Construction Disputes

Who is answerable to whom

Most Cyprus projects have more parties than the first line of the contract names. There is an employer, who may be an owner building for their own use or a developer building for sale. There is a main contractor, and beneath it subcontractors and suppliers. There are consultants: an architect, a civil engineer, sometimes a quantity surveyor or a project manager. Under section 9Α of the Streets and Buildings Regulation Law, Cap. 96, no building permit is implemented unless a supervising engineer has been duly appointed, and the owner must notify the start of works and any suspension of them in writing. That appointment matters in a dispute, because it identifies who carried responsibility for supervision at the time the work complained of was done.

Who is answerable to whom follows the contracts rather than the site. A subcontractor is generally answerable to the main contractor that engaged it and not to the employer, unless a direct agreement, a collateral warranty or an assignment creates a link between them. An employer that wants a remedy against a specialist it never contracted with has to find that link, or bring the claim against the main contractor and leave the main contractor to pass it down. A purchaser of a completed unit is usually in a different position again, because the purchaser contracted with the vendor and not with anyone who built the building.

The first question on almost every construction file is therefore not what went wrong. It is who contracted with whom, on what terms, and what each of those contracts says about the thing now being complained about.

Six arguments, six different files

They overlap on a real project and are often pleaded together. They are still six different exercises, and treating them as one is how a good claim is weakened by a poor one attached to it.

Defects

A defect claim is a claim that what was built departs from what was promised. It starts with the specification, the drawings and any performance requirement in the contract, because a defect is a departure from a standard and the standard has to be identified before anything else can be argued. Where the contract is silent on a point, the question becomes what standard the law supplies, and that is argued rather than assumed. The remedies in play are the cost of putting the work right, the loss suffered while it is put right, and, where the contract provides for it, the contractor's own obligation to return and remedy during a defects liability period. The defects that matter most are the ones nobody could see at handover, and those are typically found by someone who has been living in the building for years, which is why the limitation position below is the first thing to check and not the last.

Delay and extension of time

Delay produces two claims pointing in opposite directions. The employer says the works were late and claims for the lateness. The contractor says the delay was caused by matters that entitle it to more time, and claims an extension of time and often the cost of remaining on site longer. Both are decided on the same material: the contractual completion date, the mechanism the contract gives for extending it, the notices the contract requires and whether they were given when they were required, and an analysis of what actually delayed completion rather than a list of everything that went wrong during the project. Where the contract fixes a sum payable for delay, section 74(1) of the Contract Law, Cap. 149 is central: where a contract names a sum to be paid in case of breach, reasonable compensation not exceeding that sum may be awarded, whether or not actual damage or loss is proved. A named figure is therefore a ceiling and a starting point, not an automatic entitlement to the whole of it. The Supreme Court has settled how the discretion works: in Ανόρθωσις ν. Απόλλων (2002) 1 ΑΑΔ 518, adopting Iordanou v. Anyftos, whether the stipulated sum is a genuine pre-estimate or a penalty makes no difference to the court's power to award reasonable compensation up to it, though a genuine pre-estimate carries weight in fixing the figure, and nothing beyond the named amount can be awarded; and Πιττάλης ν. Ianira Enterprises Ltd (1997) 1 ΑΑΔ 814, the leading authority on the section, shows the price of arriving without evidence relating the actual loss to the stipulated sum.

Variations

Almost nothing is built exactly as it was tendered. The argument is seldom about whether the work changed and almost always about whether the change was instructed, by whom, and at what price. A contractor that carries out extra work on a verbal instruction from someone on site, without the written instruction the contract requires, is in a weaker position than a contractor that did the identical work with a signed instruction and an agreed rate, even though the building is the same. Where the contract sets out how variations are instructed and valued, that machinery is what gets applied. Where work has been done outside it, the argument moves to whether the work was nonetheless requested and accepted, and to what it is worth.

Unpaid certificates and retention

Payment disputes are the most common and, on the papers, often the most contained. An application for payment is made, a certificate is issued or it is not, a sum is paid or it is not, and the reasons given for withholding it either are or are not reasons the contract permits. The questions are whether the certificate was validly issued, whether the deduction was one the contract allowed, and whether the withholding is in truth a cross-claim about defects or delay presented as a payment point. Retention is the same argument with a clock on it: a percentage held back, released in stages by reference to completion and to the end of the defects liability period, and very often still held long after the events that were supposed to release it. Retention that has simply never been released is a debt, and it is better treated as one while the limitation period still allows it.

