High Court Finds No Duty of Care From Builder to Owners Corporation

by Sandra Steele, Belinda Montgomery, Marcel Marquardt, Matthew G. Sier, K&L Gates, Sydney

The High Court has held that a builder of a serviced apartment complex does not owe a duty of care in negligence for financial loss arising from defects in common property to an owner's corporation (Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36).

The serviced apartments were built by the builder under a design and construction contract with a developer. The owner's corporation was a subsequent owner of the land.

This is an important decision for the building and construction industry as it has defined the circumstances in which a commercial builder will be found liable for defective works in negligence. 

To read the full alert, click here

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Enforcing Notice Provisions in Construction Contracts in the United States

By Kimberly L. Karr, K&L Gates, Pittsburgh 

Notice provisions are a key part of construction contracts.  These provisions typically require a contractor to notify the owner of the project (or an owner-designated representative) when the contractor believes that it is entitled to extra costs or additional time for the project.  Notice provisions generally require that notice be given within a certain time period and that the contractor back its claim with supporting information. 

Notice provisions are often the source of disputes between owners and contractors.  This post provides an overview of common issues that owners and contractors in the United States should consider when negotiating notice provisions and addressing notice of potential claims during a project. 

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Overhaul of the Building and Construction Industry Payments Act 2004 (Qld): How the Changes Will Impact Queensland, Australia

Sandra Steele and Marcel Marquardt, K&L Gates, Sydney

The amendments to the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act) were passed on 11 September 2014 and received assent on 26 September 2014. The changes contained in the Building and Construction Industry Payments Amendment Act 2014 (Qld) (BCIPA Act) are extensive and will impact most participants in the building and construction industry in Queensland, Australia.

The commencement date is expected in the coming weeks. 
To read the full alert, click here.
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Preliminary court injunction or adjudication−new legal tools to avoid excessive duration of con-struction court proceedings in Germany?

By Kristina Fischer, Eva Hugo and Christoph Mank, K&L Gates, Berlin

In general, German court proceedings relating to construction and engineering matters can take between three to six years and sometimes up to ten years, until a final, binding judgment is obtained. The reasons for such excessive duration in construction court proceedings are manifold: Courts may be overloaded by the number of disputes brought before them, judges may not have the necessary technical or judicial experience or expertise and the clarification of the facts of the case may be time-consuming and not be possible without one or more experts´ opinions. In addition, the losing party generally exhausts all court instances before a case is finally settled. The excessive duration of construction court proceedings is expensive; and often, it even poses a threat to one or both parties´ economic existence.

The call for a reform of the current procedural law for construction disputes is getting louder: Working groups, organizations and experts demand that a new−accelerated−procedure for the resolution of construction disputes must urgently be introduced into the German legal system.

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Expansion of Statute of Limitations in Illinois under 15th Place Condominium Association v. South Campus Development Team, LLC

By Daniel E. Raymond and Jesse G. Shallcross, K&L Gates, Chicago

General contractors and developers beware—suits for breach of express indemnity now have a longer shelf life in Illinois.

In 15th Place Condominium Association v. South Campus Development Team, LLC, the Appellate Court for First District of Illinois held that a claim for breach of an express indemnity clause contained in a construction contract is subject to a ten-year statute of limitations instead of four.[1]  The subject of the dispute was a contract between 15th Place Condominium Association (the “Association”) and South Campus Development Team (the “Developer”) to develop two condominium towers (the “Project”).  The Developer contracted with Linn-Mathes, Inc. (the “General Contractor”), who would act as general contractor.[2]  The contract between the Developer and the General Contractor included an express indemnity clause and a cause of action accrual provision.[3]  By 2003 and 2004, the Project was substantially completed, and, in 2005, the Developer turned over the property to the Association.[4] 

Unhappy with the Project, the Association sued the Developer for breach of the implied warranty of fitness and habitability, breach of fiduciary duty, and negligence in 2008.[5]  In turn, in 2011, the Developer filed a third-party complaint against the General Contractor for breach of express indemnity, among other claims.[6]  At the trial level, the General Contractor successfully argued that the Developer’s claim for breach of express indemnity was untimely and barred by the four-year statute of limitations for construction-related claims.[7] 

The appellate court, however, disagreed.  Relying on the Illinois Supreme Court’s ruling in Travelers Casualty & Surety Co. v. Bowman, the court overturned the trial court and applied the ten-year statute of limitations for contract claims.[8]  In Travelers, the Illinois Supreme Court instructed that when determining whether to apply the ten-year statute of limitations for contract claims or the four-year statute of limitations for construction-related claims, courts must look to the nature of the claim—meaning whether the claims emanates from construction-related activity or a contractual obligation.[9]  Applying this test to the express indemnity clause at issue, the court determined that the nature of the claim was for failure to indemnify, a contractual obligation, not from any “act or omission relating to construction activity.”[10]  Thus, the ten-year statute of limitations applied and the Developer’s claim for breach of express indemnity was not barred by the passage of time.

[1] 2014 IL App (1st) 122292.

[2] Id. ¶¶ 5-7.

[3] Id. ¶ 43.

[4] Id. ¶ 39.

[5] Id. ¶ 7.

[6] Id. ¶ 10.

[7] Id. ¶¶ 17-20.

[8] Id. ¶ 45.

