Introduction

For parties entering into construction contracts in the UK and other common law jurisdictions, the ability to agree upon the proper allocation of risks is a much valued negotiating tool. Liability for a vast range of potential future losses can be provided for in the contractual documents, often by reference to fault principles and industry benchmarked standards of skill and care. Parties can take comfort from being able to back off many risks they might accept against insurance policies.

However, some contractors and consultants who are active in the Middle East and other jurisdictions may lack a comprehensive understanding of the no-fault provisions imposed by the concept of Decennial Liability. This is a form of typically strict liability which derives its roots from the French Civil Code and there is a fairly long list of jurisdictions with a Decennial Liability or similar regime including: Algeria, Angola, Argentina, Bahrain, Belgium, Bolivia, Brazil, Cameroon, Canada, Chile, Colombia, Egypt, Finland, France, Gabon, Indonesia, Italy, Iraq, Jordan, Kuwait, Lebanon, Mali, Malta, Morocco, Netherlands, Oman, Paraguay, Peru, Philippines, Republic of Congo, Romania, Saudi Arabia (on Government contracts), Senegal, Spain, Sweden, Syria, Tunisia and the United Arab Emirates.

In this article we will explore its application in the first instance in Qatar where we are based and have encountered Decennial Liability in several practical applications. In Qatar, Decenial Liability is codified by Article 711 of Law No. 22 of 2004 (“the Civil Code”) setting out a regime which is very similar to that in the UAE, Iraq, Jordan and Kuwait. The reason for this is that the civil codes in these countries are derived from the Egyptian Civil Code (and therefore in turn the French Civil Code).

We have also explored other parts of the Eversheds global network and will take a look at some interesting aspects of regimes in certain other jurisdictions in which our construction clients do business.

We refer in this article to unofficial translations of case reports and legislation from other jurisdictions which are for the purposes of a comparative analysis. The native language remains paramount and must of course be referred to when considering any particular issues in practice.

The Position in Qatar

In the absence of an official English translation of the Qatar Civil Code, a widely respected interpretation of Article 711 provides as follows:

”The contractor and architect/engineer will jointly guarantee against total or partial collapse or flaw that occurs within ten years in buildings they have constructed, or fixed installations they have erected, even if that collapse or flaw arises from a defect in the land itself, or the employer for the work has allowed the defective buildings or structures. This guarantee includes defects that appear in the buildings or structures that pose a threat to their strength and safety”.

The following provisions of the Civil Codes of Iraq, Jordan, Kuwait and the UAE all contain very similar provisions dealing with Decennial Liability:

Iraq - Article 870-872 of Law No. 40 of 1951;

Jordan - Articles 788-791 of Law No. 43 of 1976;

Kuwait - Article 692 of Law No. 67 of 1980; and

UAE - Articles 880-883 of Law No. 5 of 1985.

The only material difference between the regimes in these jurisdictions is the limitation period within which claims in respect of Decennial Liability must be brought. In Iraq and Jordan, claims must be brought within one year of collapse or discovery of a defect whereas in Kuwait, Qatar and the UAE the period is three years.

Buildings or fixed installations or structures

There is no doubt that the construction of buildings, in the ordinary sense of the word, would be covered by Decennial Liability. Houses, office blocks and retail centres are obvious examples. Yet, the broader applicability to “fixed installations” and “structures” raises questions as to what exactly is subject to the regime.

There is no definition in the Civil Code and Qatari case law provides little by way of assistance but Egyptian jurisprudence and academic commentary suggest that things must be stable and immovable without being damaged. Leading scholar Al-Sanhuri considers bridges, dams, reservoirs, gates, railways, central air-conditioning and chimneys to be subject to Decennial Liability.

As explained above, Kuwait’s regime resembles closely that of Qatar and is set out in Article 692 of Kuwait’s Civil Code, Law No. 67 of 1980. The legislature in Kuwait issued an explanatory memorandum along with its Civil Code and in respect of Decennial Liability, it explains that the regime applies to all types of immovable structures, regardless of the material they are made of, as long as they are stable, fixed and impossible to move without breaking them.

