A Case of Advising on Alternative Measures Where a Defect Guarantee Insurance Policy Could Not Be Issued

1. The Client's Situation

The client was pursuing a particular facility-construction project, but it faced a situation in which the issuance of the defect-guarantee insurance policy normally required was impossible due to the construction company's tax arrears. The construction contract had not yet been formally concluded, and since this risk was identified at the estimate (quotation) stage, the client requested advice.

Your Legal Team reviewed and presented five measures that could make up for the absence of defect-guarantee insurance, namely: direct deposit of a guarantee amount; third-party joint and several guarantee; preparation of a defect-repair undertaking in the form of a notarial deed; withholding of the balance payment; and the establishment of physical (in-rem) security. Among these, the team emphasized that, through a defect-repair undertaking in the form of a notarial deed, which serves as an enforcement title (title of execution), the client could secure a substantive means of protection that allows compulsory execution without litigation.

In accordance with the legal team's advice, the client adopted an undertaking in the form of a notarial deed, and through this, designed a structure so that, even if a defect occurs, the legal procedure can be simplified and prompt remedy of rights becomes possible. As a result, even in a situation without an insurance policy, the client secured a safety device that minimizes the legal risk accompanying the progress of the construction.