure economic loss is not recoverable where there is no contract between the parties, which is the case here. There is no contractual relationship between these parties and the end user of a completed development.

It may be possible for the end user to put forward a claim against the building contractor, architect etc for injury or damage for which they may incur liability under the general provisions of Danish legislation.

France

France

Due to lack of a direct contractual relationship between the end user and the architect, designer, contractor and/or sub-contractor, no direct claims can be made by the end user against these parties, except in the circumstances where the conditions for extra-contractual liability are fulfilled. Parties are extra-contractually liable for any damage suffered by an end user to the extent the damage is of an extra-contractual character and has been caused by their default or negligence, other than the non performance of their contractual obligations. This liability cannot be excluded before the damage occurs.

Germany

Germany

In general, there is no contractual relationship between the parties employed in the design and construction of the development (architects, engineers, other consultants, main building contractor and sub-contractors) and the end users of the completed building. These parties will only be responsible for damage under the law of tort (ie a culpable breach of regulations providing for the security of end users or culpable interference with the absolute rights of the end users). Pure economic losses are in principle not covered by this liability.

Due to the fact that it is in most cases easier and more beneficial for an end user to claim against its contractual partner (ie landlord/developer) or quasi-contractual partner (ie prospective business partner), an end user would usually claim damages from that contractual partner and not enforce damage claims under law of tort against the parties employed in the design and construction of the development.

Hong Kong

Hong Kong

As engineers, architects and surveyors have no contractual relationship with end users, their liability arises under the general law of tort. Any duties which an architect/contract administrator may owe to an end user will be derived from the particular circumstances of the project. Such liability is generally limited to a liability in respect of physical damage, including personal injury, where the accident can be shown to result from a negligent permanent design or in the unusual situation where the architect has positively intervened or designed or controlled the contractor's work. If the end-user has a reasonable opportunity to carry out an inspection and thus discover the existence of any defects likely to cause damage, the architect/contract administrator may not be held liable for these defects. However, liability could attach where the defects were unlikely to be discovered upon inspection

Hungary

Hungary

Due to the lack of contract between the architect/designer/(sub-)contractor and the end user, the latter may enforce its claims against the architect/designer/(sub-)contractor for damages in accordance with the general tort liability rules, pursuant to which a person causing damage to another person in violation of the law shall be liable for such damage and may only be relieved of liability if he is able to prove that he has acted in a manner that can generally be expected in the given situation. The period of limitation for such claims is, as a general rule, five years.

Ireland

Ireland

Contract law

If the end user has no contractual link to the entity that either procured the development or carried out the construction works, the end user cannot take an action against the contractor as there is no privity of contract.

To create privity of contract, end users in Ireland for commercial developments will generally be provided with a form of collateral warranty from the developer where the developer will provide certain warranties.

If a direct contractual link can be established, liability will follow for physical damage or economic loss suffered, unless expressly excluded by the terms of the contract.

Where collateral warranties are not used, liability clauses in development agreements and subsequent construction contracts will generally mirror each other and are said to be 'back-to-back' thereby allowing liability to flow between parties along a chain of contracts.

Tort law

Since the Ward v McMaster case, a builder who is negligent in the construction of a building may be liable to subsequent purchasers as the builder owes a duty of care, the scope of which falls to be determined by the criterion of reasonable foresight and includes avoiding any dangerous hidden defects in the property. In that case, the builder was required to not only pay damages to the plaintiffs for the structural flaws in the building but was required to compensate them for inconvenience and consequential loss they had suffered.

Italy

Italy

According to case law, the designer is jointly liable with the contractor vis-à-vis the end users in the event of serious defects of the building works. Under Italian law, pure economic loss – which includes the costs of remedying defects in a building, as well as loss of profits, loss of income, damage to stock and so on – is recoverable from non contractual parties exclusively on the basis of a judicial ruling attesting the existence and the quantification of the damages, the damaging party’s fault or malice as well as the causal relationship (nesso di causalità) between the damaging party’s behaviour and the occurrence of damages. For this reason, it is common and standard for end users to require the main construction parties to provide them with separate collateral warranty agreements or 'third party rights' whose content and extent may vary on the basis of the size and value of the development.

