Design Risk


1 As with the FEED package, pre-FEED studies and investigations can vary in detail and scope depending on the driving force of the project. They supply the background research for the project and often include conceptual investigations to determine the main elements of the functional specification, the feasibility of meeting the functional specification, the alternative development solutions and the technical risks associated with them, and preliminary consideration of whether a development is worthwhile in economic terms.

2 For an illustration of the risks generally to a contractor of undertaking work on a lump sum turnkey basis, see Enertrag (UK) Ltd v Sea and Land Power and Energy Ltd [2003] EWHC 2196 (TCC), 100 Con LR 146.

3 (1873) LR 8 Ch App 597.

4 (1858) 3 H & N 844.

5 See The Inclusive Price Principle – A Tribute to Ian Duncan Wallace QC by HH Judge Anthony Thornton QC published by the Society of Construction Law in July 2007 and available at (last visited 28 January 2016). See also ch 6 on changes to the work.

6 See H G Beale Chitty on Contracts (32nd edn, Sweet & Maxwell 2015).

7 [2009] UKPC 10, [2009] WLR 1988 at para 17. See also the discussion in paras 16–31 of Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and Anor [2015] UKSC 72, [2015] 3 WLR 1843.

8 See Bowen LJ’s judgment in The Moorcock (1889) 14 PD 64 at 68.

9 See Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227.

10 (1876) 1 App Cas 120.

11 (1878) 3 App Cas 1040.

12 It is worth noting that the claim in Thorn v London City Council was only for damages for the wasted costs incurred in attempting to execute the original plans. Once it was found that the original plans would not fulfil their purpose, they were altered, although it is not clear how. The summary of facts in the case report suggests that the costs of the extra work rendered necessary by the alterations were paid by the Employer. See Thorn v London City Council (n 10) at 122.

13 See Chitty on Contracts (n 6) ch 7.

14 In an insurance case, Avon Insurance v Swire [2000] 1 All ER (Comm) 573, the judge adopted the test that a representation will be taken as true if it is ‘substantially correct’ and the difference between what is true and what is represented would not have induced a reasonable person to enter into the contract. This test has been adopted outside the context of insurance in, for example, Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm).

15 The dividing line between statements of fact and opinion is not clear-cut. In some circumstances (for example, if an opinion is not honestly held), a statement of opinion can be ‘elevated’ to the status of fact. Furthermore, a statement of opinion may carry an implication that the representor has grounds for his belief. See Chitty on Contracts (n 6) at 7–006 to 7–007 and below at 3.36.

16 An example of the need for inducement is Horsfall v Thomas (1862) 1 H & C 90. A seller delivered a defective gun to a buyer. The gun exploded and caused the buyer injury. The buyer alleged that the sale was procured by a misrepresentation because the defect was concealed. However, the claim was rejected because, even if the seller had concealed the defect, the buyer had not examined the gun before the purchase.

17 As mentioned in n 15 at para 3.29 above, a statement of opinion may be ‘elevated’ to the status of fact if the opinion is not honestly held. See Chitty on Contracts (n 6) at para 6–008, which refers to this rule being cited with approval in Economides v Commercial Union Assurance Co Plc [1998] QB 587 at 597.

18 See Horsfall v Thomas (1862) 158 ER 813 – the allegation that the defect was concealed made no difference to the outcome; there was no reliance on the concealment.

19 [2015] UKSC 17, [2015]1 WLR 1661.

20 See, for example, the recent case of D&G Cars Ltd v Essex Police Authority [2015] EWHC 226 (QB), where it was necessary for the performance of a long-term contract to imply an obligation to act with ‘honesty and integrity’ into the agreement. In his judgment, Dove J referred to the earlier case of Yam Sang Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013]1 All ER (Comm) 1321, where Leggatt J suggested that an implied obligation of good faith was capable of existing under English law.

21 Chelsfield Advisers LLP v Qatar Diar Real Estate Investment Co [2015] EWHC 1322 at para 80.

22 [2006] EWHC 3358 (Comm).

23 ‘Negligent misstatement’ is similar to misrepresentation in many respects. It tends to be claimed where there is no contractual relationship between the party making the statement and the party acting in reliance on it.

24 Kellogg Brown v Concordia (n 22) para 39.

25 ibid para 44.

26 In a shipbuilding context with buyer-provided design see, for example, Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm) at paras 71–72, [2011] All ER (D) 113.

27 27[2002] EWHC 1270 (TCC), 84 Con LR 164 (QBD: TCC).

28 This chapter has dealt mainly with the allocation of risk for design between the Company and the Contractor. The standard of design produced by a third party designer (who only provides design and not the complete project) has not been examined in detail. The designer, as the provider of professional services, will typically be held to the standard of a reasonably competent designer, having regard to the industry standards or professional conduct rules applicable at the time of the actions. If a designer acts in accordance with generally accepted industry practices, the designer will not be negligent simply because a body of opinion disagrees with those practices (see Bolam v Friern Hospital Management Committee [1957] 2 All ER 118). If the services are highly specialised, the contract might require the standard to be something more than ordinary competence (see Conocophillips Petroleum Co UK Ltd v Snamprogetti Ltd [2003] EWHC 223 (TCC)). But even then, the designer will not warrant (unless there is an express term in the contract) that his design will be fit for purpose: the English courts will not imply into a professional’s contract that they will achieve a particular result. Contrast this with the position of the Contractor, who often will promise (expressly or impliedly) that the project will, in some sense, be reasonably fit for the purpose for which it is required (see Independent Broadcasting Authority v EMI Electronics Limited (1980) 14 BLR 1). There is tension: a designer may perform his work to the standard required of him but the Contractor, through no fault of his own, fails to provide a project that meets its contractual purpose. A design can be defective, without the designer having been negligent. See also Greaves v Baynham Meikle [1975] 1 WLR 1095. The same does not appear to be the case with the Contractor.

29 See Co-operative v Henry Boot (n 27) para 68.

30 See ch 4 at para 4.16.

31 (1992) 55 BLR 1.

32 ibid para 22.

33 [2013] EWCA Civ 150.

34 ibid paras 44–46.

35 For example, see cl 5.1 of the Conditions of Contract for EPC Turnkey Projects published by FIDIC (1999, w­w­w­.f­i­d­i­c­.o­r­g­ (last accessed 29 January 2016)), otherwise known as the Silver Book.

36 See further Robert Clay, Nicholas Dennys (eds), Hudson’s Building and Engineering Contracts (13th edn, Sweet & Maxwell 2015) paras 3–095 to 3–097.

37 Penalty clauses are discussed in ch 8 at paras 8.17 to 8.28.

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