Portuguese Perspective
We are going to ponder the responsibilities that befall the several agents in construction or renovation of property in the ambit of Portuguese legislation and jurisprudence.
It is important to clarify that we are going to approach this topic without bothering with the construction agreements of public works which are regulated in the REJEOP (Regime Jurídico das Empreitadas de Obras Públicas – Legal System for Construction Agreements of Public Works), approved by Decree-Law no. 59/99 of 2nd March, with the alterations introduced by Law no. 163/99 of 14th September, by Decree-Law no.159/00 of 27th July and by Law no. 13/02 of 19th February.
The Construction Agreement of Public Works is defined in the REJEOP as the administrative agreement made against payment of a price between the owner of public works and a contractor of public works with the objective of executing public works.
The legal system that defines access to and continuance in the activity of contractor of public works was also recently regulated by Decree-Law no. 61/99 of 2nd March, supplemented by the administrative rule no. 412-I/99 of 4th June.
In its turn, the turn-key construction agreement of private law is foreseen in the Civil Code in article 1207 as an agreement by which, against a price, one of the parties is under obligation towards the other to carry out certain works, leaving it up to doctrine and jurisprudence the task of rendering concrete the realities that it fits in with.
However, we cannot but mention that many of the private construction agreements related to real property refer their regulations to the provisions in the REJEOP, especially as this diploma contains many rules regarding the execution of agreements that are omitted in the regulations of the private construction agreement.
The different agents
Putting aside the field of public law and public works, as well as the field of disciplinary and criminal liability, we shall concentrate on private law and on private works agreements and, in particular, on the different liabilities that the various agents incur.
The agents intervening in the construction and renovation of property whose obligations and liabilities are contemplated in the law and jurisprudence are basically the following:
Owner of the works/constructor
Contractor/ subcontractor
Authors of the projects
Producers/ manufacturers
On the one hand, the liability of these different agents results from a contractual liability and, on the other hand, from an extra-contractual liability.
Extra-contractual liability
With regard to extra-contractual liability, the constructor / contractor incurs in it when in the exercise of his activity, he disrespects the rights of others and/or disrespects the rules of law designed to protect the interests of third parties.
The contractor is also objectively responsible for the actions of the people he uses in the execution of the works, be it directly for his employees or collaborators, or for his subcontractors.
The responsibility of the contractor towards the owner of the works in case of non-compliance or faulty compliance attributable to the subcontractor, even with the assumption that the latter deceitfully hid his failure, basically results due to two reasons: firstly, because the contractor benefits from the performance of the subcontractor, he should bear the damages inherent to that benefit, in accordance with the provision in article 800 of the Civil Code; secondly, because the situation of the owner of the works should be identical to the one he would have been in if the performance had been totally fulfilled by the contractor.
This objective liability foreseen in article 800 of the Civil Code presupposes that upon the contractor or the employee also falls the obligation to indemnify. This liability may be based on fault, risk or damaging illegal interventions.
The owner of the works also incurs extra-contractual liability as foreseen in article 492 of the Civil Code that says:
“ 1. The proprietor or owner of a building or of other work that collapses, totally or in part, due to construction error or conservation defect, is liable for the damages caused, unless he proves that there was no fault on his part or that, even with due diligence, the damages could not have avoided.
2. The person under obligation, by law or legal transaction, to conserve the building or works is liable, instead of the proprietor or owner, when the damages are exclusively a conservation defect.”
In the field of extra-contractual liability we also have, for example, a recent Ruling of the Court of Appeal of Porto of 12.11.1998, published in the Bulletin of the Ministry of Justice, 481, 539, which decided the following:
“ 1. Although the contractor executes the works according to his technical and working criteria, the owner of the works maintains the connection characteristic of the proprietor, with the inherent rights and duties, namely those related to liability for damages.
2. If, as a result of excavations to open a basement, there result damages in a neighbouring building, the owner of the works is responsible for the indemnification of those damages, without prejudice to being able to exercise the right of return against the contractor.”
