Fitness for Purpose
Three words that are likely to strike terror in the minds of contractors and their professional indemnity insurers – fitness for purpose.
Is a design and build contractor liable to use the same degree of skill and care as a professional designer in designing the works; or is it warranting that the design will work irrespective of whether the contractor has been negligent? The answer, of course, depends on what the contract actually says.
The Supreme Court had to decide the issue recently. In this case , the contractor would be liable for some 26.25 million euros of remedial works if it were found to have taken on a fitness for purpose obligation. The works related to the design and construction of a wind farm in the Solway Firth. The remedial costs were incurred in correcting a defect in the grouted connections between the monopile foundations and the transition pieces.
The contract documents, as you would expect, were voluminous and contained many technical documents. The employer, E.ON, relied on a provision in a document entitled ‘Technical Requirements’, incorporated in the contract, that required the foundations to have a lifetime of twenty years. That obligation, said the contractor, was inconsistent with other requirements imposed on the contractor elsewhere in the contract which required the exercise of skill and care. Secondly, it was ‘too slender a thread’ on which to hang such an onerous liability. Surely such a significant obligation, if intended, would have had prominence in the key operative parts of the contract?
Lord Neuberger, giving the judgment of the court, found that the contractor had warranted that the foundations would have a lifetime of twenty years and that the contractor was therefore liable for the remedial costs. It was recognised that the contract was long, diffuse and multi-authored. It contained much detailed description and ‘belt and braces’ provisions. The court had to interpret the contract by reference to normal principles. Inelegant and clumsy drafting was not in itself a reason to depart from ordinary principles of contractual interpretation. In this case the court felt the particular provision was clear in its terms and did not give rise to an improbable or unbusinesslike interpretation. It ascribed their natural meaning to the words used and concluded that they imposed, effectively, a ‘fitness for purpose’ obligation on the contractor.