At first glance, one may assume that a case concerning offshore windfarms would be of little interest to developers outside the energy sector. However, the outcome of the recent MT Højgaard v E.ON case has a wider impact when considering design obligations under a building contract.
A key issue in the case (upon which responsibility for a multi-million pound repair bill turned) was whether a general obligation on the contractor to carry out its works with “reasonable skill and care” could be overridden by a more rigorous obligation, buried deep in the technical specification documentation, requiring the contractor’s design to be “fit for purpose”.
When agreeing a design and build contract (or other design appointment), clarity as to the design responsibility is essential. The two common alternatives are variants of either (a) using “reasonable skill and care”; or (b) ensuring “fitness for purpose”.
An obligation to use “reasonable skill and care” will generally be satisfied if a design is prepared to a standard that a reasonably competent member of the profession could be expected to have achieved.
In contrast, “fitness for purpose” is an absolute commitment to achieve a result. If the design fails, it is no defence that other competent professionals, were they in a similar position, would have done exactly the same.
Contractors usually take care to avoid accepting a “fitness for purpose” obligation. Professional liability insurance typically only covers duties of “reasonable skill and care”, and most commercial parties are unwilling to carry uninsured design risk.
“Reasonable skill and care” is therefore the generally accepted standard in most sectors.
JCT contracts contain two important sets of provisions.
The first concerns design responsibility. Under the JCT, the contractor accepts the same liability for design to the standard of a competent architect experienced in the relevant type of work (i.e. for all practical purposes an obligation to use “reasonable skill and care”).
What happens then if, as in Højgaard, despite what the JCT terms say, the employer’s requirements include a more onerous “fitness for purpose” obligation?
The JCT’s answer (our second important provision) is the interpretation clause, which states that, while the contract is to be read as a whole, nothing in the employer’s requirements should override or modify the contract conditions.
Meaning that, if there is a conflict, the contract conditions will take priority.
Does this mean that the JCT interpretation provisions preclude the ability to impose a “fitness for purpose” requirement in the technical documentation, because of a conflict with the contract conditions? Not necessarily.
When applying the JCT’s interpretation provisions, the courts’ approach is that, wherever possible, the contract conditions and the employer’s requirements will be given an interpretation which makes it possible to read them together. Only in cases of clear conflict will the contract terms take precedence.
In that context, a significant conclusion in Højgaard was that a stand-alone obligation to ensure a specific part of a design was fit for purpose was not incompatible with the general obligation to use “reasonable skill and care”.
The fact that it was buried within a technical document made no difference, and the court was content that the obligations could be read alongside each other.
While the court did stress that each case must turn on its own facts, the door therefore seems to be open for parties to argue that “fitness for purpose” obligations in employer’s requirements are not automatically in conflict or unenforceable with a general duty of care contained within the contract terms. It is possible to impose more stringent design obligations, particularly in relation to a specific, defined part of the design.
By way of comparison, the NEC3 (and NEC4) approach to liability for design under option X15, for example, provides an interesting contrast. Instead of defining the duty of care, it confirms that a contractor will not be liable for defects if they have used “reasonable skill and care”. An attempt to impose a “fitness for purpose” obligation in the technical documents in this context would look much more like a conflict.
In an ideal world, all documents would be checked thoroughly at the outset so any perceived conflicts or lack of clarity over design obligations were flushed out early on. However, the commercial reality is that, when assembling technical documents as part of contracts, large volumes of paperwork are often compiled by multiple parties in short time periods. The general duty of care obligation contained in the contract terms may not be the only relevant barometer in accordance with which a contractor must carry out its design.
Sasha Pirbhai, Associate, Fladgate LLP (firstname.lastname@example.org)