Fitness for purpose and design life obligations
A recent judgment of the High Court, sitting as the Technology and Construction Court, has applied the decision of the Supreme Court in MT Højgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd[1] and shed light on the meaning of the term “design life” and on the degree of maintenance an owner may be expected to have to perform during the contractual design life of the relevant works.
Facts
Trams are synonymous with the English seaside resort of Blackpool. In 2007, Blackpool Borough Council, the claimant, secured funding for a major upgrade to its tram system, including the procurement of new trams and the construction of a new tram depot. The tram depot was designed and constructed to be a landmark building and was completed in 2011, with the depot becoming operational in 2012.
The design and build contract contained a condition by which the contractor “warranted and undertook” that the works, when completed, would satisfy any performance specification or other requirement included or referred to in the contract. The judge referred to this provision as “the performance obligation”. The “Works Information” contained a general statement that “unless otherwise specified in the Functional Procurement Specification, [the works] have a design life of at least 20 years”. The “Functional Procurement Specification” included a requirement for a 50 year design life for the “building structure”. The contract also incorporated a design log, which further specified a range of design life requirements for various parts of the works.
In early 2015 part of the roof came away in strong winds. Investigations indicated that steel support elements in the roof were significantly more corroded than should have been the case after less than 4 years in service. The claimant commenced proceedings, claiming damages of around £6,700,000, alleging that significant parts of the tram depot did not meet their intended design life of 50 years and were unsuitable for the exposed coastal marine environment where the tram depot is located. The defendant contractor contended that the relevant design life was in fact 20 or 25 years and that the council had failed to maintain the building adequately.
The decision
The Court awarded the claimant damages of around £1,100,000. This amount was considerably less than claimed as a result of the Court’s interpretation of the contractual provisions regarding the design life obligations for various parts of the works.
The judge held that, when read with the general works obligation and the performance obligation in the conditions of contract, the obligations addressing the minimum design life, the suitability of the materials and design for the location and maintenance set out in the Works Information all imposed strict contractual obligations on the defendant. Following the judgment of the Supreme Court in MT Højgaard, he found that there was “no basis for treating the decision in that case as support for any argument that the suitability and the design life obligations in this case should be construed as being only “reasonable care” obligations” and was “satisfied that they have the same essentially strict character as the Supreme Court held that the clauses in issue did in that case.” The contractor was therefore contractually obliged to design the depot to last for the period specified. As in MT Højgaard, the judge did not consider it necessary to decide whether the term was an absolute warranty that in all circumstances the depot would last its minimum design life (i.e. even if it could never actually be so designed).
The judge noted that there was no contractual definition of the phrase “design life”. However, the structural experts were agreed that helpful references were found in a number of relevant standards which were available at the time, two of which were found particularly useful. It could not “realistically be thought that a structure should be intended to be maintenance free for the whole of its design life, whereas it can reasonably be assumed that it ought not need major repairs over that period”. Accordingly, the judge found the distinction to lie between “anticipated maintenance and major repair”. What that is would depend on the particular facts and circumstances of a given case. Importantly, given the terms of the maintenance obligation in the contract, it was also the case that what was acceptable maintenance here was limited to maintenance “which is not “non-standard” or not “unusually onerous” having regard to normal construction operations and maintenance requirements which are applicable for works of a similar character”. The judge held that, as a matter of construction of the contract, the relevant comparator is simply to a similar building in any location rather than to a similar building in a similar location. If the defendant’s design required non-standard or unduly onerous operation or maintenance requirements because of the particular location of the tram depot, then it was the defendant’s obligation to identify those requirements and to obtain the claimant’s express consent to those requirements. Again, what is “non-standard” or “unduly onerous” will be a question of fact and degree in the context of the particular case.
The term “building structure” was also undefined, yet, as indicated above, was subject to different design life periods in different parts of the contract documentation. The judge found that the defendant was right to contend that there was, in fact, no ambiguity. A design log (which was found to be part of the contract documentation) drew a clear distinction between the required design life of the “structural frame” and the “external shell” (as well as regards other items, such as the foundations). Referring to the recent modern authorities[2] on the construction of contracts, the judge concluded that it was perfectly possible read the two different periods together without inconsistency. Accordingly, there was no need to engage the contractual hierarchy provision as the claimant contended to favour one period to the exclusion of the other.
Summary
Blackpool Borough Council provides useful guidance on the scope of a design life obligation in construction contracts with an important distinction drawn between “anticipated maintenance” and “major repairs”. It will be interesting to see how this distinction is developed in future cases.
In following the Supreme Court’s judgment MT Højgaard and concluding that the design life obligation was essentially a “fitness for purpose” obligation, the case also stands as a salutary reminder that the effect of such provisions is that any resulting failure to meet the required design life will be a breach of contract notwithstanding the contractor having actually used reasonable care and skill in preparing its design.
It is as much a feature of offshore contracting[3] as it is in contracting in the general UK construction industry that the contract documentation is formed of a number of detailed and often complex documents and schedules. A contractual hierarchy provision is therefore essential to deal with any inconsistency but, as emphasised in MT Højgaard and now Blackpool Borough Council, it is important to read the contract documents in their entirety to determine whether there actually is, on their proper construction, any inconsistency. In both cases, no inconsistency was found by critical provisions being located in different parts of the documentation. Just because the terms were difficult to find, did not mean that they could be characterised as inconsistent or of no contractual force.
[1] [2017] UKSC 59 (Hannaford Turner LLP has prepared a briefing note on this important case).
[2] i.e. Arnold v Britton [2015] UKSC 36 and Wood v Capita Insurance Services Ltd [2017] UKSC 24 as summarised in Entertain Video Ltd v Sony DADC Europe Ltd [2020] EWHC 972 (TCC) at [221].
[3] Whether under the Standard Contracts for the UK Offshore Oil and Gas Industry issued by LOGIC (i.e. Leading Oil and Gas Industry Competitiveness, the not-for-profit organisation set up to improve competitiveness and practices in the UK oil and gas industries) or other EPC (engineering, procurement and construction) type terms.