Supplier of building elements including MgO boards has unlimited liability

A supplier of building elements including MgO boards was found to have unlimited liability under the Danish Sale of Goods Act for all replacement expenses incurred by the employer and the principal contractor, a claim that amounted to approximately ten times the sales price. Quick attention is required in respect of successive statue-barring of such claims and in respect of any express acceptance of standard terms and conditions by suppliers.

The Danish Building and Construction Arbitration Board recently published a leading ruling of 5 July 2019 in the MgO cases. This time, a supplier of cladding panels including MgO boards for the renovation of 90 terraced houses was found to have unlimited liability for all expenses which the main contractor had been ordered to pay to the employer for the replacement, including interest and costs. The principal claim amounted to DKK 45 million.

The court found that the supplier had incurred liability for defects under section 43(1) and (3), see section 24, of the Sale of Goods Act. The supplier had not proved that the terms and conditions subject to limited liability of Træelementforeningen, a member organization for certified businesses manufacturing elements made of wood, had been agreed with the main contractor, and accordingly liability was unlimited. Furthermore, the supplier was not exempt from liability because the supply was made in the period leading up to and after the issue of the fact sheet Byg-Erfa blad (21) in December 2013 according to which use of MgO boards was generally accepted as thoroughly tested, because it was decided to use MgO boards in July 2013, even if the use of MgO boards was already then common and recognized. The price for the supply was DKK 5.8 million. The supplier was to indemnify the contractor on the whole. As for the contractor's liability, the court found that the contractor's subjective circumstances in connection with the project planning were decisive, and that liability for defective products applies when a free choice of materials is stipulated, even if the contractor is not aware of this.

The ruling provides basis for very substantial claims against suppliers of building elements including MgO boards and construction products in the form of MgO boards. Such claims may be claims for contribution or full indemnity from other parties who have been responsible for use of the boards. Extensive liability has already been imposed on some contractors, and they may be able to pass on their claims. Insurance companies and others may also have claims for contribution.

There should now increasingly be focus on both acceptance of standard terms and conditions subject to limited liability and on quick reaction under the Limitation Act as several claims may already be subject to statue-barring without suspension. Overall, the situation for the suppliers affected may give rise to attention.

It is added that the parties had also brought a claim against the employer's full-service consultant, but judgment was given against the parties. The court stated in that context that based on the available information the consultant, who had not prescribed breather boards but was presented with the product for approval by the principal contractor, on his part could assume that they were common building market products that did not require strict attention.

Plesner is currently conducting several principal cases concerning claims relating to MgO boards and other building materials, including about the position of claims in relation to suppliers, consultants, insurance companies, the Building Damage Fund (Byggeskadefonden) etc. There are still many unsolved problems concerning the computation and adoption of claims, recourse, consequential losses, limitation etc., and we are ready to answer any questions you may have.

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