Claims against consultants

Architects, civil engineers, quantity surveyors and project managers are engaged on their own terms and answer on those terms. A claim against a consultant is a claim about the performance of professional services: a design that could not be built as drawn, supervision that did not catch what supervision was there to catch, certification of work or of sums that should not have been certified. These claims are document heavy, they generally require expert evidence from within the same discipline, and they are shaped by the consultant's own engagement, including any limitation or exclusion of liability in it. They also raise apportionment, because a single physical defect may be the responsibility of the designer, of the contractor, or of both in a proportion that has to be established.

Termination

Termination is the step that turns a difficult project into litigation, and it is the step most often taken wrongly. The right to terminate comes from the contract or from the general law, the contract usually prescribes notice and an opportunity to remedy, and a party that terminates without the right to do so has itself repudiated and hands the other side a claim. The contract also governs the consequences: what happens to the site, the plant and the materials, how the work already done is valued, what the employer may recover if it completes with another contractor, and what becomes of bonds and guarantees. Where termination is being considered, the sequence of notices matters more than the strength of the underlying complaint, and advice is worth taking before the first letter rather than after it.

These cases are decided by records made at the time

Honest recollection of a site three years on does not survive contact with a dated instruction that says something else.

What decides them

• The contract, the specification and the drawings, including which revision was current when the work in question was carried out
• The planning permission, the building permit and the appointment of the supervising engineer
• The programme, and every revision of it
• Site records: diaries, daily labour and plant returns, delivery notes and the minutes of site meetings
• Instructions, requests for information, and the answers given to them
• Applications for payment, certificates, and the correspondence around each deduction
• Dated photographs, and the survey material now routinely produced on Cyprus sites
• Inspection of the works by a suitably qualified expert, and any testing or opening up

Why it degrades, and predictably

Work is covered up as the building is finished, so the defect that has to be proved ends up behind plaster, under screed or below ground. Remedial work is carried out, sometimes by an owner acting in good faith, and it destroys the evidence of what was there before. Buildings are occupied and altered, and the alteration becomes the answer to the claim. People leave the companies involved, and their telephones are replaced. Site diaries and paper records are not kept indefinitely by anyone. Photographs that were taken never leave the person who took them.

The practical consequence is that the value of a construction claim usually falls with time even where the legal position has not changed at all. Inspection, photography and the preservation of documents are worth doing when the problem is first noticed, not when a decision to sue is finally taken.

Where it is resolved, and how long there is to bring it

The forum is set by the contract before it is set by anything else. Many building contracts provide for arbitration. Some provide for a decision by the architect or the engineer as a step before proceedings. Some provide for nothing, in which case the dispute goes to court. A clause of that kind is not a formality: where the parties have agreed to arbitrate, that agreement is capable of being enforced, and a party that issues proceedings in disregard of it may find them halted. Which court hears a claim that does go to court depends on the value and the subject matter of the claim. Both questions are answered by reading the contract at the outset rather than at the point of issuing.

Whatever the forum, the early stages tend to be the same. The position is assessed on the documents, the claim is formulated and put to the other side with the material that supports it.

Limitation

Time limits are governed by the Limitation of Actions Law 66(I)/2012. Time generally runs from the date the cause of action accrued, and different periods apply to different kinds of claim, so the applicable period and the date it started are matters to establish early in a construction file rather than late. This bites hardest in defect cases, because the date a cause of action accrued and the date an owner discovered the defect are not necessarily the same date, and a claim can be much closer to the end of its life than the owner assumes. If a defect has appeared, or a certificate has gone unpaid, the date the problem first arose is the first thing to pin down.

If the matter is a purchase, a title or a lease rather than a build, it is covered under Property. The contract side of a project, before any dispute, is under Construction.

The documents first, the argument second

A building defects matter starts with the documents, not with the argument. We review the contract, the drawings and the correspondence, and where the defects are technical we bring in an independent expert to inspect and record them before anything is disturbed or repaired. With the evidence secured, we set out the claim to the developer or contractor in writing, with a defined period to remedy.

Where the response is inadequate, the routes are those the contract provides: negotiation, arbitration where there is an arbitration clause, or court proceedings. Time limits run from earlier than most owners assume, which is why the review comes first and the letter second.