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13.1. The legal literature

Erik Hørlyck states in ”Entreprise – AB 18”, version 7, page 163, as a comment to the decision to depreciate that the wording of the decision implies ”that concrete notifications of defects must be submitted. It is not sufficient to prevent the depreciation that the Employer submits an unspecified statement of defects.” Hørlyck clarifies that the Employer’s complaint should not specify constructional causality, cf. U.2000.1933 H where a complaint about a leaking roof etc. was found to be a sufficient complaint of extensive defects in the roofing.  

There are thus certain requirements to the submission of claims for defects, but the defect does not also need to be specific with regard to the cause. 

In the new ABT18 rules, the wording in § 9, subs. 4, (corresponding to ABT 93, § 6, subs. 3) has been changed from ”unless the Employer has in advance made a written claim for remedy of defects to ”unless the Employer has in advance made a written complaint about defects.” 

However, there are no comments to this change in wording in the recommendation to the new AB rules which must imply that the change was not intended as a change in the application of the rule. It is thus not important whether the Employer has only made a complaint about defects or if he has made a claim for remedy. 

This is further supported by Erik Hørlyck who in Totalentreprise (the Turnkey Contract), version 4, page 110, describes the exception for depreciation after 1 year as follows: ”(…) unless a claim has been made for remedy of defects (or other claims) at handing-over or within 1 year after handing-over.” 

The requirement for submission of claims for defects is thus the same according to ABT 93 and ABT 18. 

In “Entrepriseretten” version 1, by Torstein Iversen (p. 295) it is stated that if the written claims towards the Contractor for remedy of deficiencies are unjustified, the employer can be imposed to compensate the Contractor for the guarantee costs as a direct consequence of the denial of depreciation. 

Iversen also states (p. 297) that if an Employer complains about a specific defect at the 5 Year Inspection, it is only this defect that can be claimed covered by the guarantee. The bare fact that the guarantee was not released (because of one specific defect) does not mean that the Employer can claim later found defects covered by the guarantee. This principle also applies to defects found after the 1 Year Inspection, meaning that defects found after the 1 Year Inspection can be covered by the remaining guarantee, but they cannot cause denial of depreciation. 

This is also stated in ”Totalentreprise”, version 4, by Erik Hørlyck (p. 110), where Hørlyck writes that even if a guarantee is kept valid through the submission of claims, it must probably be assumed that any further (later emerging) claims cannot be advanced. If the Employer has for example prevented depreciation of a guarantee from 10% to 2% by submitting a claim for defects, it must be assumed that he can only submit other claims for defects towards the guarantor if these can be held within the 2% limit. 

This means that it can be crucial which specific defects the Employer complains about before or on the 1 Year Inspection. 

13.2. Case law

In T:BB 2018.787 V the main Contractor was dismissed for claimed defects on doors and windows because this was the Employer’s delivery. Those defects that related to the Contractors delivery were remedied before the 1 Year Inspection, and the Employer was therefore bound to depreciate the Contractor Guarantee. Since this did not happen, the Employer was sentenced to pay the Guarantee Commission. 

”The City Court:

(…) Since HE has been found not guilty of the responsibility for the defects on doors and windows because this delivery was an employer delivery and since in connection with the 1 Year Inspection, HE has remedied the defects in the company’s services and work otherwise, H and M (BH) is under the obligation to comply with AB 92, § 6, subs. 4, and depreciate the guarantee to 2%. The Court therefore sustains the claim that HE has submitted to this effect and further orders H and M (BH) to pay DKK 56,160.00 including statutory interest as determined below. (…)

The High Court:

(…) Based on the reasons stated by the City Court, it is further agreed that BH must accept that a depreciation of the contractor guarantee from 10 to 2 per cent must be made and that it must pay to HE an amount of DKK 56,160 including statutory interest as claimed. (…)”

In T:BB 2015.549 the Arbitration Board found that all the claimed defects from the 1 Year Inspection were rectified by the 1st December 2011, where the Contractor asked for release of the guarantee. Since the Employer did not agree on a depreciation, the Employer was sentenced to pay the additional expenses due to the lack of depreciation from 10% to 2% om the 1st December 2011. 

