Victory in ÍAV vs. Harpa and Situs before the Icelandic Court of Appeals

Last June, the Icelandic Court of Appeals handed down a judgment in case No. 203/2021, acknowledging ÍAV’s right to damages in solidum from the companies Harpa and Situs.

A photo of Hjördís Halldórsdóttir, partner at LOGOS legal services

ÍAV is one of the leading construction companies in Iceland whereas Harpa is an Icelandic public organization that runs Harpa Concert Hall and Conference Centre in Reykjavik, with Situs being its sister company. The Court of Appeals overturned in its verdict a district court ruling that had previously acquitted the defendants of ÍAV's claims. In addition to being found liable for damages, the defendants were also ordered to pay ÍAV 7 million ISK in legal costs.

The case dates to an agreement signed in 2006 regarding the construction of various structures at Austurbakki 2 in Reykjavík, where Harpa Concert Hall is located today. The agreement ensured ÍAV construction rights in the building area, including the right to construct an underground car park. However, two land plots in the building area were sold without adequately ensuring this right, and that led to Reykjavík Development, the company that bought the two plots, entering into an agreement with another contractor. This resulted in ÍAV’s rights being forfeited as regards the two building plots.

Initially, a lawsuit was filed against Reykjavík Development for recognition of a liability to damages. Harpa and Situs were summoned as nominal defendants. The lawsuit ended with a judgment of the Supreme Court in case no. 18/2019 where Reykjavík Development was acquitted. That judgment is precedent regarding the difference between obligtions and property rights and has been discussed in academic writings in the field of property rights.

Following the judgment, another lawsuit was filed against Harpa and Situs, on the grounds that Harpa and Situs had failed to secure, when the two plots were sold, that the buyers would be committed, directly towards ÍAV, to respect its construction rights.

As stated above, the district court acquitted Harpa and Situs. The district court concluded that the claim was time-barred and furthermore that Situs had never been obligated towards ÍAV. The Court of Appeal disagreed. It firstly accepted that Harpa and Situs had both been obliged to secure the rights, that the companies had failed to do so and that this had caused ÍAV to lose its rights to constructing the underground car park, resulting in financial losses. Secondly, the court noted that the provisions of Act No. 14/1905 on time-barring applied to a claim for damages within contracts if the relevant contract was executed whilst that legislation was in force. Resulting in 10-year limitation period, vs. 4 years under a newer legislation on time-barring that entered into force after the agreement was signed in 2006. Since Harpa’s and Situs’s non-compliance had first occurred in 2013, when the building plots were sold to a third party, the Court of Appeals ruled that the claim was not time-barred when the lawsuit was filed in 2020. Therefore, ÍAV’s acknowledgement claim for compensation against Harpa and Situs was granted.

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