Law of Torts and the Construction Industry Mohit Saraf Partner Luthra & Luthra Law Offices New Delhi and Mumba

1. Law of Torts and the Construction IndustryMohit Saraf PartnerLuthra & Luthra Law OfficesNew Delhi and MumbaiEmail: msaraf@luthra.com

2. Structure of the Presentation • Torts: Overview • Torts: Relevance for Construction Contractors • Torts: Basic Principles affecting Construction Contractors • Torts: Defenses and Strategy against Tortious Liability

3. Tort: Meaning and Overview • Denotes a breach of duty imposed by law • Nature of the Duty: To act as a reasonable person exercising reasonable diligence • Tort exceeds the obligation of a party under contract: the duty could be to the other party in a contractual relationship, as well as to any third party who, it is reasonably foreseeable, would get affected by the actions of a person.

4. Constituents of Tort • There must be a wrongful act committed by a person. • The wrongful act must give rise to a legal damage or actual damage. • The wrongful act must be of such nature as to give rise to a legal remedy in the form of an action for damages.

5. Tort: Relevance for Construction Contractors • Construction Contracts should be watertight to provide complete framework for liability between the parties. • Tortious liability would therefore be limited to the category of liability to a third party. • Badly drafted construction contracts can open tortious liability between the parties, since there can be concurrent liability under both tort and contract.

6. Types of Tortious actions relevant for Constr. Contractors: Negligence Nuisance Trespass Other relevant legal principles under Tort law: Absolute Liability Strict Liability Vicarious Liability Tort: Relevance for Construction Contractors- (2)

7. NEGLIGENCE • Breach of legal duty to take care which results in damage. • Three constituents: (i) legal duty to take care on part of a party to the injured party, within the scope of duty of the said party, (ii) breach of this duty to take care and (iii) consequential damage. • Existence of legal duty to take care is determined on basis of general principle of “proximity and foreseeability”. Established in case of Donoghue v. Stevenson [1932 AC 562(HL)].

8. NEGLIGENCE: Principle in Donoghue v. Stevenson • “You must take reasonable care to avoid acts or omissions which you can reasonably foresee would likely to injure your neighbor. Who then in law is my neighbor?…persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.”

9. STANDARD OF DUTY TO TAKE CARE • The degree of duty of care is that of an ordinary prudent person. • Exceptions: (i) if a person is highly skilled about a particular business , the law would hold him guilty of negligence in failing to use such expert skill, (ii) if a persons holds himself out as being specifically competent to do things requiring professional skill, he will be held liable for negligence if he fails to exhibit the care and skill of one ordinarily an expert in that business. • Conformity with the general and approved practices could generally lead to an inference in favor of the defendant.

10. Foreseeability Principle as applied by Courts to Construction Contractors • A builder of defective premises may be liable in negligence to persons who thereby suffer injury • A designer or builder owes a duty of care to all persons who might be reasonably be expected to be affected by the design/construction of the premises. The duty is to take reasonable care that such persons would not suffer injury as a result of the faults in the design/construction of premises.(Anns v. London Merton Burough; Rimmers v. Liverpool Council) • Owner’s duty to ensure that the premises are safe can be discharged by appointment of competent persons to undertake the task of doing so.

11. TORTIOUS LIABILITY FOR NEGLIGENCE • Depends on facts of the case. Courts can take cognizance of new fact situations. • Junior Brooks v. Vetichi:Owner’s remedy under tort law against sub-contractors for laying down defective floor. Damage to the floor was a direct and foreseeable result of sub-contractor’s negligence.

12. NUISANCE: Meaning and Relevance • “Nuisance” is anything done to the hurt or annoyance of the lands or tenements of another and not amounting to trespass. It is an old cause of action that is losing its relevance in light of developments in Environment laws which impose greater and more certain liability in relation to damage to adjoining lands/property. • Nuisance are of two kinds: (i) public nuisance and (ii) private nuisance.

13. PUBLIC AND PRIVATE NUISANCE • Public Nuisance is an act causing any common injury, danger or annoyance to the public, and does not create a right for civil action in any one person. In India, remedy under Section 91, CPC. • Private Nuisance results when use or authorization of use of one’s property, or of anything under one’s control, injuriously affects another. (Examples: (i) Obstruction to light and air; (ii) Disturbance of right to support, (iii) Escape of deleterious substances into another’s property, etc.)

