dcsimg

Allocating risk: detailed specification vs. fitness for purpose

Jason Rix

The Supreme Court has held a constructor liable for the failure to ensure a life of 20 years for the foundations of offshore wind farms it designed and installed despite the fact that the foundations were required to meet an industry standard that contained an error that caused the failure: MT Hojgaard v EON.

The central question was whether, given the obligation to ensure a life for the foundations of 20 years, MT Hojgaard was in breach of contract, despite the fact that it used due care and professional skill, adhered to good industry practice, and complied with the industry standard.

A number of cases have considered contracts that have: (i) a term requiring the contractor to provide an article that is produced in accordance with a specified design; and at the same time, (ii) another term requiring the article to satisfy specified performance criteria, where those criteria cannot be achieved by complying with the design. For example:

  • A M Gillespie (1885) where a ship was required “to carry 1,800 tons deadweight” and also to be built according to a model approved by the customer. The ship as built was unable to carry 1,800 tons deadweight, and the shipbuilders argued that they should not be liable for damages because it would have been impossible to construct a ship capable of carrying 1,800 tons according to the model approved by the customer. The court held that “this [was] no defence”, as “[t]he fact remains that the [shipbuilders] undertook a contract which they could not fulfil and they are consequently liable in damages for the breach”.
  • Cammell Laird v Manganese Bronze [1934] where the House of Lords held that “[i]t has been laid down that where a manufacturer or builder undertakes to produce a finished result according to a design or plan, he may be still bound by his bargain even though he can show an unanticipated difficulty or even impossibility in achieving the result desired with the plans or specification”.

Having reviewed the cases, the Supreme Court held: “Where a contract contains terms which require an item (i) which is to be produced in accordance with a prescribed design, and (ii) which, when provided, will comply with prescribed criteria, and literal conformity with the prescribed design will inevitably result in the product falling short of one or more of the prescribed criteria, it by no means follows that the two terms are mutually inconsistent. That may be the right analysis in some cases … . However, in many contracts, the proper analysis may well be 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, and in other contracts, the correct view could be that the requirements of the prescribed criteria only apply to aspects of the design which are not prescribed. … [E]ven if the customer or employer has specified or approved the design, it is the contractor who can be expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed”.

So carefully adhering to the detailed contractual specification will not relieve you of an overarching obligation, here a 20-year warranty.

Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

Read comments below or add a comment

Leave a comment

Your email address will not be published. Required fields are marked *