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Is your contract fit for purpose? A lesson in making sure your contract does what you want it to do

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09/06/2015

In the recent case of MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another [2015] EWCA Civ 407, the Court of Appeal has confirmed that if the contract is worded clearly enough, a contractor can have a double obligation both to comply with particular standards and to achieve a particular, specified result. Where this applies the contractor “must as a minimum comply with the relevant specifications and standards. He must also take such further steps as are necessary to ensure that he achieves the specified result,” (paragraph 79 of the judgment).

The project in this case involved the design, construction and installation of foundations for wind turbines. The claimant contractor carried out the project in compliance with the contract including an international standard for the design of such turbines: ‘J101’. Unfortunately, there was a mathematical error in J101 which meant that the foundations failed.

E.On successfully argued in the earlier High Court decision that the contractor had a double obligation to comply with the relevant international standard and to achieve a service life of 20 years in relation to the foundations of an offshore wind farm. Therefore even though the Contractor had complied with the relevant standard (and had not been negligent) it was still liable when the works were found to be defective.

However in the Court of Appeal this decision was reversed.

The Court of Appeal reached this decision because although the Employer’s Requirements referred to a design life of 20 years, it considered that the obligations in the main contract conditions took precedence over the Employer’s Requirements. The contract conditions did not impose an absolute obligation of quality but instead required the contractor to act professionally and with reasonable skill and care.

There was no free standing guarantee or warranty within the contract conditions that the works would have a service life or a design life of 20 years. Without that warranty, the contractor did not have an absolute obligation and there was no breach.

Comment
In engineering contracts it can be important for the client to have the ultimate recourse of a fitness for purpose clause.

Key points to note arising from this judgment are:

  1. Make the wording of the purpose clear and consistent. In this case there were inconsistent references to both a design life and a service life.
  2. Put the fitness for purpose clause in the document with the highest order of precedence or certainly in the main contract conditions (rather than “hidden” away in a section of the Employer’s Requirements / specification)
  3. Make the fitness for purpose a clear, standalone clause.

Clearly the above may mean a fitness for purpose clause is flagged at tender stage and there is a risk to a client that it will subsequently be rejected/negotiated out, but the alternative is an uncertain clause that may not be enforceable in any event.

For contractors who are pursued on the basis that they have breached a fitness for purpose clause, this case gives a potential defence depending on how, and where within the contract, the clause is written.

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