Congratulations to our client for winning a dispute against their customer

COBALT achieved a triumphant resolution for one of Latvia’s leading construction companies in a dispute, lasting over 5 years, for the recognition of works as additional, their compensation, and the extension of contract deadlines.

The Client, in collaboration with a joint venture partner, entered into a construction contract with employer. Following the employer’s refusal to acknowledge the removal of unforeseen obstacles as additional works, provide payment for these works, and extend the contract deadlines, the Client’s joint venture partner, acting as a responsible partner, overseeing joint activities, and representing the partners before third parties, initiated legal proceedings before the court. Additionally, the employer submitted a counterclaim against the joint venture partners, seeking nearly EUR 2.5 million in liquidated damages for the delay in completing the works.

According to the joint venture agreement, as regards the relations with the employer and dealings with third parties, both partners are represented by a designated responsible partner, who is, among other things, entitled to receive compensation from the employer for the work undertaken. During the course of the proceedings, the joint venture agreement was amended and the construction contract was concluded to specify that the functions and rights of the previous responsible partner were now assumed by the new responsible partner, the Client.

The change of the responsible joint venture partner, coupled with the subsequent insolvency of the Client’s joint venture partner, resulted in a misalignment of interests between the partners. The Client brought independent claims in the case, seeking compensation for additional works, payment for these works, and an extension of the contract deadlines.

The case involved a complex dispute not only as to whether the works for the removal of unforeseen obstacles constituted additional works, whether there were grounds for the extension of the contract deadlines, whether the employer was entitled to claim liquidated damages, but also as to which of the partners was entitled to be compensated by the employer for the additional works, namely whether the compensation was owed to the Client’s partner, who, acting as the responsible partner at the time, has taken legal action by approaching the court to claim compensation for additional works and to request an extension of the contract deadlines, or to the Client, who has become the responsible partner in the course of the proceedings.

The courts of first and appellate instances held that there was a legal and factual basis to designate the disputed activities as additional works and to extend the contract deadlines; however, they noted that the joint venture partner who, at the time of performance of the obligation, was the responsible partner, was the one to obtain performance of that obligation.

However, the Supreme Court of Lithuania upheld the Client’s cassation appeal in its entirety, overturned the procedural decisions of the lower courts in the appealed part and reversed the execution of the judgment. The court of cassation clarified that the entitlement to receive payment (exceeding EUR 200,000) from the employer for the additional works performed rested with the Client, since by changing the responsible partner the parties have agreed on unlimited representation, which means that the new partner (the Client) was entrusted with the continuation of all unfinished and new joint matters of the partners, regardless of circumstances predating the amendment to the joint venture agreement. The court noted that the moment of establishing a certain right of recourse against third parties within the framework of a representation relationship between the partners held no legal relevance in the present case.

The COBALT defence team representing the Client consisted of Partner Dr Rimantas Simaitis and Senior Associate Areldas Augustinaitis.