Japan

Japan

For sub-contractors, there is usually no contractual relationship with the owner (end-user).  For an architect, designer or consultant, it depends on each case.  Even though there is no contractual relationship between the contractor and the owner, tort liability of the contractor could be sought by the owner in some cases.  Or, in some cases, subrogation by the owner could be an option.

Netherlands

Netherlands

Here the contractor/designer does not have a contractual relationship with the third party concerned and it can only be held liable to the third party under the general law on civil liability. Usually, a contractor’s liability to a contracting party for damage caused to third parties is either excluded or limited. Under Dutch law it is possible to exclude or limit liability, apart from liability for intentional acts or gross negligence. It is therefore common practice to either limit or exclude such liability.

Nigeria

Nigeria

There is no contractual liability on the part of the architect, contractor, engineer and subcontractors in favor of the end users. The end user therefore cannot directly claim against an architect or contractor if there is no privity of contract between them.

Instances of liability may occur in tort where there is a breach of professional duty by the architect in the designing of the building project and which has occasioned damage and loss.

Norway

Norway

The starting point under Norwegian law is that third parties – who are not parties to the construction contract – do not have the right to bring claims directly against the original designers and contractors involved in the design and construction of the project.

Under Norwegian law, pure economic loss – which includes the costs of remedying defects in a building, as well as loss of profits, loss of income, damage to stock and so on – is not recoverable where there is no contract between parties. In such cases, the end user must make a claim against the seller for any loss suffered by the end user. The seller can, however, make a claim against the contractor if the loss (which is the subject of a claim by the end user against the seller) was caused by defects in the contractor’s work.

However, some legislation and standard documents give the end user/purchaser the right to make a claim directly against an underlying contractual party, such as another contractor or sub-contractor.

Poland

Poland

In a typical development project, there is no contractual relationship between the parties in connection with the design and construction of the development (the architect, engineers, other consultants, main building contractor and sub-contractors) and the end users of the completed building. For this reason, end users may require the main construction parties to provide them with separate collateral warranty agreements or third-party rights.

Portugal

Portugal

Architects and engineers would only be liable to the end user of a building in the event of a tort being committed alongside a breach of the technical and safety rules that have to be complied with as part of the design process.

Romania

Romania

Under Romanian legislation, designers and architects are liable for damage caused to the employer or its successors (eg purchasers of the building or of parts of the building) only to the extent the damage is caused by an error in the design or specification. The Architects' Code of Practice defines the extent of architects’ responsibilities for their designs. Any client intervention in the areas which are within the scope of the architect's responsibilities may exonerate the architect of his liability.

Designers, contractors and suppliers of materials, construction supervisors, and certified technical experts are responsible for any hidden defects in the construction arising within 10 years from the handover of the works. After the expiry of that period, they are still liable throughout the entire lifetime of the building for defects in the structural core which arise from negligent design and execution.

No exclusion of this liability is allowed under Romanian Law, but it is possible to extend a contractor or subcontractor's liability.

Russia

Russia

Quality claims

In a typical development project, there is no contractual relationship between the parties employed in connection with the design and construction of the development (the architect, engineers, other consultants, main building contractor and sub-contractors) and the end users.

As a general rule end users are not permitted to bring quality claims directly against the contractors or designers. However, claims may be brought against a party that has a direct contractual relationship with the end user (such as a seller or a landlord) pursuant to the provisions of that contract.

Claims related to personal injuries and harm

Under Russian law, damage caused by defects in design and construction works must be compensated by the entity that carried out such works. The self-regulating organisation that admitted the entity that carried out such works and the state supervising authorities bear joint and several liability with such entity.

Slovak Republic

Slovak Republic

In a typical development project, there is no contractual relationship between the parties employed in connection with the design and construction of the development (the architect, engineers, other consultants, main building contractor and subcontractors) and the end users of the completed building. Therefore, such damage is not directly recoverable where there is no contract between parties.

However, if a developer concludes a contract (eg sale contract) with an end user, it is possible that the end user may claim damages under the warranty granted to end user by the developer and that the developer, having entered into the contractual relationships with other person(s) in order to construct a building, may subsequently claim reimbursement under his own warranty granted by persons employed in connection with the design and construction of the development (eg the contractor, the architect, engineers, other consultants, main building contractor and subcontractors).

