Does an Employer have right of recourse to a Subcontractor?

It often occurs after handover of a project, that an Employer may have found certain defects in works executed by a Subcontractor and seeks to have it remedied. The Employer is not a party to the contract between the Main Contractor and the Subcontractor and usually does not have any direct recourse to the Subcontractor due to Privity of Contract, which provides that only the parties to the contract can enforce it.

As a result of the above, the general practice is that an Employer holds the Main Contractor contractually responsible for any and all defects on a construction project, even those that arose from the work of a Subcontractor. This position is correct since in most cases, there is generally no direct contract relationship between the Employer and Subcontractor. Furthermore, the terms of the main contract may lay out the recourse available to the Employer and this must be adhered to.

The stipulatio alteri principle which is recognised in South African law, provides a scenario where a contract may confer benefits to a third party who is not a direct party to the contract. This principle could be relevant to construction contracts where an Employer seeks recourse against a Subcontractor, however, in order to be successful, two key requirements must be met:

1. The subcontract agreement must include a stipulation which includes a benefit for a third party, the Employer in this instance, who is not a party to the contract.
2. The beneficiary of this provision, the Employer in this instance, must either expressly or tacitly accept this benefit conferred to them by the contract.

A typical example of a contract which includes the stipulation alteri principle is where an individual takes out a life insurance policy designating a specific beneficiary who will receive the payout.

An alternative claim that an Employer may explore in their claim against a Subcontractor is a delictual claim. To succeed with a delictual claim, the Employer must prove:

1. That the Subcontractor owed a duty of care to the Employer.
2. The subcontractor breached this duty of care by failing to perform their duties to the required standard.
3. This breach of duty caused actual harm or damage to the Employer.

The purpose of this article is to raise awareness that a Subcontractor may not be absolutely immune to claims from the Employer depending on the terms of the contract and it is necessary to execute work that meets the standard of care required.

Bilaal Dawood Head: Membership Services