[9] Id. ¶ 46.

[10] Id. ¶ 52.

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Pennsylvania Supreme Court Rules that Subsequent Homeowners Are Not Entitled to Implied Warranty of Habitability

By Christopher A. Barbarisi and Loly G. Tor, K&L Gates, Newark

In Conway v. Cutler Group Inc.,[1]  the Pennsylvania Supreme Court reversed a decision by the Superior Court and held that the builders’ implied warranty of habitability does not run to subsequent purchasers of homes, significantly limiting homebuilders’ potential liability to subsequent owners.

In Conway, the homeowners, Michael and Deborah Conway, purchased a three-year-old home from the original owners, who had purchased the home new from the builder.  After allegedly discovering water infiltration and construction defects in the home, the Conways filed suit against the builder for breach of the homebuilders’ implied warranty of habitability.  The trial court dismissed the Conways’ complaint, finding that the Conways’ claim for breach of the implied warranty was barred due to lack of privity. On appeal, the Superior Court reversed, finding that the implied warranty of habitability should exist independently of a contract between the builder and homeowner because the warranty is based on public policy considerations, is designed to “equalize the disparate positions” of the builder and homeowner, and exists independently of any builder representations.

In reversing the Superior Court, the Pennsylvania Supreme Court considered the history of the implied warranty of habitability and its adoption by the Court in Elderkin v. Gaster.[2]  In Elderkin, the Court rejected the doctrine of caveat emptor and instead placed the burden of risk on a builder “‘that a home which he has built will be functional and inhabitable in accordance with contemporary community standards.’”[3]  The Court also recognized that the implied warranty in Elderkin was based on the existence of a contract between the builder and the homeowner (which, of course, does not exist with a subsequent purchaser) and was limited to situations where the parties are not in privity.  After discussing the varying decisions reached by courts in other jurisdictions on this issue, the Court declined to depart from its position that the implied warranty of habitability is grounded in contract and requires privity between the parties to be enforced.  It concluded that whether to extend the warranty of habitability to subsequent homeowners is a question of public policy properly left to the legislature.  Thus, unless and until Pennsylvania's General Assembly decides otherwise, an action for breach of implied warranty of habitability requires contractual privity between the parties, eliminating a potential source of liability to homebuilders.
[1] J-41-2014 (Pa. Aug. 18, 2014).
[2] 288 A.2d 771 (Pa. 1972).
[3] J-41-2014 at *4 (quoting Elderkin, 288 A.2d at 777).


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Biggest Risk of Corruption in The Construction Industry: The Global Picture

By Elizabeth RobertsonLaura Atherton and Dylan G. Moses, K&L Gates, London

The construction industry is big business. A recent study[1] has predicted that global construction output will increase by more than 70%, to US$15 trillion per year worldwide, by 2025. The dominant sources of this growth will be three countries in particular, China, India and the U.S., with much of the remainder in the emerging markets.

This growth is a cause for celebration, but it will not come without challenges[2]. Some of those countries where the highest growth is predicted are also perceived as having the highest levels of corruption[3].

To read the full Whitepaper, click here

1 The Global Construction 2025 by Global Perspectives and Oxford Economics.
2 The Chartered Institute of Buildings found that 49% of respondents to a 2013 survey thought that corruption was common within the UK construction industry.
3 China is listed at number 80 and India is listed at number 94 out 177 countries ranked by Transparency International on their corruption perceptions index in 2013.
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Issues to Consider When Doing Business in Qatar

As part of K&L Gates’ commitment to continuing professional development, the construction and disputes resolution lawyers in our Doha office regularly discuss relevant legal issues that arise while advising clients in Qatar, giving presentations about issues with Qatar law and lessons learned from live matters.

The attached slides features a presentation by Alex Brightman about issues to consider relating to the registration of the local branch of an international construction company who wants to do business in Qatar.

To view the presentation, click here


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Changes Made to the Pennsylvania Mechanics' Lien Law to Protect Holders of Open-End Mortgages and Residential Property Owners

By Raymond P. Pepe, K&L Gates, Harrisburg

Mechanics’ liens grant contractors and subcontractors an interest in improvements made to real property to secure the payment obligations of owners to contractors, and of contractors to subcontractors. While these liens protect the legitimate interests of contractors and subcontractors, if mechanics’ liens impair access to credit needed to finance construction and expose homeowners to financial risks beyond their reasonable and legitimate expectations, mechanics’ liens may impede new construction in a manner clearly contrary to the interests of the contractors and subcontractors whose rights they seek to protect. Newly enacted Pennsylvania legislation attempts to better balance the interests of construction lenders, contractors, subcontractors and property owners.

The legislation clarifies and expands the extent to which mechanics’ liens are subordinate to open-end mortgage used to finance construction and protects the owners of certain types of residential properties from claims by subcontractors when amounts due have been paid to general contractors.

To read the full alert, click here.

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The Perennial Question of Concurrent Delay - The English Viewpoint

By Mike R. Stewart and Mary E. Lindsay, K&L Gates, London

Concurrent delay remains a perennial issue in construction contracts and the disputes arising out of those contracts.  The classic situation of “concurrent delay” occurs when both a contractor and the employer allege that the other is causing delay, where the delay caused by each impacts the project at the same time.The key authorities on the topic remain the same, in our view (all emphasis added).

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