BGH Ruling Clarifies Liability Chain: Enforcing Defect Claims Between Main Contractors and Subcontractors

In the focus of current legal discourse is a landmark ruling by the Federal Court of Justice (BGH) dated November 9, 2023 (Case No. VII ZR 92/20), addressing the legal framework for enforcing defect claims within the contractual chain of construction services. The case specifically illuminates the situation where a main contractor (MC) seeks damages from a subcontractor (SC) after having to pay an advance to its client (C) due to defects in the SC’s services.

The underlying facts involve a company specializing in timber construction that was contracted by another company to carry out roof raising and energy renovation on nine residential buildings. For partial services, the MC engaged a master business for heating, sanitary, and solar systems as the SC. Upon completion, defects were discovered in the sewage connections that did not comply with technical standards, leading to odor issues. Consequently, the MC was ordered by the C to pay an advance for the defect rectification and, in turn, sought damages from the SC.

The legal dispute ultimately led to a BGH decision clarifying several key points for the practice of defect claims in construction. The BGH fundamentally affirmed the MC’s right to damages from the SC due to defective performance under § 634 No. 4 BGB in conjunction with §§ 280 Abs. 1 and 3, 281 BGB. This claim was originally directed towards exemption from the defect claims of the C and was transformed into a payment claim by the advance payment.

A crucial aspect of the ruling concerns the nature of the advance payment and the associated obligations of the C. The BGH emphasizes that the advance is purpose-bound and must be used by the C for defect rectification. Therefore, the MC has a right to an accounting from the C and repayment of any part of the advance not used appropriately. The extent to which the C has actually used the advance for defect rectification plays a central role in determining the amount of the MC’s damages claim against the SC.

The BGH highlights that the MC has a secondary burden of presentation, particularly to demonstrate whether the C has already provided an accounting for the use of the advance. This BGH decision results in the case being remanded to the appellate court for further clarification of these issues.

Practice Note: This ruling underscores the necessity for main contractors to meticulously document and monitor the use of advances by the client when enforcing defect claims against subcontractors. It emphasizes the strategic importance of declaring a dispute in the process against the client to avoid divergent court decisions. Furthermore, the significance of declaratory actions is highlighted if the client has not yet definitively accounted for the use of the advance, to ensure full compensation for the costs of rectifying defects. Thus, the BGH’s decision provides important guidelines for the legal handling of defect claims within the contractual construction chain, strengthening the position of the main contractor in managing the financial risks arising from liability for defects.