14. TRESPASS: Basic Principles • Positive act of interference or entry, however slight, onto the property of another. • Ignorance of the boundaries will be no excuse in an action for trespass • Slightest violation of a boundary will be a trespass, (e.g.: placing objects on another person’s land, driving nails into his wall, using it to support scaffolding, or leaving a ladder, planks or a shed or piling rubbish). • Trespass equally includes a violation of the air space above the another person’s land, at a height which would interfere with any use of his land.

15. OTHER PRINCIPLES OF LIABILITY • Absolute Liability • Strict Liability • Vicarious Liability

16. ABSOLUTE LIABILITY: Rule laid down by Supreme Court of India in the Oleum Gas Leak Case • Where an enterprise is engaged in a hazardous or inherently dangerous activity, the enterprise is strictly and absolutely liable to compensate all those who are affected by the accident and such liability is not subject to any exceptions. • The enterprise cannot escape liability by showing it had taken all reasonable care and there was no negligence on its part. • This principle, however, has been rarely applied since it was formulated.

17. STRICT LIABILITY: Rule in Ryland v. Fletcher • “The person who, for his own purpose, brings on his land and collects and keeps there anything likely to do mischief if it escapes, must keep it in at his peril; and if he does not do so is prima facie answerable for all the damage which is the natural consequence of its escape.” • The liability under this rule is strict and it is no defense that the thing escape without that persons willful act, default or negligence or that he had no knowledge of its existence.

18. STRICT LIABILITY: Exceptions • Only applicable when non-natural use of land • Not applicable when: • the escape of the object was due to act of God • the escape was a result of an act of a stranger, or default of the person injured • the thing was present with the consent of the person injured or for common benefit of person injured. • it is the consequence of an act done for public purpose in the discharge of a public duty under the express authority of a statute.

19. REMEDIES FOR TORTIOUS ACT • Action for Damages • Injunction • Specific restitution of a property (in an action for detention of property) • Recovery of land (in cases of wrongful dispossession)

20. MEASURE OF DAMAGES • Determined on facts and circumstances- burden of proof on injured party. • Compensatory Damages which, so far as money can compensate, will give the injured party reparation for the wrongful act • Pecuniary loss: Actual expenses, loss of earnings • Non-pecuniary losses, e.g., pain & suffering. • Damages for Nervous Shock • Nominal Damages awarded where no substantial harm caused. Action to establish a legal right. • Exemplary Damages to deter a party from similar conduct.

21. DFENSES & STRATEGIES TO MITIGATE LIABILITY (1) • Effective watertight contracts that allocates risks between Contractor and Owner of a Project/Site. • Clear provisions for handing over of works and transfer of risks to Owner once Contractor’s obligations are completed. • Provisions for Indemnity by Owner for third party claims. Only exceptions: Gross negligence or wilful misconduct of Contractor. • Obtaining all required statutory clearances, and compliance with applicable laws, also provides a mitigation against potential tortious claims.

22. DFENSES & STRATEGIES TO MITIGATE LIABILITY (2) • Cost of adequate insurance should be covered in cost of contract. Provision to be made for Third Party Liability insurance & Builders All Risk Insurance as Project Owner’s responsibility. • Contractor’s right to be an additional insured in policies taken out by the Project Owner. • Owner’s insurance policies to provide for waiver of subrogation in favor of Contractor. • Contractor should also require from all of its subcontractors insurance with the same coverage and limits as it agrees to with the Owner.

23. STEPS TO MITIGATE LIABILITY • Facts are critical in tortious cases. Contractors should therefore maintain clear records of activities and obtain Owner’s agreement to the records on regular basis. (E.g.: In large EPC Contracts this is done through weekly/monthly progress meetings). • The specific defenses against tortious claims are tailored to the facts of each case and are based on challenging the basis of liability: • Causation • Remoteness Foreseeability • Intervening Acts or events • Mitigation of Damages not taken by Plaintiff.

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