Take care when taking over: Contractor liability explained

by Steven Hunt

sense that, for many contractors, ‘taking over’ is seen as the moment when the proverbial foot can come off the gas – the time when the contractor is finally relieved of the burden of delivering the project. For a contractor the process of taking over is an important one as the care of the works will pass to the employer and the employer’s entitlement to recover liquidated damages will cease. It is not, however, the end of the story for the contractor as he will remain liable for defective workmanship and materials beyond handover.

A contractors’ liability will depend on the nature of defects; whether defects are apparent or capable of discovery when the works are handed over (sometimes described at patent defects), are discovered or are only capable of being discovered after handover (latent defects), or are of the type covered by Article 880 of the UAE Civil Code (decennial liability).

The starting point is that a contractor’s liability for defects will, unless the construction contract or the law says otherwise, cease upon the works being taken over by the employer. At hand-over an employer is deemed to accept that the works were carried out properly and in accordance with the contractual requirements. On that basis, a contractor will have no liability for defects that are apparent at the time of taking over. The law, however, does recognise the freedom of the parties to agree differently: “…the employer may make a reservation when he takes delivery of the work or accepting the thing to the effect that such delivery or acceptance will not prevent him from having recourse against the contractor if a defect appears in the work even if such defect is apparent.”*

This is essentially what a defects liability period does; it extends performance under a contract beyond taking over. Defects liability periods can be found in most forms of construction contract. For example, Clause 48 of FIDIC’s 4th Edition (Red Book) serves to extend the period for which a contractor is obliged to perform the works and to rectify any loss and damage. The contractor’s liability for defects during the Defect Liability Period is to put right or remedy the defect rather than to pay damages for breach of contract.

The extent to which a contractor’s liability for patent defects will continue beyond handover of the works very much depends on the terms of the construction contract. Similarly, a contract will usually set a timetable for the employer to notify the contractor of defects, and the right to make a claim may be lost if the employer fails to notify the contractor of apparent defects within the prescribed time period. For example, under the Red Book, an employer must serve notice of defects before the expiry of the Defects Liability Period.

The position is different for defects that can not be discovered or are not capable of discovery at handover. In that instance an unconditional acceptance of the works by an employer would not relieve a contractor of liability. While there are no express provisions under the law of muqawala (construction contracts) relating to the latent defects, UAE law does distinguish between latent and apparent defects; for example, Article 544(4) of the Civil Code. This relates to sale of goods, but the principle has broad application, including in respect of construction related issues.

Article 544 states: “For a defect to be regarded as old [pre-existing] it must have been latent, and a latent defect is one which cannot be observed by an external inspection of the goods, or which would not be apparent to the ordinary man, or which could not be discovered by any person other than an expert, or which would only be apparent on testing.”

A contractor’s liability for latent defects is subject to the overall limitation periods provided under UAE law – the 10 or 15 years that apply by virtue of the UAE Civil and Commercial Codes.

These periods for bringing a claim are likely to be shortened should the defects be discovered earlier. The UAE Civil Code is silent on this point but it is worth again turning to Al Wasit* for guidance: “…the contractor remains liable for the defect for the short period prescribed by the custom of the craftsmanship because custom in muqawala is complimentary to the provisions of law and may reach to the level of determining a limitation period for claiming compensation.

“It could be concluded from the silence of the employer after he discovered the defect that he impliedly waived the action of recourse for compensation against the contractor.”

A contractor’s liability for latent defects could extend to 10 years or more, although the right of an employer to bring a claim is likely to be lost should he fail to act upon the existence of a defect once it is known or has become apparent.

A contractor’s liability for defects that cause collapse or threaten the stability or safety of a structure is different again. This is subject to decennial liability, being a 10-year strict or no-fault liability which is an additional or concurrent obligation that applies within the overall 10 or 15-year limitation periods.

As with a contractor’s general liability for latent defects, the clock will start ticking once the collapse occurs or the defect is discovered. Under decennial liability a contractor will remain exposed to claims from the employer for a period of three years following the collapse or discovery of the defect.

I take the view that the provisions relating to decennial liability apply equally to apparent and latent defects. No-fault liability for defects would arise notwithstanding that an employer had knowledge, at handover, of a defect that ‘threatens’ the safety or stability of a structure. Accordingly, any deemed approval or acceptance of the works by an employer at taking over would not relieve a contractor of liability.


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