Contractual liability
However, the liability of the different agents in the urbanisation and building process essentially results from a contractual liability, which is basically expressed in liability for culpable default, faulty compliance or definitive non-compliance.
With regard to not complying with the obligations on time, the specificities of the construction agreement regarding real property refer to the likelihood of faulty compliance, regulated by the dispositions in articles 1218 and following of the Civil Code.
It is considered that there is faulty compliance when the works is delivered without being carried out in the contracted terms, that is, when there are defects.
The whole notion of defects includes, on the one hand, a violation of the technical rules, the errors corresponding to the imperfections that reduce the value and the deformities corresponding to deviations from the plans, and, on the other hand, to alterations not agreed on with the owner of the works, according to the dispositions of article 1214, no.2 of the Civil Code.
The defects may be hidden or apparent; in the latter there is the presumption of knowledge on the part of the owner of the works.
Faulty compliance is included in the notion that the contractor is obliged to obtain a result; that being so, if the works show defects, that result was not achieved.
In the cases where faulty compliance may be repaired later on, he may –if he incurs liability due to culpable default - in the cases where that is not possible, incur definitive non-compliance.
In the face of a situation of faulty compliance, it is up to the owner of the works to prove the existence and gravity of the defect.
In truth, the owner of the works simultaneously has the right and duty to carry out the inspection of the works and denounce the defects. Omission of inspection and corresponding denouncing of the defects implies acceptance of the apparent defects, according to the provisions in articles 1218 no.5 and 1219 no.2 of the Civil Code.
Upon the final inspection we are faced with three situations: acceptance of the works without reservations, which implies acceptance of the apparent defects; acceptance with reservations by which the works are accepted with the reservation to demand the elimination of the defects that were denounced; or a rejection of the works, where the obligation to repair or previously eliminate the denounced defects is demanded
Thus, it is a contractual liability of the contractor the obligation to, in the face of the inspection and denouncing of defects on the part of the owner of the works, carry out the repairs or elimination. The owner of the works has the right to demand the elimination of the defects, or a new construction, or the price reduction, or the dissolution of the contract; any of these situations may cumulate with indemnity in the general and contractual terms.
The legal means at the disposal of the owner of the works thus allow him to demand from the contractor:
a)Elimination of the defects and execution of a new work – corresponding to a kind of specific execution of the contract to which the contractor is not bound only if his expenses are disproportionate in relation to the gain of the owner of the work;
b)Price reduction – corresponding to another way of compensating the owner of the works for the defects, in the presupposition that the existing defects cannot be eliminated, that there is no execution of new works and that there is the possibility of the owner of the works to benefit and take some usefulness from the faulty work;
c)Dissolution of the contract – when, besides the existing and denounced defects cannot be eliminated, there is no execution of new works and it is verified that it is unsuitable for the purpose it was designed for. In the latter case the owner of the works may demand the demolition of the works, if it is in his property, and the return of the materials or their value, if he supplied them;
d)Indemnity – in the general terms legally foreseen in article 1223 of the Civil Code that may cumulate with the elimination of the defects, a new construction, reduction of the price and dissolution of the contract. This compensation cannot be seen as alternative to other means of indemnification for the damages caused by the defects, as there may be other damages to the owner of the works that are not compensated by those other means. Articles 562 and following of the Civil Code are applicable to this obligation to indemnify.
With regards to this responsibility on the part of the contractor, one has to refer that, in case the owner of the works demands dissolution of the contract or reduction in the price, as long as the necessary requirements are fulfilled, it is his right to opt for one or other solution.
In the event of demand for elimination of the defects or new works, in so far as both are possible and equally satisfy the owner of the works, the choice between one or the other of the solutions is up to the contractor.
