The August 2017 UK Supreme Court decision in MT Højgaard A/S (MTH) v E.ON Climate and Renewables UK Robin Rigg East Limited & Anor provides key lessons for interpreting fit for purpose obligations in construction contracts.
While this case is not binding in Ireland, it is persuasive authority for the Irish courts. It involved a design failure in the steel foundation structures of a 60 turbine offshore wind farm in Solway Firth. MTH as the contractor completed those works in February 2009 and within 14 months they started to fail.
The main dispute was over who was liable for the €26 million cost of rectification works. MTH complied with the contractual requirement to design in accordance with the international design standard J101, which was supposed to ensure a service life of 20 years for the steel structures. However later in 2009 a significant error in J101 was discovered which meant structures designed in accordance with it were likely to have a much shorter service life than 20 years. There was also a fit for purpose obligation in the contract and the Technical Requirements required that the foundations be designed to “ensure a lifetime of 20 years in every respect without planned replacement”.
The Court held that complying with J101 was a minimum requirement and the contract obliged MTH to identify areas where a more rigorous design was required. The Court noted that each contractual provision had to be given effect, so the fit for purpose obligation also applied which was not inconsistent with MTH having to comply with J101. It was also held that MTH failed to identify the need to improve on J101 and failed to meet the fit for purpose obligation.
There were a number of lessons to be learned from this case:
- Contractors should be aware of fit for purpose obligations requiring the achievement of a particular result, which is a higher standard than exercising reasonable skill and care. A fit for purpose obligation can be expressly stated, however one may still arise where a contractor warrants that the works will comply with the performance specification or the employer’s requirements.
- This case shows the importance of good communication between a client’s technical and legal advisers to ensure that design and construction standards in different parts of a contract are consistent.
- There was no priorities clause in the contract to specify which document prevails where they conflicted. However the Court considered that such a clause would not have affected its decision as the different parts of the contract did not conflict.
- While a client may want a fit for purpose obligation to transfer the risk to a contractor to achieve a desired result, contractors will generally price for this. Fit for purpose obligations in respect of design are often uninsurable in Ireland.
- The lessons in this case also apply to the pricing and insurance obligations in a contract which should be cross checked against the relevant schedules to ensure they are consistent.