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Beware inconsistencies between contractual conditions and technical requirements in design and build contracts

The case of MT Hojgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd [2015] EWCA Civ 407, was an appeal by the Contractor against a finding of the court below that it had warranted to the Employer that foundation structures which it had designed and installed for an offshore wind farm would have a service life of 20 years. The foundations had failed, shortly after completion. The principal issue before England’s Court of Appeal was how the court should construe the diffuse documents which constituted or were incorporated into the design and build contract.

Clause 8.1(x) of the Contract Conditions stated that “…the Works as a whole shall be free from defective workmanship and materials and fit for its purpose as determined in accordance with the Specification using Good Industry Practice”. “Fit for purpose” was defined as “fitness for purpose in accordance with, and as can properly be inferred from the Employer’s Requirements”. The Employer’s Requirements incorporated, amongst other documents, the Technical Requirements. Paragraphs and 3b.5.1 of the Technical Requirements (the relevant Technical Requirements) stated that the design of the foundations and structures shall “ensure lifetime of 20 years”.

The Court of Appeal accepted that some construction contracts require a contractor to (a) comply with particular specifications and standards and (b) to achieve a particular result. Such contract, if worded with sufficient clarity, the Court said, may impose a double obligation upon the contractor, namely (i) he must as a minimum comply with the relevant specifications and standards; and (ii) must also take such further steps as are necessary to ensure that he achieves the specified result i.e. must ensure that the finished structure conforms to what he has warranted. The question for the Court was whether the contract in this case was of that nature. This, the Court said, involved applying the rules of contractual interpretation to the somewhat diffuse documents in this case.     

The Court referred to the relevant legal principles applicable where there is tension between different provisions within contractual documents, namely that resolving the issue involves checking each of the rival meanings against other provisions of the document and investigating its commercial consequences. If there are two possible interpretations of a provision, the court is entitled to prefer the construction which is consistent with business common sense.

The Court said that to construe the contract, and determine whether the Contractor had warranted that the foundations would have a 20 year life, the Court had to consider what a reasonable person having all the knowledge available to the parties would have understood Clause 8.1 and the relevant Technical Requirements to mean. This involved checking each of the rival meanings against the other contractual provisions and investigating its commercial consequences.

The Court must accept, it said, that there were likely to be ambiguities and inconsistencies within the documents and must not allow itself to be led astray by such. The Court said that approaching matters in that way, it had to determine whether or not clause 8.1, in conjunction with the relevant Technical Requirements, required the Contractor not only to comply with J101 (the internationally recognised standard at that time for offshore wind turbine structures), but also to achieve a result, namely foundations with a service life of 20 years.

The starting point, the Court said, was consideration of the relevant Technical Requirements, which undoubtedly said that the foundation life shall ensure a lifetime of 20 years. At first sight, the Court said, such provision, if incorporated in the contract, was a warranty that the foundations would function for 20 years. On the other hand, the Court said, all of the Technical Requirement provisions were directed towards a design life and if a structure has a design life of 20 years that does not mean that inevitably it will function for 20 years, although it probably will. The Court decided that a reasonable person in the position of the Contractor and Employer would know that the normal standard required in construction of offshore wind farms was compliance with the industry standard (J101) and that such compliance was expected, but not absolutely guaranteed, to produce a life of 20 years. The relevant Technical Requirements were inconsistent with all the other contractual provisions and it did not make sense to regard them as overriding all other provisions. It followed, that Clause 8.1(x) did not contain any absolute warranty that the foundations would have a 20 year life span and the Contractor’s appeal was allowed.

When lawyers review construction contracts for their clients, it is not common for them to also review the specifications, which are technical in nature. The correctness of specifications is usually left to construction consultants, which may use standard documents and modify them based on the employer’s specific requirements. This case is a good reminder to all construction professionals that when drafting specifications, they should ensure that there is no inconsistency between the various technical documents, which sometimes may not be obvious, without detailed examination. It may be useful to have a general clause in the contract providing that in the case of inconsistency with the specifications, the stricter requirement shall apply.

Key Contacts

Kwok Kit (KK) Cheung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9427

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