CONFLICTING PROVISIONS: DESIGN OR INDUSTRY STANDARD?

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Pamela McDonald, Associate at Pinsent Masons, talks how a recent judgement in the UK will affect the construction industry in Qatar.

On August 3, 2017 a very important case was decided by the highest court in the UK. The judgment confirmed that it is a general principle that where a contract includes two terms, one requiring the contractor to provide a structure in accordance with a design and the other requiring the structure to meet an ‘industry standard’, the contractor will nonetheless be responsible for satisfying the industry standard notwithstanding that cannot be achieved by complying with the applicable design standard.

The judgment has potentially harsh consequences for contractors who have entered into contracts with conflicting provisions – something often seen in Qatari construction contracts.

The UK Judgment

The Supreme Court decision in MT Hojgaard v Eon was eagerly anticipated by the construction industry. It decides the key issue of contractors’ liability to achieve a functional result and whether they may be relieved from that responsibility by adherence to industry standards.

The Supreme Court, in a unanimous judgement, found that it is a general principle of English and Canadian law that where a design and build contract requires the contractor to use a specified design standard (or design) and also requires the structure to satisfy a stated performance criteria, the contractor will nonetheless be responsible for satisfying the performance criteria notwithstanding that cannot be achieved by complying with the applicable design standard.

What to look out for in your contract

It is frequently the case that the standard of performance required of the contractor is found in a variety of places throughout the contract, in both the contract terms and the technical requirements. Those terms can often be difficult to reconcile. This was demonstrated in the MT Hojgaard v Eon case, where the Supreme Court took a different view to the meaning and impact of the contract terms from the parties themselves and from the judges in the two other courts which had heard the previous cases (the TCC and Court of Appeal).

If the contract is subject to Qatari law, and there is a dispute regarding the meaning of a specific contract term, the judge or arbitrator will construe the technical requirements in parallel with express terms of the contract using the established rules of contractual interpretation. In Qatar, the rules of contractual interpretation can be found in Article 169 of the Civil Code which provides that (i) if the language of the contract is clear, it will be given effect and (ii) if it is ambiguous, the common will of the parties as well as the nature and custom of their dealing and the trust and integrity which exists between them will be taken into account.

As the MT Hojgaard judgment comes from the UK courts, it is not binding in Qatar and there has been no equivalent decision published by the Qatari courts. Therefore, if the courts were asked to determine the same question, i.e., whether the design standard or the (conflicting) industry standard should be met, it would, pursuant to Article 169.2, look to the common will of the parties and take into account the custom of the construction industry. This clearly leaves the outcome almost impossible to determine.

It is to a certain extent inevitable that complex contracts which seek to impose design requirements contain inconsistencies because they have been drafted by numerous authors. Technical requirements and design requirements should be clearly drafted to avoid this eventuality, and a risk analysis of contractual obligations should consider all operative requirements in both the contract terms and in the technical documents appended to those contracts.

The Qatari Civil Code on design standards

Two Articles of the Qatari Civil Code discuss the standard of care a contractor must meet when performing contractual obligations. As a starting point, Article 687 states:

“…the contractor shall perform the work in accordance with the applicable practices and within such reasonable period as required for the nature of the work, subject to established standards of workmanship.”

The contractor’s obligation is therefore only fulfilled when it produces a design using ‘applicable practices’ to a standard which is on par with established market benchmarks.

In the absence of an express contractual term to the contrary, Article 687 would therefore seem to impose on a contractor, undertaking design work, a standard of complying with the practices and standards of the market, which could therefore be akin to a standard of ‘reasonable’ care to the extent the market practice imposes that standard.

On the other hand, Article 694 (1) of the Qatar Civil Code appears to imply something different. Article 694 relates to the employer’s right to reject taking over the work. It states:

“The employer may reject taking over the work if any defect therein or breach of the agreed conditions renders the work unfit for its intended purpose.”

This appears to suggest that the designer must ensure the design meets a standard higher than that provided for by Article 687.

In short, the position on the applicable standard of contractual performance in Qatar is unclear, as Article 687 and Article 694 appear to be inconsistent on this point. However, as neither Article 687 nor Article 694 are mandatory provisions of the Qatar Civil Code, this may be academic as, in relation to design liability, the required standard of contractual performance will nearly always be agreed between the parties in their contract.

Conclusion

When drafting contracts, contractors must consider the design requirements the employer wishes to impose in the context of the ‘industry standards’ it is also being asked to achieved. If the industry standard is impossible to achieve using the employer’s design criteria, that issue should be resolved before the contract is entered into.

If an existing contract contains conflicting provisions, contractors should liaise with the employer to find an agreeable solution, preferably through a formal contract amendment, before performing the works. Failure to do so could result in a claim being brought by the employer, either because the structure does not comply with the design or because it does not meet the industry standard.

Contractors need to be careful not to assume a more onerous design and construction obligation than their contract tender review may at first identify. This case is a paradigm of how the odds are against a contractor of being relieved of liability where a ‘fitness for purpose’ obligation is contained in the contract. The contractor was not negligent, used criteria in an international standard in part of its calculations, but was ultimately responsible for the failure of the foundations supplied by it on the basis of how risk was allocated.


Pamela McDonald, Associate, Pinsent Masons