In the right foreseen in article 1222 of the Civil Code, the first solution that prevails, if possible, is the elimination of the defects or new works, and as a second solution, the reduction in the price or the dissolution of the contract, the indemnity cumulating with both solutions.
Of course we will be faced with situations of legal exclusion of liability of the contractor in the following cases:
a)When the defect is caused by error in the design of the project or data supplied by the owner of the works, whenever the contractor cannot or has the obligation to detect flaws in the project or in the data supplied;
b)In cases of force majeure like war or earthquakes;
c)When the defects cannot be avoided in the present state of technical science;
d)When the defects are known or easily known to the owner of the works and he has accepted them without reservations;
e)Also excluded is liability for delay in delivering the works when the contractor legitimately resorts to defence of breach of contract or to lien.
With regard to defects that are hidden or not apparent, when there is no convention to the contrary, at present the contractor is legally bound to give a guarantee of five years, being liable for the damage caused to the owner of the works or to a third purchaser, in the terms of article 1125 of the Civil Code. The denouncing of the defects should be made within one year after knowing about them and within five years counting from delivery of the works. This guarantee came into effect on first January 1995 with the reform made by Decree-Law no. 267/94 of 25th October; it extended its ambit when previously it was restricted to total or partial ruin of the property, or serious defects that resulted in risk of ruin. Also worthy of mention is the fact that the legal period there established is supplementary and nothing stops a larger one being agreed.
It is proper to refer that in the case of the system established in the mentioned article 1225 the action of requesting elimination of the defects must be filed by the victim within a year from the denouncement.
This system of article 1225 is applicable to the construction agreement and in the case of purchase and sale where the seller is also the constructor.
In the case of purchase and sale where the seller is not also the constructor, the law establishes identical periods in the system of purchase and sale of something faulty when real property is in question, according to no.3 of article 916 and article 917 of the Civil Code. It being that article 917 states that, the action of annulment due to simple error expires when the periods foreseen in article 916 end, without the purchaser having made a denouncement, or the passing of 6 months after it.
A controversial issue was to know if the action of repairing the defects of the property applies to the provisions in the mentioned article 917 or to the general statute of limitations of 20 years foreseen in article 309 of the Civil Code.
There is Jurisprudence in both directions; however, the majority position either in doctrine or in jurisprudence, defends that whenever dealing with real property, the action foreseen in article 914, (repair or substitution of the thing) is applicable. In the doctrine, this position is defended by Calvão da Silva in Compra e Venda de Coisas Defeituosas (Purchase and Sale of Faulty Things), Almedina, September 2002, page 74) and Pires de Lima and Antunes Varela, in Cód.Civ.Anotado (Annotated Civil Code) – II, 4th Edition, Coimbra, 1997, among others. In Jurisprudence we can mention the Rulings of the Supreme Court of Justice of 09.12.99, in proceeding 99A854JSTJOOO39426, and of 13.01.2000, in proceeding 99B816JSTJOOO39807 and of 06.06.2002 in proceeding 02B1285.
In the light of unity of the legal system itself, it would not make sense that this article 917 only referred to the action of annulment. But that it would extend to the actions of the other rights referred to, because and in so far as through them claims can be made within the framework of the guarantee and connected to the guarantee.
Therefore, it seems clear the legislator foresaw that period of one year after the denouncement for proposing the action, either in the event the seller is the constructor or the case where the seller or proprietor is not the constructor.
According to the Ruling of the High Court of Justice of Porto on 21.01.03 in Vida Judiciária (Judicial Life), no. 69,41-45, “it is not justified that the extinction of those rights in the case of simple error is dependent on the long period of twenty years; the disharmony with the provisions in article 921 of the Civil Code would be incomprehensible. In fact, after the guarantee of good functioning of the thing sold by the seller, the right of obtaining reparation or substitution should expire within a short time. When there is no guarantee, the right to obtain the same reparation or substitution, now based on article 914, would be subject to the long statute of limitations, an incoherence that could not be accepted”.
