Reasonable skill and care or fitness for purpose? The devil is in the detail.

30 / 01 / 2018

Introduction

The extent to which a design and build contractor should be held responsible for a construction project achieving (or failing to achieve) a particular performance output is an issue that has divided opinion over the years. It is perhaps unsurprising then that 2017 saw the issue make it all the way to the Supreme Court in the case of MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd.

Key Facts

The case concerned the appointment by E.ON, the employer, of a contractor, Højgaard, to design and construct the foundations to two offshore wind farms in the Solway Firth, Scotland. The contractual terms governing such appointment required Højgaard to design and construct the foundations:

  1. in accordance with E.ON’s technical requirements, which included compliance with international standard DNV-OS-J101 (“J101”) for the design of offshore wind turbines;
  2. with “with due care and diligence expected of appropriately qualified and experienced designers, engineers and constructors”;
  3. “for a minimum site specific ‘design life’ of twenty (20) years without major retrofits or refurbishments”; and
  4. “to ensure a lifetime of 20 years in every aspect without planned replacement”.

Dispute

Three years after their installation, the foundations provided by Højgaard were found to be defective and a dispute arose between E.ON and Højgaard as to which party should bear responsibility for the cost of the remedial work, to the tune of approximately €26.25 million.

Court of Appeal Decision

Højgaard argued it had not provided an absolute warranty that the foundations would achieve the required 20 year service life, only that the foundations would be designed in accordance with J101 (which, although it later transpired contained a technical fault, was considered sufficient to meet the required design life). The Court of Appeal agreed and, in finding in favour of Højgaard, took the view that the provisions of the contract which required Højgaard to provide a strict warranty as to service life (in other words, a fitness for purpose obligation) were inconsistent with the rest of the contract which pointed towards designing in accordance with J101 and “due care and diligence”.

Supreme Court Decision

E.ON (understandably, given the sums at stake) took issue with the Court of Appeal’s view and appealed to the Supreme Court. The Supreme Court agreed with E.ON, finding that Højgaard had indeed breached the terms of the contract and should be liable for the cost of the remedial works. The key considerations that came out of the Supreme Court’s decision were as follows:

  1. It was incorrect to view the different design standards as inconsistent. If two parties have agreed to include a number of (varying) design requirements, even where certain standards are “tucked away” in the technical annexure, the contract should be interpreted as requiring compliance with the more rigorous design standard.
  2.  It is the contractor’s risk if it agrees to work to a design which prevents the finished product from meeting other contractual requirements (even where such design is approved or provided by the employer).

Summary

The decision highlights the importance in making sure that contractual terms and technical annexures are consistent, and reflect what it is that the parties have agreed with regards to design standards and the achievement of an output specification. The decision has, and no doubt will, prompt parties to look more closely at the scope of a reasonable skill and care obligation, and the extent (if any) to which this dislodges any “fitness for purpose” requirements which may be “tucked away” in the technical documentation.