Loss Prevention Alerts

ALERT 36:    Ove Arup & Partners International Limited and A N Other ("Arup")

and

Mirant Asia Pacific Construction (Hong Kong) and A N Other ("Mirant")

A recent Court of Appeal case, concerned specifically with the design of foundations and the adequacy of a ground investigation report, provides useful lessons for those involved in project management and the drafting of contracts. The facts are complicated and a fuller précis of the case can be found on the AGS’s website, under Working Groups / Loss Prevention / Alerts / Ove Arup v Mirant Asia – Implications and Advice

Facts

Arup entered into two agreements with Mirant, one to design, inter alia, foundations and the other to carry out a ground investigation, in relation to Mirant’s construction of a coal fired power station in the Philippines. There was major settlement of foundations at a time when the load was a very small fraction of the eventual design load. Arup was sued under both the design agreement and the ground investigation agreement. The latter incorporated a five year limitation of liability period and a £4 million limit of compensation but the former did not.

Arup conceded the fact of the settlement but argued that they had no obligation under the design agreement to verify the design assumptions concerning the ground’s bearing capacity that they initially adopted, that (if anything) they were liable under the ground investigation agreement, that the rock below the foundations was substantially altered as a result of blasting carried out by the contractor and that the trial judge had made crucial factual errors in his judgment which revealed that he may have misunderstood the evidence and Arup’s defence.

Summary of findings

The Court held that Arup were liable under the design agreement, because an aspect of foundation design involves checking that initial designs were later verified by detailed and systematic mapping, and Arup had failed to do this. Arup were not though in breach of the ground investigation agreement.

Lessons to be learned

Obviously, Arup would have been in a stronger position had the design agreement also incorporated the five year limitation of liability and the £4 million limit of compensation clause. Where possible, especially where various agreements are entered into with clients in relation to a single development or related developments, it is important to ensure the any contractual protection appears in all the relevant agreements. As the client has already agreed to protection in one, it ought to be easier to persuade him to incorporate clauses for the benefit of the consultant in others.

In this case, the Courts were unimpressed with the level of briefing that the individual conducting the site investigation report had been given by other members of the Arup team involved in the design of foundations. In any team, especially where multi-disciplinary expertise is being employed, it is crucial that all parts of the team make the other parts aware of the assumptions they are working to, their findings to date and the outputs they expect from other team members that might have a bearing on their work.

The case also underlines the importance of making contemporaneous recordings and notes when conducting investigations. The trial judge was not prepared to accept that the Arup employee conducting the site investigation remembered that the excavation was only to a depth of 300-400 millimetres because of the absence of contemporaneous records other than a relatively uninformative daily site diary. The judge said that he would not make positive findings in Arup’s favour on the basis of this individual’s recollection many years after events which this person had no particular reason to remember.

The case also highlights the pitfalls of litigation as a way of resolving complicated construction and engineering disputes. The Court of Appeal accepted that the trial judge appeared to have misunderstood some of the facts, including some which may have had an important bearing on his decision, yet it was in a difficult position to undermine the judge’s findings because the Court of Appeal had not conducted a re-hearing. Those involved in litigation need to bear in mind that even if they are confident of their case on technical and legal grounds, they have to have regard to how easy it would be to explain that case to a judge or arbitrator in proceedings which may take weeks or maybe months.  

This loss prevention alert has been produced by the Loss Prevention Working Group (LPWG) of the AGS.  It highlights issues that the LPWG considers may be of relevance to members.  It is not intended to provide a definitive response to any issues and before taking action members should consider carefully whether they need to seek independent legal advice.

Prepared for the Members of the AGS by Steven Francis, Eversheds

Date of Issue:  16th May 2006