Construction companies, you should be vigilant in removing fitness for purpose obligations from your building contracts following the judgment of the Supreme Court that overturned the Court of Appeal decision in MT Hojgaard A/S -v- E.ON Climate and Renewables UK Robin Rigg East Limited [2015] EWCA Civ 407 and upheld the decision of Mr Justice Edward Stewart in the Technology and Construction Court, who decided that a “fitness for purpose” obligation was contained in the contract documents and the Contractor was bound by it.
C ontractors, top of your list of unacceptable risks should be the “fitness for purpose” obligation, which is an absolute obligation that is not limited to the exercise of the lower standard of reasonable skill and care.
The Supreme Court has decided that the Court of Appeal in MT Hojgaard A/S -v- E.ON Climate and Renewables UK Robin Rigg East Limited was wrong to overturn the decision of the Technology and Construction Court that foundation works were not “fit for purpose”. The Claimant contractor agreed to design, fabricate and install the foundations for 60 wind turbine generators for the Robin Rigg offshore wind farm. The turbine foundations consisted of a monopole and a transition piece. Under the contract the contractor was required to design “in accordance with” J101. but this contained an error. The turbines including the foundations were then fabricated and installed in accordance with the design and movement in the ground connections was discovered because of an error in J101.
The issue was whether the Contractor had warranted that the off-shore turbines would last for 20 years or whether the Contractor’s obligation was merely to design in accordance with a specified standard that was expected, but not guaranteed, to produce a life of 20 years. The Court of Appeal concluded that while part of the Technical Requirement appeared to impose an absolute obligation they were inconsistent with the remainder of the Technical Requirement and J101. The Court of Appeal concluded “They are too slender a thread upon which to hang a finding that MTH gave a warranty of 20 years life for the foundations.”
The Court of Appeal decided that if the parties had intended to impose a “fitness for purpose” obligation on the contractor this would have been found in the contract conditions. They decided that in the absence of a free standing “fitness for purpose” obligation the parties had not intended to include such an obligation in the contract.
The Supreme Court has disagreed with this approach and decided that where two different and inconsistent standards were contained in the contract documents then the more rigorous or demanding of the two standards is the one that the contractor should follow. In this case the more rigorous standard was the “fitness for purpose” obligation. “Fitness for purpose” was defined by reference to the Employer’s Requirements. These included the “Technical Requirements” which laid out minimum design requirements. The Supreme Court decided that the absolute standard of “fitness for purpose” in the Employer’s Requirements must prevail and the lesser standard could be treated as a minimum requirement.
The obligation of “fitness for purpose” is commonly found in design and build contracts as an implied term, which means that it does not have to written into the contract. Contractors should be aware that design and build contractors have an implied duty to deliver the building to the standard of fitness for the purpose for which it was built. (IBA -v- EMI & BICC Construction Limited [1980] 14 BLR 1(HL) decided that a term of fitness for purpose of the works in design and build contract is implied and does not have to be written into the contract).
Contractors, you will not want to sign up to an express fitness for purpose obligation for this reason and because it is an uninsurable risk.
You should be aware that the standard of “fitness for purpose” differs from the standard of reasonable skill and care is that only in the latter case negligence of the contractor has to be proved. A fitness for purpose obligation is absolute and building employer does not have to prove negligence of the contractor in design and build contract. You will be liable for all losses of the building employer that flow from the building not being fit for its purpose.
If the building employer can show what the purpose of the building is and that construction is not fit for that purpose you will be liable for the building employer’s losses even though you have not been negligent.
You should limit the legal liability in Design and Build Contracts by making sure that your responsibility in the contract wording is restricted to the standard of the reasonable skill and care of a professional Architect.
Following the Supreme Court’s decision Contractors should beware of “fitness for purpose” obligations and should observe the following:
(i) if it is intended that the contractor should be under a strict obligation of “fitness for purpose” obligation then this will prevail even if it is not clearly included in the conditions of contract,
(ii) Wording that apparently imposes a strict “fitness for purpose” obligation will prevail over a lesser standard of reasonable skill and care contained in the contract documents.
You would benefit from having your building contracts checked before you sign away your liability for untold losses and by ensuring that the correct wording is included to limit your liability in the contracts and contract documents.
