Architectural Liability- Pitfalls for the Unwary

RIBA Gulf Chapter Architectural Liability- Pitfalls for the Unwary Date : 12 June 2013 Mark Fraser Partner

Contents Ghost Buildings Reasonable skill and care Fitness for purpose Net contribution Insurance Prohibited materials Records Services INSERT IMAGE HERE Go to Insert, Picture, From file, then select relevant picture from the firm-wide image library. The image will need to fit flush to the green line.

An update on the Ghost Structures in Dubai: The key legal and insurance issues. Forming a debate on the Asian precedent and applying the same issues to the aftermath of the global financial downturn in Dubai. The issues: a. Legal; b. Insurance; c. Financial; and d. Technical;

TANMIA – THE SOLUTION TO GHOST BUILDINGS? Dubai Land Department’s programme to look after incomplete projects. Objectives Investor may – buy whole project to develop; or – JV with existing developer to complete project DLD, as repository of relevant information, enhances prospects of comprehensive due diligence and preparation of feasibility studies. Drive the real estate investment wheel in Dubai Reduce the number of incomplete projects Settle all pending issues and revitalise real estate projects

A. Legal Article 880 of the UAE Civil Code – Decennial Liability: “Article 880 If the subject matter of the contract is the construction of buildings or other fixed installations, the plans for which are made by an architect, to be carried out by the contractor under his supervision, they shall both be jointly liable for a period of ten years to make compensation to the employer for any total or partial collapse of the building they have constructed or installation they have erected, and for any defect which threatens the stability or safety of the building unless the contract specifies a longer period. The above shall apply unless the contracting parties intend that such installations should remain in place for a period of less than ten years. (2) The said obligation to make compensation shall remain notwithstanding that the defect or collapse arises out of a defect in the land itself or that the employer consented to the construction of the defective buildings or installations. (3) The period of ten years shall commence as from the time of delivery of the work.” “Article 882 Any agreement the purport of which is to exempt the contractor or the architect from liability or to limit such liability shall be void.

Article 880. Is it covered by Professional Indemnity Insurance? Insurers’ attitude to the risk of interface between old and new design and construction. B. Insurance C. Financial Consequences of terminating the original contractor, designers, consultants. Disputes still being heard in the DIAC from 2008 onwards. Additional surveys and due diligence. Additional site preparation (e.g. if backfilling was required). Some clients have reinstructed the previous construction team and designers and have incorporated settlement amounts into the new contracts where disputes over termination arose.

D. Technical Construction interrupted by a change in the economic environment. Site condition at the start of the interruption. A survey is imperative; % of work completed; % of final contract value; Change of use – from commercial to residential or vice versa? Thailand Precedent; Windstorm exposure; Security; Risk of subsidence, settlement, expansion, column shortening. Depending on the progress, the DM may require the site to be back-filled if construction stops after shoring and piling.

Example 1: The Consultant shall commence the Services upon receipt of the Employer’s Notice to Proceed and thereafter shall provide and complete the same with all due skill, care and diligence. Example 2: The Consultant warrants to the Client that in respect of the Services he has exercised and will continue to exercise all the reasonable skill, care and diligence to be expected of an appropriately qualified and competent member of the Consultant’s professional discipline experienced in performing Services for projects of a similar size, scope, nature, complexity and value to the Project. [Emphasis added]. Reasonable skill and care

(a) The Services to be performed by the Consultant in relation to the Project include comprehensive design, tender (including tender documentation), contract documentation, construction documentation and construction supervision services (including performing the role of the Engineer under the Construction Contracts) in relation to the disciplines described below to ensure that the Project as constructed is fit for the purposes intended. Fitness for purpose

The Consultant’s liability under this Deed shall be limited to such sum as shall be agreed between the Consultant and the Beneficiary or adjudged by the Court to be the proportion of the loss to the Beneficiary directly caused by the Consultant’s failure to exercise the level of skill care and diligence specified in the Appointment in the performance of its duties and responsibilities under the Appointment. This proportion is to be calculated on the basis that: [redacted] - Quantity Surveyor; [redacted] – CDM Co-ordinator; [redacted] – Structural Engineer; [redacted] – Mechanical and Electrical Services Engineer; and The building contractor appointed or to be appointed to carry out and complete the Development, or any replacement (hereinafter referred to as the “Relevant Parties”) involved in the Development shall be deemed to have provided contractual undertakings to the Beneficiary in respect of their services in connection with the Development and shall be deemed to have paid to the Beneficiary the proportion of the loss (after apportionment between the Relevant Parties and the Consultant) which it would have been just and equitable for them to pay having regard to the extent of the responsibilities. In the event that this clause is held to be void or otherwise unenforceable, the remainder of this Deed shall nevertheless continue in full force and effect. Net contribution

