Design obligations under supply contracts

A recent TCC decision has considered the scope of design duties owed by a supplier of equipment for incorporation into construction works. The court found it was necessary for the supplier when designing the equipment to go beyond specified drawings and take into account the nature of the works into which the equipment was to be incorporated. The court also considered whether the supplier owed concurrent duties in tort in light of the Court of Appeal’s decision in Robinson v PE Jones (Contractors).

DBE Energy Limited v Biogas Products Limited

DBE was responsible for the design, construction and operation of a new anaerobic digestion facility (AD facility) in Surrey. In June and July 2017, DBE met and exchanged emails with Biogas, and it was understood that Biogas would provide detailed mechanical and process design of the AD facility. Biogas began carrying out this design work, including issuing drawings of the general site layout, tank connections, the hot water system process; however, there were no detailed written contractual arrangements in place in respect of these design works.

In October 2017, DBE entered a contract with Biogas for the design and supply of four tank heaters and in January 2018 it entered another contract with Biogas for the design and supply of two pasteuriser tanks, based on quotations provided by Biogas. During testing and commissioning, defects were discovered in the tank heaters and pasteuriser tanks and they buckled and failed. DBE claimed the failures were caused by Biogas’ breach of contract and/or negligence in designing the equipment and sought to recover the loss and damage suffered.

The scope of design obligations

Biogas’ position was that, whilst it did have design obligations under the contracts, they were limited by reference to certain drawings referred to in its quotations and that it had no obligation to have regard to the design requirements of the overall system. It argued that the design obligations owed by a party will primarily be determined by the contractual documents and accompanying specifications. However, the court found that the contracts “cannot be seen in isolation from the other activities that Biogas was engaged in on site. Those activities provide important factual matrix evidence which cannot properly be ignored.”

Against this background, the court rejected Biogas’ submission that its design scope was limited and found that, to comply with its contractual duties to exercise reasonable care and skill in the design of the tank heaters and pasteuriser tanks, Biogas was required to check that the equipment design was consistent with other parts of the system and could be safely integrated. It was also of note that the drawings referred to in the quotations were not complete designs from which the items could immediately be fabricated; further design was required by Biogas to specify such things as material thicknesses and design pressure.

Notably, the court also found that even if Biogas had not been involved in wider aspects of the system design, a designer in Biogas’ position was obliged to have regard to the system into which its components would be integrated in any event.

Fitness for purpose

The court also considered whether Biogas was in breach of an implied duty of fitness for purpose, which both parties accepted was to be implied under the Sale of Goods Act 1979 and/or the Sale of Goods and Services Act 1982. Biogas relied on an earlier decision in J Murphy & Sons Ltd v Johnston Precast Ltd where piping was required to be fit for the purpose of carrying potable water, the intended use of the piping, but was not required to be fit for the purpose of use in conjunction with a foam concrete environment, the intended environment into which the piping would be installed. The court in that case did not accept that the surrounding conditions of the pipe equated to its purpose; and noted that this was not made known to the supplier nor was there evidence that the purchaser relied on the skill or judgement of the supplier.

The court distinguished J Murphy from the present case; it could not be said that the equipment was to be located in an environment not known to Biogas, but in fact the equipment was to be incorporated into a system that Biogas had designed. Further, DBE was relying on Biogas to ensure the equipment was compatible with the overall mechanical and process design. Therefore, the court found that the tank heaters and the pasteuriser tanks were not fit for purpose, which involved their operation as components in their own right but also their safe integration into the wider system.

Concurrent duties in tort

The court also considered whether Biogas had tortious liability for the defects. The court referred to the guidance given by the Court of Appeal in Robinson v PE Jones (Contractors) as to the circumstances where a concurrent duty in tort will arise, requiring in particular an assumption of responsibility by the party in question. The court in that case had concluded that building contractors will generally not owe concurrent duties in tort, but that construction professionals such as architects ordinarily would. This left a measure of uncertainty as to the position of design and build contractors.

In the present case, the court found that Biogas had assumed responsibility in tort for ensuring the compatibility of the tank heaters and pasteuriser tanks with the hot water system and that DBE had relied on Biogas’ expertise in process and mechanical design. It noted that Biogas’ position was “beyond that of a simple manufacturer of goods, or building contractor with no design obligations and is analogous with that of a design and build contractor who can owe a duty of care in tort which is coterminous with its contractual duties”.

Conclusions and implications

This decision will be of particular relevance to those negotiating supply contracts in the context of a broader construction project. Although many of the findings of design responsibility in this case were rooted in Biogas’ overall involvement in the design of the project, parts of the decision are likely to be of more general application:

• The court’s finding that even without such involvement Biogas would have been required to make enquiries of DBE to complete its design is notable. This again will depend on the circumstances and the nature of the items being supplied, but suppliers should take note that any ambiguity or incompleteness in the description or specification of the items may require enquiries to be made of the purchaser rather than allowing the supplier to complete the order based on its own judgment alone.
• The case makes an interesting contrast to the J Murphy decision and illustrates that the environment or systems into which goods are to be installed may form part of the supplier’s fitness for purpose obligation. The findings in these two cases are understandable on their facts, but other cases are likely to emerge where the dividing line is difficult to discern.
• This appears to be the first case after Robinson v PE Jones (Contractors) where a design and build type relationship has been held to give rise to concurrent duties of care in tort. This poses another “dividing line” question as to the extent of the design responsibility required before such concurrent duties will be implied, given most construction contracts without specific design work will still import a certain degree of design responsibility (i.e. selection of materials, methods of working etc).

References:

J Murphy & Sons Ltd v Johnston Precast Ltd [2008] EWHC 3024 (TCC).

Robinson v P.E.Jones (Contractors) Ltd [2011] EWCA Civ 9.

DBE Energy Ltd v Biogas Products Ltd [2020] EWHC 1232 (TCC).