Remember to make sure that your contract documents are consistent

Stephanie Canham

In many ways, overcoming a contractor or consultant’s natural caution and achieving an enforceable fitness for purpose obligation is the Holy Grail for employers. Cases stretching back decades discuss what fitness for purpose actually means and illustrate parties’ attempts to incorporate this standard of care in their contracts.

The important point about fitness for purpose is that where the contract is silent, reasonable skill and care is implied. There may only be a breach of the reasonable skill and care requirement if negligence can be established. Fitness for purpose (implied or express) on the other hand, is an absolute obligation. This is why such clauses also raise tricky questions of whether a professional indemnity insurance policy will respond to a breach of contract where fitness for purpose is required (a point sometimes raised by parties to oppose the inclusion of the higher duty of care) and why many cases on this subject end up in court.

Bearing in mind the possible impact of such an absolute standard, another issue in relation to fitness for purpose was discussed recently by the Court of Appeal in MT Hojgaard A/S vs Eon Climate and Renewables. This concerned what would happen if an obligation amounting to fitness for purpose in a technical schedule was inconsistent with other requirements for the exercise of professional skill and adherence to good industry practice which were contained elsewhere in the contract documents.

Make sure that a clear agreement is reached about the standards of care required. Remember that sneaky drafting rarely produces good results

The facts were as follows: the contract between Hojgaard and Eon related to the fabrication and installation of foundations for offshore wind turbines. Defects arose due to the contractor adopting an internationally recognised standard which contained an error. This error was not known about in the industry at the time. A technical schedule which was expressed to be part of the contract documents required Hojgaard to provide foundations with a service life of 20 years. At the trial to determine liability for remedial works, it was found that, although not negligent, Hojgaard were liable because the design of the foundations was not fit for purpose.

The decision was overturned on appeal.

The Court of Appeal found that other less onerous provisions in the requirements and specifications amounted to a warranty not that the foundations would be functional for 20 years, but that they would have a design (as opposed to a service) life of 20 years. The design life warranty anticipated that the structures would only probably be viable for 20 years, which would seem reasonable, given the variable conditions found offshore. This was different from a fitness for purpose condition which guaranteed complete functionality for the same period. The court found that the fitness for purpose obligation in the technical schedule was to be construed subject to the other general obligations.

So what is there to be learned from a case which does not make new law, but certainly is a good reminder that (particularly in relation to fitness for purpose) we all have to be on the ball when putting our contracts together?

Firstly, make sure that a clear agreement is reached about the standards of care required. Remember that sneaky drafting rarely produces good results. If you are the employer, be prepared for your contractor to price accordingly.

Secondly, consistency is key. All your contract documents, including the employer’s requirements and technical documents, should say the same thing, or if it is intended that different obligations will have different standards of care, this is obvious. Thirdly, if there is a possibility of conflicting obligations which cannot be resolved in advance, check the position of the relevant documents in the hierarchy of contract documents.

Finally, just before you sign on the dotted line, take the time to have one more look at the whole contract, not just the bit at the front. Much better to know up front than be taken by surprise later.

Stephanie Canham is national head of projects and construction at law firm Trowers & Hamlins