Stuart Pemble investigates two conflicting cases which highlight some of the difficulties faced in drafting contracts
Key points
- Recent judgments have reached different conclusions on the question of whether absolute contractual oblications take precedence over qualified ones
- Further appellate guidance is needed
The legal profession is often criticised for conjuring complexity out of what its clients consider to be relatively simple problems. On occasion, though, the complexity is caused by events outside of the practising lawyer’s control, with senior judges sometimes making things more difficult than they perhaps should be.
Judicial precedent
One source of problems is the doctrine of stare decisis, the common law principle governing which decisions bind other judges. Although the idea is attractively simple – higher courts bind lower ones, save that the decision of one High Court judge cannot bind another – the doctrine is often fiendishly difficult to apply in practice.
Central to that difficulty is that lawyers have to ascertain the legal principle (or ratio) established or decided in a judgment. It is the ratio that is potentially binding or influential in subsequent disputes. While any decisions based on case-specific facts (such as which witness evidence the judge preferred) are of great importance to the parties involved, they are irrelevant so far as legal posterity is concerned. Given the potential importance of a judgment’s ratio, it is perhaps not surprising that there is plenty of scope for argument as to what legal principle has (or has not) been established and which of a judgment’s findings are simply ones of fact.
Opposite results
Nor is it that uncommon for different judges to decide cases with ratios that appear to be directly conflicting.
The contrast between Coulson J’s decision in MW High Tech Projects UK Ltd v Haase Environmental Consulting GmbH [2015] EWHC 152 (TCC); [2015] PLSCS 46 and Edwards-Stuart J’s judgment from last year in MT Højgaard a/s v E.ON Climate and Renewables UK, Robin Rigg East Ltd and another [2014] EWHC 1088 (TCC) is a good example of this problem; and one exacerbated by the Court of Appeal recently overturning Edwards-Stuart J’s decision on the facts, but not in relation to his analysis of the legal principles ([2015] EWCA Civ 407; [2015] PLSCS 134).
MT Højgaard
As reported in Qualifiedly absolute (Legal Notes, EG 5 July 2014, p91), Edwards-Stuart J had to consider a contract which imposed two seemingly contrasting obligations on the claimant designer. One part made the designer’s obligations subject to a duty of reasonable skill and care; the other appeared to make it strictly liable for certain breaches. On the facts, and having considered a range of authorities, Edwards-Stuart J held that the absolute obligation trumped the qualified one. This prompted a perhaps overly enthusiastic suggestion from the editor of that Legal Note that “the courts tend to reject an argument that the qualified obligation should limit the scope of the absolute ones”.
A different view
However, the recent decisions of the Court of Appeal (overturning Edwards-Stuart J) and of Coulson J in MW High Tech suggest that this conclusion overstated things somewhat. Frustratingly, the Court of Appeal’s judgment in MT Højgaard does not provide much assistance as to the correct state of the law. This is because Jackson LJ simply held that the words in the contract had a different meaning to that given to them at first instance.
And the judgment in MW High Tech further muddies the waters. The claimant (“MWHT”) was the design-and-build contractor for a waste-to-energy plant. It subcontracted design responsibility to Haase. Haase was subject to apparently contrasting obligations: a qualified one to act with reasonable skill and care and a seemingly absolute one to meet a defined specification and delivery plan.
Haase developed the design to a standard well beyond the contractual specification. This significantly increased the ultimate cost of the plant. However, MWHT’s main contract with its client was for a fixed price and the client would not pay the increased cost. MWHT therefore sued Haase for damages.
The judge had to decide whether the absolute obligation took precedence over the qualified one. This was the key issue because both parties’ experts agreed that, although Haase had developed the design well beyond the contractual specification, it had done so whilst acting with the appropriate level of skill and care. Therefore, unless it could persuade the judge that the absolute obligation took precedence, MWHT would have to bear the increased costs itself.
Coulson J found against MWHT. He held that, on the terms used in the contract, the obligation to act with reasonable skill and care was the overriding one and that the requirements to meet the specification and delivery plan were to be treated as being subject to it.
So what should lawyers do?
The key point is to stress the importance of getting contractual drafting right. If the parties’ intention is for certain absolute obligations to take precedence, then the contract should make that as clear as possible. Alternatively, if it is intended that all obligations are to be read as being subject to an overarching duty of care, then the contract should say so.
That said, the cases highlight a difference in judicial approach which it would be helpful to have considered in more detail. Arguably, the Court of Appeal’s judgment in MT Højgaard, with its narrow focus on the words used in that particular contract, is a missed opportunity to do just that. Practitioners would benefit from further appellate guidance, ideally answering the question as to whether the law favours absolute obligations over qualified ones. Until that happens, please spare a thought for the poor lawyers trying to make sense of it all.
Stuart Pemble is a partner at Mills & Reeve LLP
