Caveat 880

Mark Fraser analyses how unwary contractors could come unstuck

With the onset of globalisation it is common place for contractors and professionals to seek to ply their trade in foreign climes. The more sophisticated and reputable of them also buy insurance as cover for the risks they face. Yet, surprisingly, many of them do not appreciate that specific laws not only expose them to substantial risk, but also create liability that falls out with the ambit of their insurance cover. What is the extent of this exposure and what, if any, protection is available?

The starting point for our analysis is Article 880 of the Civil Code (see box). In summary, Article 880 renders a contractor and a professional designer jointly liable for structural defects in a building for ten years from the date of delivery of the work.

The wording appears to cater for what is known as a traditional form of procurement where a contractor builds someone else’s design under that person’s supervision. Commentators have suggested that not only is liability joint but also strict in nature so that, if there is partial or total collapse or a structural defect emerges, there is limited scope for a defence. Furthermore, Article 882 prohibits limitation of liability and it is not open to contractors or designers to contract out of the scope of Article 880.

Contractors are used to being responsible for carrying out work in a good and workmanlike manner, using materials of the standard specified in the contract. Professional designers are usually expected to exercise reasonable skill and care, a level of care that affords some important legal protection.

In particular, features this duty of care is a low level of care (the standard of the reasonable average) and negligence will be determined by reference to what could reasonably be expected of the professional designer at the time of the alleged breach, i.e. not with the benefit of hindsight (the state of the art principle). Article 880 imposes a much higher level of responsibility and a conventional professional indemnity insurance policy would not cover such exposure.

In other words, not only are contractors and professionals facing increased exposure, but also designers face the prospect of their professional indemnity insurers repudiating liability as the risk is not covered by the policy.

If one considers the position of a contractor and a designer engaged on the resuscitation of an incomplete structure which has been exposed to the elements for two to three years, the risks are plain to see. In such a situation, who is going to assume the risk of the interface between old and new design and construction?

Insurers are not falling over themselves to be a repository for risk in such situations. A contractor will probably try to carve out the interface between old and new design and construction but taking on the resuscitation work places it in the firing line if structural defects emerge. Likewise for the designer who, in this strict liability environment, has very little scope for a defence. So what can be done by way of protection?

At the very least, a comprehensive survey of the existing structure should be commissioned. From a technical standpoint, assuming the original design and construction had been carried out satisfactorily at the time of cessation, exposure to the elements is not necessarily problematic. This was the experience with the ghost buildings in Bangkok that were exposed to the elements for six to seven years after the onset of the Asian financial crisis in July 1997.

If contractors and designers are aware of the Article 880 exposure they at least enter into their contracts with eyes open. Extra skill and care should be exercised and they should check with their brokers as to the availability of top-up cover or decennial insurance-type products. One saving grace may be that there have not been many instances of employers basing claims on Article 880 but, in an increasingly litigious world, attitudes could change


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