To whom does the Chain Liability apply?

Last updated : 14-05-2022

25 March 2021 Add expertise tag Add service tag Add country tag

The chain liability does in first instance apply to contractors and subcontractors, but also to:

The Chain Liability for 'self-builders'
Sellers of future materials
Clients in the clothing industry
Buyers of clothing that is still to be manufactured

The Chain Liability for 'self-builders'

A self-builder is an entrepreneur who conducts work without the order of a third party i.e. not on the basis of contracting or sub-contracting by a third party and who is not employed by a third party in the normal course of its business. The work must be of a material nature.

This could for instance relate to a manufacturer who engages a subcontractor for the packaging of its products in a factory, or a housing association which engages subcontractors for the development of building projects for sale or to rent. In this situation the manufacturer and housing association are considered ‘self-builder’.

The Chain Liability rules treat self-builders the same as 'contractors' although in legal terms the relationship with the subcontractor may not be one of 'sub-contracting'. If a self-builder has work of a material nature conducted by a third party, then this third party is considered a subcontractor. This does however only apply, when the self-builder conducts the work in the normal course of its business.

Even if the entrepreneur/self-builder outsources all work to a third party, it can still be considered as a self-builder. This is the case when:

the overall management of the work lies with the self-builder,
and the work forms part of the normal business.

In such cases, the self-builder is not regarded as 'client' (which can typically not be held liable based on the Chain Liability rules) but rather as 'contractor' (which can be held liable).

Sellers of future materials

When a contractor builds a house in relation to which the contractor engages a third party for the purchase and construction of materials, like for instance stairs and door frames which are to be specially designed and manufactured for this project, this third party must be considered a sub-contractor for application of the Chain Liability rules, unless the majority of the actual man hours (50%) required to do the work by this third party is not spent at the building premises of the project of the contractor (but at the third parties premises). If the seller only sells the stairs and door frames and does not manufacture them, the seller is also not considered a sub-contractor.

Clients in the clothing industry

As a general rule 'clients' of contractors cannot be held liable based on the Chain Liability rules. However, an exception applies to 'clients' in the clothing industry: clients in the clothing industry can be held liable for the payroll taxes owed but not paid by engaged contractors and/or subcontractors. The chain of liable parties is thus extended by one link in the clothing sector.

Buyers of clothing that is still to be manufactured

For application of the Chain Liability rules a buyer of clothing that is still to be manufactured and which is acting in the line of normal business, can be held liable as if the buyer were a client for contracting. It is thus not possible to evade liability by presenting work agreements (contracting) as agreements of purchase and sale.