Bridging the Liability Gap: Employer Recourse Against Subcontractors in Construction Contracts

In the construction industry, it is common to encounter a principal building contract between the employer and the main contractor, alongside a subcontract between the main contractor and its subcontractor. A pertinent question arises: does the employer have any recourse against the subcontractor if the employer is held liable for the actions of the subcontractor, given that the employer is not a direct party to the subcontract agreement? This article explores the legal principles and potential avenues for recourse available to the employer, focusing on the stipulatio alteri principle and the law of delict.

The Stipulatio Alteri Principle
The stipulatio alteri principle, recognised in South African law, allows a contract to confer benefits on a third party who is not a direct party to the contract. This principle can be particularly relevant in construction contracts where the employer seeks recourse against a subcontractor. For the employer to rely on the stipulatio alteri principle, two key requirements must be met:

Intention to Benefit a Third Party: The subcontract agreement must clearly indicate the intention to benefit the third party, in this case, the employer. This intention can be explicitly stated in the contract or inferred from the contractual terms. For example, indemnity provisions in the subcontract agreement that extend protection to the employer would demonstrate such an intention.

Acceptance by the Third Party: The third party (employer) must accept the benefit conferred upon them. Until acceptance, the third party has no rights under the contract. Once accepted, a separate agreement comes into existence between the subcontractor and the third party/employer, allowing the employer to enforce the contractual provisions intended for their benefit.

Delictual Claim as an Alternative
If, for any reason, the contractual claim based on the stipulatio alteri principle is not recognised, the employer potentially has a delictual claim against the subcontractor. To succeed in a delictual claim, the employer would need to prove the following elements:

• Duty of Care: The subcontractor owed a duty of care to the employer. This can be established by demonstrating that the subcontractor should have reasonably foreseen that their negligence could harm the employer, who is the ultimate beneficiary of the project.
• Breach of Duty: The subcontractor breached their duty of care by failing to perform their duties to the required standard.
• Causation: The breach of duty by the subcontractor caused the harm or damage suffered by the employer.
• Damages: The employer suffered actual harm or damage as a result of the subcontractor’s breach of duty.

Conclusion
While the employer is not a direct party to the subcontract agreement between the main contractor and the subcontractor, there are legal avenues available for recourse. The stipulatio alteri principle provides a contractual basis for the employer to claim benefits conferred upon them by the subcontract agreement, provided there is a clear intention to benefit the employer and the employer accepts the benefit. If the stipulatio alteri principle is not available, the employer can potentially pursue a delictual claim by proving the necessary delictual elements of such a claim.

Article written by: Jean-Paul Rudd
Partner, Adams and Adams