The agreed hourly rate for contract work is deemed to have included value added tax

The agreed hourly rate for contract work is deemed to have included value added tax

A consumer hires a building contractor to carry out renovation work on their home. When the work is completed, however, disagreements arise as to whether the agreed hourly rate is inclusive or exclusive of VAT. Furthermore, it is unclear which of the people who worked on renovating the house is responsible for some improperly performed contractor work. The Court of Appeal finds that the price given to a consumer should as a rule be considered to include VAT and that this also applies in this case. Furthermore, the above-mentioned building contractor is considered to have had the main responsibility for parts of the renovation, which is why he is held liable for damages for others’ incorrectly carried out renovation work.

A consumer who is expanding and renovating his home has, through a verbal agreement, hired a construction contractor to carry out work on the house. When the work is finished, the construction contractor sends an invoice. However, the consumer gets the house inspected after the renovations, whereupon it turns out that some work was not carried out professionally. He is also of the opinion that he and the construction contractor agreed on a ceiling price that was exceeded.Furthermore, he believes that VAT was added to the invoice even though the parties agreed on an hourly price including VAT. For the reasons mentioned, the consumer considers the invoiced amount to be too high, which is why he only pays part of the sum.

The building contractor, for his part, believes that several people have carried out renovation work on the house at the same time and that he himself is not responsible for the errors that emerged during the inspection. He is also of the opinion that the parties have not agreed on any ceiling price. Regarding the VAT, the construction contractor believes that he was clear that the hourly price is exclusive of VAT and that the consumer has also paid several invoices where the VAT is clearly specified during the course of the contract. In the event that the consumer did not understand at the conclusion of the agreement that the hourly price was stated excluding VAT, a tacit agreement has thus arisen with the payment of the invoices. When the parties are unable to reach an agreement, the construction contractor files an action in the District Court demanding that the consumer pay the remainder of the invoiced amount. The consumer, for his part, demands that the building contractor be obliged to pay damages for incorrectly performed work.

The first question the District Court examines is whether the agreed hourly rate is inclusive or exclusive of VAT. The court states that section 51 of the Consumer Services Act stipulates that the price the consumer claims to have been agreed upon shall apply if nothing else is proven; it is therefore up to the construction contractor to prove that VAT was included in the hourly price. The evidence he presented is partly the claim that he was clear that the hourly price is exclusive of VAT, and partly that there was a tacit agreement. According to the consumer, he only discovered that the ceiling price had been exceeded when he paid the last invoice. He then went back to check the other invoices and noticed that VAT had been added to the hourly rate. The court sees the explanation as reasonable and therefore does not consider that the construction contractor succeeded in proving that the parties agreed on an hourly price excluding VAT or that there was a tacit agreement.

When the VAT is deducted, the invoiced amount no longer exceeds the ceiling price claimed by the consumer – the District Court therefore does not examine whether the parties have agreed on a ceiling price or not. Finally, the consumer’s claim for damages due to improperly performed work is examined. According to the consumer, the construction contractor had the main responsibility for the renovation, which is why he is liable for payment despite the fact that some work was carried out by other people. Areas where work was not carried out professionally are excavation work, plumbing and other contracting work. Given the testimony of the others who renovated the house, the court considers it proven that the construction contractor had the main responsibility for the other construction work.  He must therefore be held liable for defective work in that area, even though he did not perform these personally. The consumer thus wins approval for most of his claim, whereupon the construction contractor appeals to the Court of Appeal.

The Court of Appeal begins by examining the issue of VAT and states, in addition to the District Court’s reasoning, that it is clear from §§ 1 and 2 of the Price Information Act that the price provided to a consumer must include VAT. It is thus found that the construction contractor has not fulfilled his burden of proof according to Section 51 of the Consumer Services Act and that the hourly rate must therefore be considered to include VAT. Otherwise, the Court of Appeal considers that the District Court correctly decided the question of the construction contractor’s claim for damages. It also shares the sub-instance’s assessment regarding incorrectly performed work and thus considers that the construction contractor is liable for damages for all deficiencies attributable to other contract work. Regarding the consumer’s right to damages, the construction contractor invokes, in addition to the evidence presented in the District Court, a chat conversation between the parties. The conversation shows that he offered to remedy some of the errors that the consumer believes exist free of charge. Because he did not accept the offer, the construction contractor believes that he failed to limit his own damage and is therefore not entitled to compensation. However, the consumer has evidence that he tried to contact the building contractor after receiving the message with the offer without receiving a response. Thus, the court does not consider that the consumer failed to limit his damage, which means that he is entitled to full compensation for deficiencies attributable to other contracting work.