Attorney-at-law Veikko Puolakainen successfully represented Saaremaa municipality in court in a construction dispute related to a contractual penalty claim

Veikko Puolakainen, attorney-at-law at law at NOVE, represented Saaremaa municipality in court in a dispute with three construction companies (Tesman Ehitus OÜ, Tesman OÜ and Level AS), which arose from the delay in the reconstruction of the Tuulte Roosi kindergarten in Kuressaare and the resulting application of a contractual penalty.

The liquidated damages were agreed in the terms of the public procurement contract concluded as a result of the EPC 2013 (General Terms and Conditions of the Construction Contract).

The dispute arose from the fact that, despite the agreed extension of the final completion date, the builders/contractors did not complete the works within the agreed deadlines. This led to the application of a contractual penalty by the contracting authority/municipality and a corresponding set-off against the claim for payment to the contractors.

The plaintiffs were the construction contractors. The dispute involved various tests of the presumptions of the liquidated damages claim. The courts found that all the prerequisites for a liquidated damages claim were met. There was a valid liquidated damages agreement between the parties, the contractors were in breach of contract and the contracting authority had given reasonable notice of its intention to claim liquidated damages. There is no basis for reducing the liquidated damages. A claim for liquidated damages is not contrary to the principle of good faith. The delay in the completion of the works was not caused by the Covid 19 virus in mid-2020 or by any other objective impediment. The courts were also not persuaded by the argument that the request for payment of the contractual penalty was precluded by the fact that the request was sent to the e-mail address indicated in the contract, when the long-standing practice of the parties in their communication with each other during the performance of the contract was to send the request continuously from other e-mail addresses, which were also indicated as the official contact address of the company in the commercial register, the business register and the website.

The Pärnu County Court agreed with all the grounds put forward by Saaremaa municipality and dismissed the action. The Tallinn Circuit Court dismissed the appellants’ appeal and upheld the County Court’s judgment, accepting all the grounds of the County Court’s judgment without reiterating them. By order of 14.11.2022, the Supreme Court refused to admit the applicants’ cassation appeal to the proceedings and the earlier decision of the Pärnu County Court became final. By the decision of the courts, the municipality’s costs of the proceedings were borne by the plaintiffs in both instances.