09 February 2015 #Construction
The recent MW High Tech case gave the High Court the opportunity to show how it goes about interpreting the obligations of a design consultant under a professional appointment. Although each case will turn on its facts and the particular wording of the professional appointment, the basic approach taken by the Court may be expected to apply in any case.
In June 2010 MW High Tech, the Contractor, was awarded an engineer, procure and construct (“EPC”) contract to build a waste to energy plant in West Sussex. The contract sum was just under £100 million. HEC, the Consultant, was engaged by the Contractor as a process engineering design consultant, initially under a letter of intent but later on in July 2010 under a formal written appointment. The professional appointment provided amongst other things that the Consultant:
had to act with reasonable skill and care (clause 5.9.1);
had to develop the basic design into a fully detailed design that complied with the specific requirements of the EPC Output Specification and the EPC Delivery Plan (clause 13.1); and
had to avoid developing or changing the design so as to knowingly cause the cost of the EPC contract to increase (clause 13.7).
In fact, the Contractor argued, the Consultant developed the design during the project so that it was enhanced beyond the requirements of the Delivery Plan and in a way that cost more to build.
The Contractor’s original tender had been based on a basic design proposal prepared by the Consultant. Within 12 days of entering into the professional appointment, the Contractor became aware that the Consultant was proposing various design changes/enhancements which would make the overall cost of the project much higher. When the case came before the High Court, the Contractor claimed that this process, of design changes leading to increased costs, carried on throughout the life of the project.
Having lost an adjudication in which the Contractor had sought to recover its increased costs from the Consultant, the Contractor launched proceedings in August 2014, seeking a declaration from the High Court as to the proper interpretation of their professional appointment with the Consultant. Essentially the dispute concerned which of the parties should bear the contractual risk of increased costs if it could be shown that the design had been enhanced beyond the parameters set out in the EPC Delivery Plan.
The Court decided that the Consultant’s overriding obligation to the Contractor was to carry out its services with reasonable skill and care.
However, on the Court’s interpretation of the terms of the professional appointment, the Consultant was subject to other specific obligations, including the obligation to develop its basic design proposal (the one on which the Contractor had based its tender) in accordance with the requirements of the EPC Output Specification and Delivery Plan. This was all subject to the overriding obligation – so the Consultant would not be obliged to comply with the Output Specification and Delivery Plan if that would mean breaching its duty to act with reasonable skill and care. But if it was possible for the Consultant to comply, during development of its design, with the EPC Output Specification and Delivery Plan then the Consultant was contractually obliged to use reasonable skill and care to do so.
The Court found that the changes made by the Consultant during the design development process meant that the design was no longer in accordance with the Output Specification or the Delivery Plan. The way in which the Consultant had developed the design therefore amounted to a breach of contract, and the Consultant would be liable for the cost consequences of the changes, unless the Contractor could be shown to have approved or acquiesced in the resulting increased costs.
This was an encouraging result for contractors, particularly design and construct contractors who tender on a fixed price basis. For professional consultants the main lesson is that if the parties expressly set out parameters within which design development is to take place, the Courts will enforce those parameters, all other things being equal.
The High Court emphasised the key importance of the obligation to exercise reasonable skill and care, but also made clear that if additional obligations are expressly imposed on the professional consultant then the professional consultant will have to use reasonable skill and care to discharge those additional obligations. The general duty to exercise reasonable skill and care can be made to apply within the context of specific parameters – if that is what the parties indicate they intended, in the clear wording of the professional appointment.