Recently the Supreme Court of Estonia clarified the issue of contractor liability where lack of conformity under contract becomes evident. As a novelty, the Supreme Court ruled that parties of the construction contract may derogate by mutual agreement from the liability regulations provided in the Law of Obligations Act and Building Act The judgment makes it clear that the warranties established by the Building Act may be varied by agreement between the parties, thus excluding some legal remedies. Additionally, the parties may grant the contractor an opportunity to rely on circumstances that restrict its liability. The Supreme Court also ruled that contractor liability arising from a construction warranty does not limit the contractor’s general contractual liability for non-conformity arising by law. Unless the construction contract sets limitations in this regard, the contracting party may raise claims against the contractor for removal of defects to the building regardless of what the parties have previously agreed and assumed under the warranty as an additional responsibility.

Therefore, in construction contract practice and for future construction contracts the need is clear for increased attention to contractor’s liabilities arising by law, and separate and independent warranties agreed by the parties. In particular, contracts should thoroughly regulate the following aspects:

  1. what liabilities the contractor assumes under the warranty,
  2. what their conditions of fulfilment are, and
  3. what objections the contractor can submit. 

The Supreme Court also clarified that under the Law of Obligations act a contractor is not liable for non-conformity of work resulting from instructions given by the customer, defects in material supplied by the customer or preliminary work performed by third parties if the contractor had sufficiently checked the customer instructions, the materials and the preliminary work. Therefore, the contractor must be able to prove that it has sufficiently checked instructions, materials and preliminary work. A contractor that fails to present sufficient evidence in this regard cannot rely on deficiencies in instructions, materials or preliminary work.