By its decision 18 February 2011 (S09/3055) the Helsinki Appellate Court confirmed that an owner is entitled to rely on the quality assurance of a well known construction company at an acceptance inspection. The court held that the owner is entitled to demand rectification of construction defects and to claim damages for deficiencies discovered during the guarantee period.

Facts

1. The owner wished to upgrade premises located in a prime area in Helsinki city centre for the use of a design hotel consisting of 135 rooms, three restaurants and a night club with ancillary premises. Based on bids the owner selected a reputable construction company to renovate and modernise the building originating more than 100 years back.

2. The owner and the constructor entered into a turn-key contract for the premises based on detail grade plans of the owner. The general terms "YSE 1998" (i.e. standardised general terms and conditions applicable to construction projects) were applicable to the contract. During the construction the parties co-operated regarding day-to-day issues but no other high level changes were agreed other than the time schedule which was postponed due to practical problems discovered during the project.

3. The bathrooms of the hotel received a thorough refurbishing and upgrade to suit the unique design concept of the hotel interior. Partly the bathroom drainage needed on site adjustments and individual layout due to location of load bearing structures. However, at no point the construction company notified the owner that the agreed result could not be reached due to unforeseen problems prevailing at the site.

4. In the acceptance inspection the owner discovered and claimed more than a hundred minor issues which were subsequently settled by the parties. However, the owner failed to notice and claim correction of inclination in 36 bathrooms even though random tests for shower drainage were made.

5. After going live the hotel operator reported the owner the excess use of towels as well as increased cleaning expense caused by some bathroom floors' missing or inadequate inclination towards the floor drainage. According the hotel operator there were even some customer complaints. The owner had all bathrooms examined by laser equipment and it was discovered that the bathroom floor inclinations towards the drainage did neither correspond to the technical plans nor good construction practise in Finland. The owner brought these issues up during the guarantee period and demanded that the construction company to rectify the defects. The construction company denied its responsibility based on, among other things, owner's failure to make a claim at the acceptance inspection. After unsuccessful negotiations the owner had the defects remedied through another contractor.

Court Decisions

6. The matter was tried in the Helsinki District Court as the first instance. The District Court dismissed the owner's claim for damages consisting of direct costs and expenses (no indirect or consequential damages). The District Court held that since the owner had not notified the defects at the acceptance inspection the right to make claims has been forfeited.

7. The owner appealed the decision to the Helsinki Appellate Court which held an oral hearing and decided to overturn the decision of the District Court and award the owner full amount of damages with interest and legal fees.

In respect of the acceptance inspection the Appellate Court held that the owned had not forfeited its right to make claims since:

  1. the defects could not be detected by visual observation;
  2. the owner was entitled to rely the reputable construction company to follow the plans and the good construction practise in Finland;
  3. the bathroom floor inclinations were merely a small part of a large project; and
  4. the construction company knew or based on its quality assurance obligations should have known the defects prior to the acceptance inspection.

Remarks

8. The judgement of the Appellate Court overruling the District Court is just. It confirms that a construction company is liable to monitor and safeguard the quality of its work. More importantly, it confirms that at the acceptance inspection the client is not liable to use measurement equipment or other technical devices to ensure that the constructor has fulfilled all plans and adhered to good construction practise. A visual inspection is adequate when the general quality of the construction is concerned.

9. The confirmation of the ruling of the District Court's decision would have meant that essentially lower standards would have been applied to constructor's quality assurance than to client's acceptance inspection. This would have meant further that the clients would have been compelled to suspect any and all construction defects at the acceptance inspection. The approach of the Appellate Court offers a more balanced division of responsibilities between the owner and the constructor.

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