Therefore, some end users' claims could potentially be covered by an existing warranty even if there is no direct contractual relationship between parties employed in connection with the design and construction of the development (the architect, engineers, other consultants, main building contractor and subcontractors) and the end users.

Spain

Spain

Every party involved in the development is liable for its part in the project. This liability exists objectively and arises where any defect becomes apparent. Evidence that the work was carried out diligently is no defence. Only force majeure can exclude the liability. If it is not possible to determine which party is responsible for the defect, all parties are liable. This liability may not be excluded.

Sweden

Sweden

The development agreement usually limits liability between the contracting parties. If the end user is not a party to the contract, damage is governed by the Tort Law (skadeståndslagen). It is not possible to exclude liability in such cases. Any such liability is based on negligence.

Thailand

Thailand

In principle, end users who are not parties to the construction contract are not entitled to directly claim damages from the architect, designers, contractors or sub-contractors.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

Broadly, the Civil Code provides an extended warranty period for contractors, and in certain circumstances design and supervision consultants, for a period of 10 years following completion of the works (commonly known as decennial liability). This provides the employer with blanket protection for 10 years from the delivery of the work for any ‘total or partial collapse’ of a building, and for any defect affecting stability or safety of a structure. The period of time can be extended by the contract but cannot be reduced.

The decennial liability is joint for both the architect (designer) and the contractor, however the architect’s liability is limited to defects caused by its design, if it is not also responsible for supervising the works. The employer can join both the designer and the contractor in actions for compensation without being able to decide whether the defect is caused by the design or by construction of the building.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

Broadly, the Civil Code provides an extended warranty period for contractors, and in certain circumstances architects, for a period of 10 years following completion of the works.

UK - England and Wales UK - England and Wales

UK - England and Wales

In a typical development project, there is no contractual relationship between the parties employed in connection with the design and construction of the development (the architect, engineers, other consultants, main building contractor and subcontractors) and the end-users of the completed building. Under English law, pure economic loss – which includes the costs of remedying defects in a building, as well as loss of profits, loss of income, damage to stock and so on – is not recoverable where there is no contract between parties. For this reason, it is common and standard for end-users to require the main construction parties to provide them with separate collateral warranty agreements or ‘third-party rights’. Industry standard forms of these collateral warranties contain exclusion and limitation clauses which restrict the damages which end-users can recover. In large developments, these limitations are often unacceptable to end-users.

UK - Scotland

UK - Scotland

In a typical development project, there is no contractual relationship between (1) the parties employed in connection with the design and construction of the development (the architect, engineers, other consultants, main building contractor and subcontractors) and (2) the end users of the completed building. Under Scots law, pure economic loss – which includes the costs of remedying defects in a building, as well as loss of profits, loss of income, damage to stock and so on – is not recoverable where there is no contract between parties. For this reason, it has become common and standard for end users to require the main construction parties to provide them with separate collateral warranty agreements. Industry standard forms of these collateral warranties contain exclusion and limitation clauses which restrict the damages which end users can recover. In large developments, these limitations are often unacceptable to end users. Since the coming into force of the Contract (Third Party Rights) (Scotland) Act 2017, it has been possible for parties to a contract to confer a right of action or immunity from liability on a person/entity who is not a party to the contract (in a similar manner to the position in England).

Ukraine

Ukraine

According to Ukrainian legislation, the architect, another designer, building contractor and any sub-contractor shall be liable before the developer and, thus, as a rule, shall not be liable before the end user (except in cases when agreements on execution of the respective works are concluded by such contractors directly with the end user).

United States

United States

The answer to this depends on whether the architect, other designer, building contractor, or subcontractor is in privity with the entity against whom the claim is to be made. With the exception of mechanics' liens, the answers will be the same as developer's liability to end user. To the extent the economic loss is non-payment for services and the unpaid party is not in privity with the developer (eg the subcontractor is only in privity with the contractor), then such unpaid party can claim a mechanics lien over the real property where the project is located; provided, however, a mechanics lien typically cannot be claimed on public property.

Zimbabwe

Zimbabwe

In terms of the common law the architect or the engineer would be held liable for structural flaws or problems with the building (latent defect liability), however, the extent of his liability can be limited contractually. There is no general liability extending to members of the public or the end users of a completed development. The standard applicable is therefore the issuance of warranties by the designers and contractors to the owner for an agreed period of time.