Therefore, it seems clear the article 917 shall be applicable to all the rights of the creditor/buyer.
“These rules presuppose the existence of direct contractual relations between the different intervenors: the owner of the works/planner; owner of the works/contractor; owner of the works/purchaser. Obviously, the defendant has right of return from those that gave origin to the defect – therefore, the owner of the works when sued by the purchaser of the works has right of return from his contractor and the latter, in his turn, from his subcontractors and suppliers, including planners, if that is the case. The exercise of the right of return becomes more difficult as the ambit of each one of them is less clear, in particular in relation to the planners. Due to the vague and ambiguous character of the rules of law on this matter, as we saw, special care must be given to the contractual regulation of these issues.” See P. Siza Vieira, Responsabilidades no sector da construção (Liabilities in the construction sector), BOA no. 26.
Authors of the projects
With regards to liability of the authors of the projects, our law is very vague. Decree-Law no. 559/99 of 16th December attempted a legislative simplification, by including in only one diploma the legal systems regarding the licensing of allotment operations, urbanisation works and building works
Article 10 no.1, of this mentioned Decree-Law, with wording given by Decree – Law no. 177/2001, of 4th June, established that the request for licensing or authorisation be instructed with a statement from the authors of the projects saying that in the working out of the project the applicable rules of law and regulations were complied with, namely the technical and construction rules in effect. Numbers 3 and 4 also regulate the qualifications of the mentioned technicians, distinguishing the activities included as public associations.
However, at present, the legislation does not demand that the planners prove that they are holders of professional civil liability insurance, that the previous Superior Executive Decree no. 32/92 of 28th November established for the authors of projects and civil construction industrialists.
The general non-obligation to render guarantee or presentation of sufficient professional liability insurance for the agents intervening in the construction sector implies that in practice it is often impossible for the plaintiffs to manage to see their rights satisfied.
Producers
Lastly, in this short summary on the subject we chose to broach, it must be mentioned that the Portuguese legislation transposed Directive no. 85/374/EEC to the Decree – Law no. 383/89 of 6th November, regarding the liability resulting from faulty products, later altered by Decree-Law no. 131/201 of 24th April, which transposed the provisions on this matter in Directive no. 1999/34/EC.
Article 1 of this Decree-Law establishes objective liability of the producer independent of blame for the damages caused by the products he puts in circulation. In its turn, article 3 of this Decree-Law defines as product anything movable, even though incorporated into something movable or immovable.
Article 8 in the wording given by Decree – Law no. 131/01 defines the damages liable for compensation and article 9 established a minimum franchise of Euros 500,00, eliminating the maximum limit previously established in the wording that was also given by Decree – Law no. 131/01; thus there is no longer any limit to the value of the indemnity.
This right to compensation prescribes in a period of three years from the date that the victim had or should have had knowledge of the damage, defect and identity of the producer (article 11), expiring ten years after the producer put the product that caused the damage into circulation, except if it is pending judicial action brought by the victim.
The more recent jurisprudence (Ruling of the Supreme Court of Justice, review no. 2838-7 of 8.11.2001: Summary 55) established that “on the victim falls the onus of proving the damage, defect and link of causality between the defect and the damage, in the terms of article 4 of the Directive.”
Finally, we must mention that, the producer on principle being the manufacturer, as such he is also considered the importer of the products, with the general obligation of indemnifying independent of blame.
We hope that our work managed to give a small contribution to the blossoming of a matter that is increasingly important. The construction sector is vital for the modernisation and development of our country; regulations with greater uniformity, updating and explanation of the obligations, rights and liabilities of the intervening agents is desirable and that is what we appeal to.
© UIA
JORGE LEÃO - Lawyer
47 th Congress – Lisbon 2003
2 September 2003
Av. da Boavista, nº 1681 – 7º S. 1, 4100- 132 Porto
+351 223 391 990
+351 223 391 999
jfl@jorgeleao.pt