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Owner was not bound by a clause between the consultant and the sub-consultant

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Legal news
calendar 17 December 2014
globus Denmark

The Court of Arbitration found that an owner could claim for damages directly against a sub-consultant, even though they were not contracting parties. Moreover, the owner was not bound by the limitation of liability clause which the sub-consultant and his contracting party had agreed on.

An owner was to construct a building and made an agreement with a lead consultant and a construction contractor. The contractor and the owner agreed that the owner himself was responsible for the project engineering of the so-called “bubbledeck”.

Therefore, the owner hired a project engineering consultant. The parties agreed that the project engineering consultant’s work should be supervised by another consultant. Therefore, the project engineering consultant hired a sub-consultant to execute the supervision.

Liability for defective work
Subsequently, critical defects were found on the consultant’s work and furthermore the sub-consultant’s supervision had been insufficient. For that reason, the owner sued both consultants.

The owner and the consultant had agreed on a clause stating that the liability for the contract was limited to DKK 1 million and the two consultants had agreed on a limitation of liability clause of DKK 80.000.

Therefore, an important question was whether the owner could file a claim directly against the sub-consultant even though he was not a contract party and furthermore whether the owner was bound by the clause between the consultant and the sub-consultant.

The Court of Arbitration: The sub-consultant was directly liable for damages to the owner
The owner and the sub-consultant were not contracting parties and therefore there was no basis for contractual liability.

However, the Court of Arbitration found the sub-consultant’s work so defective that a non-contractual liability incurred.

The Court of Arbitration remarked that direct liability against a third party is not restricted by limitation of liability clauses included in the agreement that provide basis for the responsible party’s execution of the work. Therefore, the owner was not bound by the limitation of liability clause of DKK 80.000 between the project engineering consultant and the sub-consultant.

IUNO’s opinion

It is a fundamental principle in Danish law that only contracting parties can hold each other liable under the contract. However, if a person acts with negligently a third party can claim for damages on a non-contractual basis.

In this case the sub-consultant’s work was so defective that the owner had a claim directly against him. The claim was not restricted by the clause regarding limitation of the liability between the two consultants.

The case illustrates that a limitation of liability clause between two contracting parties is void when a third party claims damages on a non-contractual basis.

[The Court of Arbitration, 13 January, 2014, C-12046]

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