This is entirely consistent with the commentary of Al-Sanhuri, which is often persuasive in jurisdictions such as Kuwait, Jordan, Qatar and the UAE, especially in the absence of jurisprudence. This is also consistent with French civil law cases where the court has considered the fixing of a structure or installation into the ground to be an important factor in the application of Decennial Liability[1]..

When one considers this in the context of the huge range of construction and engineering projects being undertaken in the various jurisdictions mentioned in this article, there can still be significant uncertainty (and therefore disputes) as to whether or not Decennial Liability applies to specific parts or indeed all of a project. It is certainly a far cry from a scenario in which parties seek to achieve a clear and comprehensive allocation of risk in their construction contracts.

Total or partial collapse, or defects that pose a threat to strength and safety

While it would be fairly evident whenever a building or fixed structure collapsed, whether totally or partially, the extension of the liability to “defects that pose a threat to their [building or structures] strength and safety” is less straightforward. This will always be a matter of fact falling to be determined through expert evidence. Defects of a minor nature are not intended to be caught and the reference in the Civil Code in Qatar to a “threat to their strength and safety” seeks to deal with this.

Another area for uncertainty is the applicablility of Decennial Liability to defects (as opposed to actual collapse), the immediacy of the threat to strength and safety and whether or not the threat has to materialise prior to the expiry of the 10 year guarantee period.

There is little by way of jurisprudence to assist or clarify this point in Qatar and it is not something dealt with specifically by Al-Sanhuri. In those circumstances we would ordinarily resort to French jurisprudence for guidance and we have explored this in more detail below. However, as you will see, the wording of the French Civil Code is noticeably different to that of the Qatar Civil code.

The position is pretty clear in France where the Court of Cassation has applied Decennial Liability where it was certain the damage would have become sufficiently serious within the 10 year period.

The wording of Article 1792 of the French Civil Code is noticeably different to that of the Qatar Civil Code (and therefore those of Iraq, Jordan, Kuwait and the UAE) and can be translated as follows:

All Constructors of Works are strictly liable towards the principal or the purchaser of the Works, for damage, including that resulting from a vice of the soil, which compromises the solidity of the works and which, by affecting one of their constitutive elements or part of their equipment, renders them improper for their intended use.”

If we compare this with the wording of Article 711(1) of the Qatar Civil Code, the French Civil Code is arguably narrower as the Qatar Civil Code includes the words “or flaw” and provides that the guarantee includes “defects that appear in the buildings or structures that pose a threat to their strength and safety”.

The French Courts have considered the issue of “future damages” and a foreseeable threat to the structure’s strength and safety. In a decision dated 12 September 2012, the Court of Cassation (3rd Civil Chamber, cassation number 11-16943), ruled that:

“… the works had aggravated the existing slope of the slant at the rear of the property and created a risk of crumbling that was certain within the ten-year guarantee time limit, endangering the strength of the building and the occupants’ safety and making it impossible for them to use the backyard, the court of appeal has validly ruled that the Company has to bear the charges of the works to remedy the situation and indemnify burden of the work to and compensate the owners for the loss they have suffered from the inability to use their habitat …”.[2]

Another illustration of the French approach is that of the Court of Cassation which held that a defect which, whilst not of significant gravity at the time of discovery will cause a threat to the structure’s strength within the ten year guarantee time period, is covered by the ten year guarantee pursuant to Article 1792 of the Civil Code.[3]

It is therefore clear that the French regime applies to defects provided it is certain that the damage will become sufficiently serious within the ten year guarantee period.

Article 1669 of the Italian Civil Code deals with Decennial Liability providing:

When buildings or other immovable properties intended by their nature to have a long-life are concerned, if, in the course of ten years after completion, the work collapses in whole or in part as a result of a defect in the soil or construction defects, or presents serious danger of destruction or serious defects, the contractor is liable to the principal and its assignees, provided the claim is brought not later than one year from the discovery of the defect.”

Despite the fact that the Italian Civil Code is derived from the French Civil Code, it is submitted that the regime under the Italian Civil Code is the broader of the two.

