In the recent case in the English High Court of MT Hojgaard v E. ON1, it was held that a fitness for purpose obligation in a construction contract overrode an obligation to comply with the contract specification.
This case concerns a contract for construction of an offshore wind farm in the Solway Firth. The contract was for design and installation of the foundations for 60 wind turbine generators. These consisted of two pieces known as the monopile and a transition piece. These are held together by a grouted connection which may be improved by the introduction of shear keys (horizontal protrusions on the interior face of the steel which increase sliding resistance). However, these were not used in the development in question.
Fitness for purpose obligations take precedence over specification
The background to the case was the production in 2004 by DNV, a certification agency, of an international standard for the design of offshore wind turbines and grouted connections. It is now known that one of the equations in the standard was calculated incorrectly but this was not known to the claimant Contractor's designers when they carried out their design in 2006/7. In 2009 movement was noted as having taken place in grouting connections which were designed using the standard and in particular those at the development in question.
The defendant Employer claimed that the Contractor was responsible for the defect for two reasons. First it said that, under the Contract, the Contractor warranted that the wind turbine foundations would have a service life of 20 years. Secondly, it claimed that, if the Contractor's only obligation was to use reasonable care and skill in applying the standard, then it failed to do so. The Court summarised the issue between the parties as to which should bear the responsibility for the error in the standard.
The contract required the Contractor to design the works so that the works as a whole should be fit for its purpose as determined in accordance with the specification using good industry practice. The works were to be designed for a minimum site specific design life of 20 years. This requirement was repeated twice. The parties were divided as to whether a strict obligation was imposed thereby to achieve a service life of 20 years or only an obligation to design for foundations on the basis of a 20 year design life in accordance with the industry standard.
The Employer submitted that the Contractor was stated to assume full responsibility for design and that the purpose of the works could be determined from the technical requirements which was to be equated with the specification. The Court decided that if the relevant purpose was defined as a 20 year service life, then clearly that had not been achieved as there had already been signs of failure long before the service life had been completed.
The Court referred to a Canadian decision of Steel Company of Canada (1966)2 in which it was held that if a contractor expressly undertakes to carry out works which would perform a certain function in conformity with plans and specifications, and it turns out that the work so constructed will not perform the function, the express obligation to construct work capable of carrying out the duty in question overrides the obligation to comply with plans and specifications. A statement in Hudson3 to this effect was approved and it was held that the contractor was liable for the failure of the work notwithstanding that he carried it out in accordance with the plans and specifications. This decision was endorsed in the more recent case of Greater Vancouver Water District (2012)4.
The Court held that this case was persuasive authority that an express warranty of fitness for purpose by the contractor takes precedence over an obligation to comply with the specification, even though that specification may contain an error. Adopting the (by now well-known) principles in the case of Rainy Sky (2011)5, the Court held that it must have regard to the background knowledge which would have been reasonably available to the parties in the situation in which they were at the time when the contract was made. It was not uncommon for fitness for purpose and reasonable care and skill terms to co-exist in a contract and they were not mutually incompatible. A building might be robust enough to last for its design life but there might be a claim for defective workmanship if there were cosmetic errors. Both obligations could be enforced. The Court concluded that the words of the contract were clear and there was no inconsistency. The Contractor was in breach of the obligation to provide foundations that would have a service life of 20 years.
The Court concluded that the Contractor was not in breach of its duty to exercise reasonable care and skill on the basis that there was a respectable school of thought within the industry to support the approach it had taken in its design calculations including omitting shear keys. It was not negligent of the contractor to adopt the assumptions which were supported by that school of thought. The producers of the standard were also the certifying body and the Court concluded that the relevant paragraph of the specification required the designer to demonstrate to the certifying body that its assumptions could be supported. If (as here) the certifying body had already adopted its conclusions, then the designer need not do any more.
It is perhaps noteworthy that there does not seem to be any reported English authority upon the question of whether fitness for purpose and duty of care and skill terms can co-exist in the same contract so that Canadian authority had to be quoted. However, it seems that the Court was able to approve the principle in the Canadian cases together with the statement in Hudson (which is still in the current edition) 6 and it should therefore provide authority for the future as to the applicable legal position concerning contracts drafted in this fashion.
The effective result of this case is that, at least in terms of the fitness for purpose obligation, the Contractor bore the risk that the standard might contain an error and its failure to provide the applicable design life could not be excused by an argument that it relied on the standard quoted in the contract. Whilst these circumstances may be relatively unusual, they do indicate the problems that may arise where a contractor tenders on the basis of a free-standing obligation to achieve fitness for purpose even though there may also be an obligation to comply with detailed specifications using the application of reasonable care and skill.