In a landmark judgment that has far reaching implications for contractors, the Supreme Court has overturned the Appeal Court in MT HÌüjgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another [2017] UKSC 59. The Supreme Court unanimously decided that, where a fitness for purpose obligation conflicted with a specified industry standard, precedence should be given to the fitness for purpose obligation, holding the contractor liable for the error in the standard, despite accepting it had displayed the requisite skill and care, adhered to good industry practice and complied fully with the specified industry standard.
The case concerned the construction of foundations at the Robin Rigg offshore windfarm. Tucked away at paragraph 3.2.2.2(ii) of the contract's technical requirements was an obligation on the contractor to ensure the foundations had a 20 year lifespan, whilst the specification obliged that those foundations be constructed to a recognised industry standard. Unfortunately, the industry standard was subsequently found to contain an error with the result that the 20 year lifespan could not be achieved. The question was who carried the risk for the error?
Whilst the court clearly had sympathy for the contractor, it decided that:
- The key question to ask was 'applying the natural meaning to the words, what is the purpose of the Contract?', and the answer _ to build a windfarm with foundations that would last for 20 years _ produced the primary obligation of the contractor.
- Once that was accepted, it was no longer necessary to see the two competing terms as "mutually inconsistent". Instead, the proper analysis is that "the contractor has to improve on any aspects of the prescribed design which would otherwise lead to the product falling short of the prescribed criteria".
The court was also asked to consider the issue that because the fitness for purpose obligation was contained in the contract's technical requirements, as opposed to being set out in the terms and conditions, it was "too slender a thread on which to hang such an important and potentially onerous obligation". The Court dismissed this point, stating that the parties had agreed the technical requirements formed part of the contract and hence their words should be given their natural meaning irrespective of where they appear.
For employers the judgment will no doubt make sense. Eon contracted with MT for them to build foundations that would last for 20 years without the need for replacement, and that is what they should have got. For contractors though, the ramifications are that they can no longer rely on having constructed to a prescribed specification, or even that they did so with the requisite skill and care. When taking on a contract containing a fitness for purpose obligation, a contractor now has to take care to review, and if necessary improve upon, any prescribed specification to ensure it is capable of delivering the performance criteria. Consideration should also be given to including clauses that are intended to deal with conflicts between contractual documents, such as regulating the order of priority of contract documents, which may have assisted the contractor in this case had they been present.
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