Spain has relatively recently introduced a new Decennial Liability regime under the Ordination and Edification Act (Ley 38/1999, de 5 de noviembre, de Ordenación de la Edificación(“the LOE”) which applies to buildings licensed after 06 May 2000. The LOE regime is relatively sophisticated in the way it deals with the extent of damage, distinguishing between:

  1. the most serious structural defects “ruina material”;
  2. less serious defects affecting habitability “ruina functional”; and
  3. general defects associated with detailing

with liability periods of ten, three and one year respectively.

This LOE regime in Spain coexists to a certain extent with an old Decennial Liability regime under Article 1591 of the Spanish Civil Code which still applies to buildings for which a building permit was applied prior to 06 May 2000. Article 1591 of the Spanish Civil Code provides:

“The contractor of a building which should collapse as a result of defects in its construction shall be liable for any damages if such collapse should take place within ten years, counting from completion of construction; the architect who manages the building works shall have the same liability for the same term if the collapse should result from the defect in the land or from his management.

If the cause should be the fault of the contractor, the action to claim for damages shall last fifteen years.”

The application of the old Article 1951 regime to projects will obviously become  increasingly uncommon. However, because the date of the building permit application is the determining factor as to which regime applies and Article 1951 provides for a 10 year liability period with a 15 year limitation period, the old regime still remains of relevance today to projects in Spain. Given the drafting of Article 1951, is more aligned with the French Decennial Liability regime and certainly broader than the new LOE regime.

In Romania, Decennial Liability is goverened by Article 30 of Law No. 10 of 1995 which stipulates that all the key players involved in the construction of a building (including designers, certified inspectors for design and plans, material manufacturers and suppliers, the contractor, site inspector and certified technical experts) are each responsible for his actions leading to latent defects for a period of ten years from the official takeover of the works.

The Decennial Liability regime applies to defects which are discovered within the 10 year guarantee period and there is no need for the defect to cause collapse. The issue is one of seriousness of the defect and whether the defect prevents a person from safely using the respective building.

Strict liability

It has already been emphasised that the nature of Decennial Liability is strict such that there is no need to prove error or fault on the part of the contractor and architect/engineer. Moreover, Article 715 of the Civil Code states that “any condition that seeks to exclude an architect/engineer or contractor from liability or restrict it will be void.” It must be appreciated that the concept is fundamentally driven by public policy relating to safety and parties that attempt to disapply, or reduce the effect of, Decennial Liability provisions through contractual drafting will find such efforts to be in vain if ever considered by a court or other tribunal.

Of more concern for parties unfamiliar with Decennial Liability is the fact that, in most jurisdictions where Decennial Liability exists, the relevant provisions will override a conflicting choice of law clause. Thus, if a UK registered contractor or designer entered into a contract for the construction of a building in Qatar, it would still be subject to Decennial Liability even if the governing law was stated to be that of England and Wales.

The majority of jurisdictions operating a Decennial Liability regime do so on a strict liability basis.

Saudi Arabia is an interesting jurisdiction as Saudi law is based on the Shariah so there is no codified Decennial Liability regime of general application. However, the Government Tenders and Procurement Law (2006) does contain a Decennial Liability regime in Article 76 which provides:

A contractor shall provide a ten-year warranty against partial or

full collapse of what he constructs starting from the date of final

handover to the government authority, if such collapse is due to a

construction defect, unless the two contracting parties agree on a

shorter period.”

Whilst this is limited to Government contracts, it is likely to cover a substantial number of the projects with which our international construction industry clients are involved. Article 76 is drafted such that the Decennial Liability regime in Saudi Arabia on Government projects is triggered by the presence of a ‘construction defect’ and is therefore not strict liability as such.

It is also interesting to note that in Tunisia, pursuant to Article 2 of Law 94-9, a contractor or designer can be absolved of liability where it proves that the defect or damage resulted from the client’s specific instructions, as long as the contractor or designer had warned the client of the dangers of his instructions.

