Contracts are about apportioning responsibility and risk. Contracts for the engagement of contractors to design or produce something will typically define the standards to which the contractor has to operate. A problem can arise if the contract requires the contractor to comply with more than one standard where such standards may be inconsistent.
The recent case of MT Højgaard A/S v E.On Climate And Renewables UK Robin Rigg East Ltd1 provides a reminder of the sort of issues that might arise.
The facts in MT Højgaard A/S v E.On Climate And Renewables UK Robin Rigg East Ltd
E.ON engaged MT Højgaard (“MTH”) to design and construct the foundations for sixty offshore wind turbines in accordance with an international standard known as J101. MTH did so. Unfortunately there was an error in J101, as a result of which the foundations failed. Remedial works cost €26.25 million.
It was not in dispute that MTH had complied with its obligation to design and build in accordance with J101. However E.ON alleged that in addition to contracting to comply with J101 MTH had contracted to deliver an outcome – here that the foundations would have a 20 year service life and that they had failed to deliver this.
On appeal the Court of Appeal considered the legal position where conflicting warranties were given by a contractor. Reference was made to a statement in a recent Canadian case2:
“The general rule is that defects caused by an owner’s specification are not the responsibility of the contractor, unless the contractor expressly guarantees that the construction would be fit for a specific purpose, or a warranty can be implied by the owner’s actual reliance on the contractor’s skill and judgment.”
The Court of Appeal went on to state:
“It is not unknown for construction contracts to require the contractor (a) to comply with particular specifications and standards and (b) to achieve a particular result. Such a contract, if worded with sufficient clarity, may impose a double obligation upon the contractor. He 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. In other words he must ensure that the finished structure conforms with that which he has warranted.”
In short compliance with an employer’s specifications is not sufficient if the contractor has also assumed responsibility for an outcome of the contract either directly or indirectly through the employer relying on the contractor’s skill and judgement.
In the event the court concluded that the contract properly construed did not contain a warranty for 20 years service life so MTH did not have a double obligation. However, the judgment serves to focus on the issue.
In order to avoid this sort of problem careful consideration should be give to the precise nature of a contractor’s responsibilities. What standard is the contractor required to operate to? Various possibilities arise. Thus:
- Compliance with employer’s specification. Is the contractor being engaged to deliver a design or product in accordance with specifications or standards provided by the employer? In such an event the contractor merely has to comply with the specifications and responsibility for the outcome e.g. fitness or compliance with applicable laws remains with the employer.
- Responsibility for outcome. Is the contractor assuming any responsibility for the outcome e.g. that the design or product is fit for some purpose or will function in a certain way?
- Compliance with the law. Is the contractor assuming any responsibility for compliance of the specification or the outcome with applicable laws and regulations? It is quite common for contracts to routinely include provisions requiring a contractor to comply with the law. An issue can arise if this compliance is inconsistent with compliance with the employers’ specification. An example of this might be the contract manufacture of a consumer product where some element of the product specification or its labelling is not compliant with the regulations of the intended market.
Note that a distinction might be drawn between compliance of performance e.g. the way a contractor delivers performance, and compliance of the finished outcome.
As illustrated by MT Højgaard A/S v E.On it is important to avoid contract wording that confuses where responsibility lies.
A further drafting point is that a distinction can be drawn between an absolute obligation to achieve an outcome and an obligation to exercise skill and judgment. An employer will naturally seek the former whilst a contractor will seek the latter.
1 MT Højgaard A/S v E.On Climate And Renewables UK Robin Rigg East Ltd & Anor  EWCA Civ 407
2 Greater Vancouver Water District v North American Pipe & Steel Ltd and Moody International Ltd  BCCA 337
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