“According to information received, the Arbitration Board will then base its decision on the fact that the defects established at the 1 Year Inspection had been remedied on 1st December 2011, and that the co-operative building society was then under an obligation to accept a depreciation of the guarantee to 2% of the contract sum. The co-operative building society is therefore under the obligation to compensate HE for the claimed additional cost resulting from a non-depreciation of the guarantee.”

In T.BB 2019.142 the Arbitration Board found that the Employer could not withhold payments for a bigger amount that the expenses of remedy of manifested defects and at the same time reject depreciation of the Contractor Guarantee. Therefore, the Employer was sentenced to pay the Guarantee Commission. 

”The Arbitration Board further agrees that BH must compensate HE for the costs for the guarantee commission that have been paid as a result of the non-depreciation of the guarantee despite simultaneous withholding of payments exceeding the cost of remedy of the defects. The remedy requirement of DKK 31,076.39, which has not been contested in regard to size, is therefore sustained with interest as claimed.”

In T:BB 2018.171 the Arbitration Board found that there were no facts that could cause a liability for defects. Therefore, the Contractor was entitled to compensation for the Guarantee Commission.  

”According to the statement above, no general circumstances exist that may indicate cause for liability for defects on BH’s part. TE is therefore found not guilty in its entirety of the claim submitted, and TE’s separate claim, which is undisputed with regard to the size of the commission costs, is then sustained as determined below.”

In U2019.446 H, the Supreme Court made a decision in an arbitration clause in a contractor guarantee, in which all disputes between the bank and the employer, apart from ”the question about payment under the guarantee”, should be heard before an appointed court of arbitration. 

In this case, a question about depreciation arose, as the bank had automatically made depreciation to which the employer disagreed. 

In the question about expert determination, the Supreme Court stated as follows:

”It appears from the guarantee from Jyske Bank that, apart from “the question about payment under the guarantee”, disputes between the bank and the employer are heard by an arbitral tribunal appointed by the Danish Arbitration Board for Building and Construction. The Supreme Court finds that this arbitration clause must be interpretated such that the question about the size of the guarantee, including depreciation and expiry according to the provisions of the guarantee to this effect, must be regarded as a question about payment under the guarantee which is exempt from the agreement about hearing of disputes before the arbitral tribunal. The Supreme Court then allows that the question about the justification of the bank’s depreciation of the guarantee to 2% of the contract sum can be tested in this case.” (My underlining)

The Supreme Court thus interpreted ”the question about payment under the guarantee” to also include the question about depreciation. The interpretation made in the judgment is not an interpretation of the rule about expert determination, but since it is the same wording, the same interpretation should be imposed on the understanding of the application of ABT93 § 46. 

However, Hørlyck says in ”Totalentreprise – AB 18”, page 134, that the judgment must be read with caution since it only deals with the question about the Danish Arbitration Board for Building and Construction or the court of law as the venue.

13.3. Change of the ABT rules and the literature

ABT 18 contains a new provision about how the previous § 46 procedure may also be applied to disputes about depreciation, and it appears from the recommendation to the new AB rules that this is new compared to before.

In ”Totalentreprise – ABT 18”, version 5, page 133, Erik Hørlyck says that the area for decisions about guarantees has been extended such that it not only considers the request for payment but also disagreements about depreciation or expiry of the guarantee, cf. ABT 18 § 9, subs. 10. 

In ”Totalentreprise”, version 4, page 304, Hørlyck says about expert determination according to ABT 93 § 46 that ”expert determination can be used in three situations, i.e. firstly to reach a decision about payment of the guarantee provided, cf. § 6, subs. 6, and § 7, subs. 3, and secondly and thirdly about the justification of withholding payments or performing setting off, cf. § 22, subs. 4.”