In Sweden, standard form construction contracts are particularly important and its Decennial Liability regime changed in 2014 with clauses being introduced to its standard form contracts in lieu of specific legislation. The insurance industry was a key driver behind this change and the revised system is intended to be more efficient in terms of cost/risk allocation between parties to construction contracts. Generally speaking, according to these standard form contracts, the contractor’s liability is strict during the execution of the project. After completion of the works there is a guarantee period, the length of which varies depending on the type of contract used. During this guarantee period the liability of the contractor for defects and for the resulting damages caused to the client is presumed so liability is effectively strict. Upon expiry of the guarantee period the contractor is liable for important defects for a period of 10 years from completion of works however the liability at this stage is not strict, requiring proof of fault.

Liability and Limitation periods

Both the contractor and architect/engineer will be liable for defects in Qatar for 10 years from the date on which the work is handed over. The proper interpretation of this specific occurrence is not universally agreed but it is generally understood that the 10 year period begins when the works are accepted. However, whether acceptance refers to the stage at which the initial Taking-Over Certificate is issued or the later Final Acceptance Certificate remains unclear. It would be reasonable to suggest that the clock only starts ticking from the latter point as the period up until this will usually be governed by the provisions associated with a Defects Liability Period.

In practice, the contractor and architect/engineer cannot breathe a sigh of relief on the tenth anniversary as under Article 714 of the Qatar Civil Code the employer has three years to bring a claim from the “time when the collapse occurs or the defect is discovered.” Where a defect is only discovered on the eve of the tenth anniversary, the contractor and architect/engineer effectively remain ‘on the hook’ for thirteen years after completing the work. 

Iraq, Jordan, Kuwait and the UAE all operate similar 10 year liability periods consistent with the position in Qatar. As mentioned above, the limitation period for claims differs between these jurisdictions with Iraq and Jordan operating a one year period whereas in Kuwait, Qatar and the UAE the period is three years from the date of collapse or discovery of a defect.

As one would expect given the roots of Decennial Liability, France’s liability period is 10 years within which claims for Decennial Liability must be commenced. It is important to note that this 10 year period is not extended by a further limitation period as is the case in many other jurisdictions.

Spain’s relatively new LOE system varies the liability period on account of the severity of the defect or damage between one and ten years. This is coupled with a two year limitation period within which claims must be brought.

Italy operates a 10 year liability regime with a one year limitation period for claims.

Whilst the majority of regimes operate a 10 year liability period, this is not universal and as can be seen from the examples above, the limitation period for commencing actions founded on Decennial Liability can vary widely from country to country.

An example of shorter periods is Lebanon where article 668 of the Lebanese Civil Code of Obligations and Contracts issued on 09 March 1930 as amended (“Code des Obligations et des Contrats”) provides:

“The architect or engineer and the contractor whom the master has directly engaged are liable for the five years period that follows the completion of the building or other edifice which they have managed or executed, if such building or edifice collapses, wholly or partially, or evidently threatens to collapse, resulting from deficiency of materials, a vice in the construction or a vice in the soil. If the architect has not managed the construction works, he is only held liable for the defects of his drawings.

The above five-year period runs from the acceptance date of the construction works. The action must be brought, subject to rejection by the court, within thirty days from the discovery of the fact which affords grounds for the guarantee.”

Lebanon therefore operates one of the shortest Decennial Liability regimes with a liability period of 5 years coupled with an extremely short limitation period of 30 days within which to commence an action.

At the other end of the spectrum the liability period in the Philippines for Decennial Liability is 15 years. Under Spain’s old regime, whilst the liability period was the standard 10 year period, this was coupled with a limitation period of 15 years.

In light of this, the term ‘Decennial Liability,’ with its French roots, is arguably somewhat misleading and is as good a reason as any for all international contractors and consultants to consider the specific detail of the regime in the country where they are conducting business. Such initial analysis will assist in the proper evaluation of the risk exposure and enable appropriate measures to be taken, including properly pricing risk and exploring insurance options.   

