SSE Generation Ltd v Hochtief Solutions AG and another [2018] CSIH 26
This case looked at the often grey area between what is design and what is workmanship (or “design implementation”).
This recent case considered the principles in the Supreme Court case of MT Højgaard
A/S (Respondent) v E.On Climate & Renewables UK Robin Rigg East Limited and another
(Appellants) and saw the courts once again opine upon the complex issues arising in respect
of a contractor’s fitness for purpose contractual obligation and the duty a professional owes
in common law to exercise reasonable and care when providing design services.
Background
The case involved the collapse of a tunnel in Scotland that formed part of an hydroelectric scheme that had been design and built by Hochtief Solutions AG and Hochtief (UK) Constructions Ltd (the Contractor) for the SSE Generation Ltd (the Employer) under a NEC contract. The contract contained a fitness for purpose obligation on the Contractor to build a tunnel that would not collapse for 75 years. It also included Option M which limits the Contractor’s design duties to those of reasonable skill and care.
The tunnel collapsed six months after construction and a dispute arose as to whether the Employer or the Contractor was liable for the remedial costs which amounted to around £107m.
Many issues were debated, including what caused the collapse of the tunnel and what constituted a defect under the terms of the contract. Of particular interest, however, was the further debate as to how the courts may interpret a contract containing both a duty to undertake the design element of a project with reasonable skill and care as well as a fitness for purpose obligation.
In this case, the court held that the defect that caused the collapse of the tunnel was not design related and that the Contractor had complied with its reasonable skill and care duties in that respect. Instead, the defect was found to be linked to the implementation of the design – the workmanship element of the services. As a result, the fact that the Contractor had complied with its design duties was not enough to provide a defence since the contract contained a fitness for purpose obligation on the Contractor to build a tunnel that would not collapse for 75 years.
Conclusion
Contractors often seek to limit their duties in respect of the design element of a project with clauses similar to the Option M clause in the NEC Contract. In doing so, they seek to differentiate their design duties from their contractual obligation to provide a product that is fit for purpose. The issues in this case, therefore, extend beyond NEC contracts and are of potential relevance to all contractors operating under design and build contracts.
This decision serves to remind us how fact specific and complicated the debate around fitness for purpose vs. reasonable skill and care remains when considering design and build contracts. While it is hard to draw any firm conclusions at this stage, the decision suggests that, when interpreting contracts, the Courts are becoming more willing to favour and emphasise a contractor’s fitness for purpose obligation over any less onerous duties of reasonable skill and care.While the case was heard in the Scottish courts, it is anticipated that the case will go to the Supreme Court given the principles and the sums at stake.