Without in any way limiting or detracting from the Consultant's liabilities under Sub-Clause 1.1 of this Schedule 5 or under any other provisions of this Agreement, the Consultant shall at its own cost take out and maintain during the continuance of this Agreement the following insurances with insurers acceptable to the Employer. The policy or policies of such insurance shall be in such form and with only such exclusions and restrictions as the Employer may accept:- Professional Indemnity Insurance shall be in an amount of not less than [ ] ([ ]) (or an equivalent sum in an alternative currency acceptable to the Employer) for any one occurrence or series of occurrences arising in any one year out of any one event and shall be maintained in the full amount of [ ] ([ ]) from year to year notwithstanding any previous claim or claims for a period of [ten (10)] years from the completion of the Services. The obligations of this paragraph shall with respect to any subcontractor of the Consultant be satisfied by a policy otherwise complying with this paragraph but being in the name of the subcontractor rather than that of the Consultant but the Consultant shall be liable for procuring the compliance by the subcontractor with the provisions of Sub-Clause 2.2 of this Schedule 5. Insurance

The Consultant shall not specify or approve for use, or use and shall exercise the level of skill and care specified in clause to prevent use by others in the Works of any materials which are in themselves deleterious or which in the circumstances that they are used are or may become deleterious or which will or may become deleterious without a level of maintenance higher than would normally be expected for a building of the type under construction. The Consultant shall immediately inform the Employer if, in the course of carrying out the Services, it becomes aware of the use of deleterious materials. For the purposes of this clause 2.2 "deleterious" means materials which: Are generally accepted or generally suspected in the construction industry and/or by design and build contractors at the relevant time as: posing a threat to health and safety of any person; posing a threat to the structural stability or performance or physical integrity of the Works or any part or component thereof; having or possibly having the effect of reducing the normal life expectancy of the Works or any part of component thereof; Prohibited materials

13.1 The Consultant shall retain in complete and proper form and for the entirety of the period referred to in Clause 12.1 all pertinent records relating to the Services, including (but without limitation) all records relating to the costs associated with the performance of the Services, until the discharge of his duties under this Agreement. The Client, the Client Representative and any authorised representative of the Client shall, at all reasonable times, be permitted to have access to such records. Copies of the records shall be delivered by the Consultant free of charge to an office of the Client or the Client Representative at the time and in the manner directed by the Client or the Client Representative. To the extent that any calculation, drawing, document or other record of the Consultant is to be created and/or maintained on a computer or other electronic storage device, the Consultant shall comply with the procedure notified to it by the Client or the Client Representative for backup and for copies of such calculations, drawings, documents and other records to be stored at a place other than his project office. The Consultant may be required to retain quality records to demonstrate the application of a quality assurance system and to appoint personnel with the authority and responsibility to take charge and resolve matters pertaining to quality. Records

8.1 “The Consultant shall provide the Client and the Client Representative with assistance including arranging for the Client and the Client Representative, their respective servants and agents and any consultant employed by any of them to have access to personnel, plans, drawings, data files, calculations, programmes, printouts, details and the like from time to time, whether stored in human readable or machine readable form, to enable the Client and the Client Representative to carry out a full and systematic review of any part of the Services, provided always that any such assistance requested by the Client and the Client Representative does not disrupt the performance of the Services by the Consultant. The Consultant shall ensure in any agreement with any sub-consultant that such sub-consultant will be obliged to afford like assistance to the Client, the Client Representative, their respective servants, agents and any consultant employed by any of them as aforesaid. 8.2 For the avoidance of doubt all assistance provided by the Consultant in accordance with clause 8.1 shall not be a variation to this Agreement or to the Services and the Consultant shall not be entitled to any additional payment for compliance therewith”. [Emphasis added]. Services

Architectural Liability- Pitfalls for the Unwary