Remedies

The remedies available in respect of Decennial Liability are essentially the same as those available for any other breach of contract. Despite being a statutory provision, Al-Sanhuri comments:

“Decennial liability cannot be viewed as tortious liability resulting from a harmful act, nor a different type of legal liability separate and independent of the contractual liability between the Contractor and the client pursuant to their contractual agreement. It is a contractual liability on the Contractor implied by the law.” [4]

Consequently, in respect of recoverable damages, the general rules in relation to the recovery of damages for any other breach of contract apply and in Qatar, these are prescribed by Article 263 of the Civil Code. The position is similar in Iraq, Jordan, Kuwait and the UAE.

However, a key question in these jurisdictions is whether or not parties can agree to limit the remedies for Decennial Liability. Commentary certainly suggests that the answer is a resounding “No”.

In France, damages are allocated to cover the loss suffered and/or the carrying out of works to remedy the defects. Traditionally, the carrying out of the works is the most commonly applied remedy due to the presence of mandatory insurance. Article 1792(5) makes it clear that such liability cannot be excluded or limited under the contract. The inability of parties to contract out of, limit or exclude Decennial Liability appears to be widely accepted in the vast majority of jurisdictions.

Spain’s new LOE scheme has narrowed down the categories of loss recoverable under its Decennial Liability regime to physical damage. This is far more restrictive than Spain’s old regime pursuant to which broad categories of loss could be recovered, including consequential losses, loss of profit, physical and moral damage[5].

In Romania, the remedies available in accordance with the Romanian Civil Code include:

  • Removal of the defects by the party in default;
  • Replacement of the relevant work/equipment;
  • A reduction in the contract price; and
  • Termination of the contract.

The Italian regime provides for remedies which are essentially the same as those available for any other breach of contract.

Generally speaking the statutory nature of Decennial Liability schemes is such that the parties are not able to exclude or limit such liability.

Insurance

There is no mandatory requirement for insurance in respect of Decennial Liability in Qatar and similarly in Iraq, Jordan, Kuwait and the UAE. Cover is theoretically available in the market although whether it is cost effective is debatable. In any event in our experience, relatively few choose to take out insurance of their own volition in these jurisdictions and as a result, the insurance market and insurance products is not particularly developed.

This can be contrasted with the position in countries including Algeria, Cameroon, Denmark, Egypt, Finland, France, Hungary, Mali, Republic of Congo, Senegal, Spain and Tunisia, in which some form of latent defects insurance or Decennial Liability insurance cover is mandatory.

Under Spain’s new LOE regime, article 19 of the LOE provides for three types of insurance policy to mirror the three types of decennial liability as follows:

  1. Physical damage insurance in order to cover the physical damage resulting from flaws and defects affecting detailing elements for a period of one year;
  2. Physical damage insurance in order to cover the physical damage of the building caused by flaws or defects affecting its habitability for a period of three years; and
  3. Physical damage insurance in order to cover the physical damage of the building deriving from flaws or defects affecting the foundation, supports, beams, load bearing walls, or any other structural element, and that form part of the resistance and stability of the building.

This latter category of insurance is known as the “Decennial Insurance” and this insurance is only mandatorily required for buildings erected for housing purposes.

This is not disimilar to the position in Italy where insurance is only mandatory where the client is a ‘natural person’ and therefore not where the client is a corporate entity.

Conclusion

Where the application of Decennial Liability is in respect of a residential building, its operation is clear. Conversely, when considering complex engineering mega projects, it conflicts with the reasonable expectations of established commercial entities if they are not afforded the freedom to specify their own risk allocation.

It is interesting to see that some jurisdictions appear to be narrowing down the scope of an existing regime or at least updating historic regimes to take account of today’s construction industry.

Decennial Liability can be a knight in shining armour where no other remedies are available under the contract; for others, it is a menacing cloud that generates commercial uncertainty and potentially significant financial risk.

As the French Civil Code is the ultimate source of most of the Decennial Liability regimes, it is no great surprise that the majority of jurisdictions share some fundamental elements with the French Civil Code. However, as highlighted in this article, each regime has its own important nuances and these require thorough analysis by contracting parties before they commit to their contractual risk profile.