When the scope of application is described this way, it must be understood to the effect that an expert determination cannot be used in any other situation – apart from the 3 mentioned situations. 

In ”AB92 § 46” by Christian Johansen it appears on page 59 that according to AB92 § 46 (which is identical to ABT93 § 46) the expert is not able to take a position on depreciation of guarantees/release of guarantees. In addition, Johansen says as follows: 

”The expert should therefore not consider these matters [Read: depreciation and the release] regardless of whether the parties have submitted a claim to this effect. (…) By contrast, the orderer of the guarantee (and the guarantor) cannot rely on the expert’s opinion of whether the guarantee is to be depreciated or released. It would therefore be most correct if the expert does not take a position on depreciation/release, neither in whole nor in part, of any remaining guarantees but should solely consider the question of payment.”

The wording in the last sentence of the quotation suggests that Johansen incorporates a precondition that the question about depreciation is solely included in already pending expert determinations where the other party has made a request for withdrawal on the guarantee. 

Christian Johansen also says on page 92 as follows:

”An example of a case where experts have assumed competence in questions not governed by the rules could be the question about depreciation of guarantees. If the parties disagree whether a guarantee should be depreciated, this question belongs to the arbitral tribunal and the expert cannot take a position on this in an expert determination.”

While Johansen states that depreciation is not included in the application of § 46, Johansen also states that there are cases where this has taken place nonetheless. However, no concrete examples are mentioned in the book; perhaps owing to the fact that expert determinations are not published.

13.4. Legal effect of expert determinations 

When assessing whether you should request an expert determination according to ABT 93, § 46, it should further be mentioned that an expert determination is not enforceable and thus can neither be enforced nor relied on with legal effect in case of subsequent arbitration. 

The above implies that an expert determination cannot be executed by means of the enforcement court. If an expert determination is not respected, the interested party thus has no legal remedy to enforce the decision. Moreover, an expert determination has no legal effect during a subsequent arbitration or legal action. Neither the Arbitration Board nor the courts of law are thus bound by an expert determination and may reach a decision with a different content than the expert determination. 

The above applies alone to the relationship between the contractor and the employer. By contrast, the guarantor is bound by an expert determination if the guarantor has accepted ABT 93, § 46. This may take place by the guarantor accepting in the guarantee text that payment may be made on the basis of an expert determination. 

It appears from the recommendation to AB92, page 152, that ”§ 46 decisions about payment are not enforceable. However, if the guarantor for example refuses to follow the decision and pay in accordance with the guarantee, this will constitute a breach by the guarantor.”

In U.2006.3167 H, where the bank providing the guarantee refused to follow the expert determination, the Supreme Court said that the bank in question was unconditionally required to pay according to the expert determination and could thus not make payment conditioned on testing of the material justification of the claim in the relationship between the employer and the contractor.  

Erik Hørlyck comments in ”Entreprise”, version 7, page 491, that even though the expert determination is binding for the guarantor, the party, the employer or the contractor, for which the guarantee is provided, will be able to make a claim for repayment of the guarantee amount paid at a subsequent arbitration.  

13.5. Assessment of the possibility of using expert determination

Based on the wording of ABT 93, § 46, subs. 1, this provision can only be applied to the question about payment and about justification of withholding payments or performing setting off. The provision thus does not cover the question about depreciation. 

This also corresponds with the literature, according to which depreciation is not included in the scope of application for ABT93, § 46. However, it is also described in ”AB92 § 46” by Christian Johansen that sometimes expert determinations also take a position on depreciation even if this is outside the scope of application. 

The only evidence for using expert determination for an assessment of depreciation is the statement of the Supreme Court in U.2019.446 H. However, since this judgment must be read with caution, and since it does not in fact address the question between an expert determination vs. the board of arbitration, but rather the question about the venue of the board of arbitration vs. the courts of law (which can be compared in relation to legal effect), it is questionable whether the result would be the same if you transferred the ratio decidendi of the judgment to a dispute of whether an expert determination can be used for disputes about depreciation.