FIT FOR PURPOSE

20 November 2018 1
THE TOPICS OF THE DAY

The use of ”Fit for purpose” in Denmark

1. What is “Fit for purpose”?

2. Is “Fit for purpose” relevant in Denmark?

3. Legal status of “Fit for purpose” in Denmark

4. Possible outcomes under Danish law

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THE USE OF FIT FOR PURPOSE IN DENMARK

What is “Fit for purpose”?

- UK legal term

- Included in standard contracts; e.g. FIDIC

- Nicolas Dennys et al.: Hudson’s Building and Engineering Contracts, 12. edition (2010):
- “… a ´fitness for purpose´ obligation is, once the purpose is communicated to the contractor
and there is reliance on his design, absolute.”

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THE USE OF FIT FOR PURPOSE IN DENMARK

Is it relevant to discuss the term in a Danish context?

- Relatively rare (still?)

- Personal experience:

- Seen in some of the major construction and offshore contracts in DK

- Contracts on international projects between Danish parties

- Sometimes mentioned in technical requirements

- Given the potential implications – absolutely relevant

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THE USE OF FIT FOR PURPOSE IN DENMARK

Legal status of ”Fit for purpose” in Denmark?

Case law

- Not any rulings yet involving the interpretation of ”Fit for purpose” under Danish law

Literature

- Flemming Andersen et al: FIDIC – International entrepriseret i et dansk perspektiv

(2003):
- “(…) The contractor’s liability for a potential design can be said to be a strict liability to
ensure that the design meets a presupposed level of function.”

- No further guidance on how strict; e.g. if a “state of the art” defense is valid

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THE USE OF FIT FOR PURPOSE IN DENMARK

Legal status of ”Fit for purpose” in Denmark?

Literature (continued)

- Niels Jørgen Oggesen: T:BB 2014:441 “Fit for purpose” – a part of Danish law?

- The article lays down three likely outcomes:

1. “Fit for purpose” is already a part of Danish law

2. The UK/international understanding prevails

3. Should be interpreted in line with a guarantee

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THE USE OF FIT FOR PURPOSE IN DENMARK

“Fit for purpose” is already part of Danish law

- The term “Fit for purpose” is not known as a legal term, but a direct translation =
”Egnet til formålet”

- The traditional starting point under Danish law:

- A turnkey contractor/consultant has an obligation to make himself acquainted with the
employer’s needs and try to fulfill them (”ydelserne er egnede til formålet”).

- T:BB 2013.654 VBA

- The turnkey contractor was under an obligation to make the works function as a whole

- The contractor was liable because he had not warned the employer of the risks involved

- A professional due skill and care obligation

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THE USE OF FIT FOR PURPOSE IN DENMARK

“Fit for purpose” is already part of Danish law

- Does not respect that the term is based on common law and a well-known

international term

- Too much emphasis on the default law at the expense of the parties’ agreement and

the specific use of the term “fit for purpose”

- Not likely

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THE USE OF FIT FOR PURPOSE IN DENMARK

The UK/international understanding

+ Well-known term with clear implications under UK law

+ Professional parties → assume they are aware of the UK understanding of the term

+ Lex mercatoria

+ Often used in (largescale) contracts with an international element

÷ Vaguely elaborated contract documents are usually interpreted detrimental to the

project owner (“uklarhedsreglen”)

÷ A very onerous term → should be very clear that this has been the intention of the
parties

÷ Danish law clause and therefore not “just” use of the UK understanding
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THE USE OF FIT FOR PURPOSE IN DENMARK

The Siri Case re. the English term “Sue and Labour”
- Facts of the case
- In 2009, video inspections revealed cracks on the Siri platform’s sponson. Therefore, it was
believed there was a considerable risk of the platform collapsing

- Measures where taken to reduce the risk of collapse and to restore the platform

- Danish law was agreed

- The insurance policy included a “Sue and Labour” provision

- The owner:
- claimed that costs to protect “the property and/or the interest insured or any part thereof” was covered
under the provision “Sue and Labour” in the insurance policy and that the term should be interpreted
in light of the Danish insurance contracts act

- The insurers:
- claimed that the provision was to be interpreted in line with the UK understanding of the term
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THE USE OF FIT FOR PURPOSE IN DENMARK

The Siri Case re. the English term “Sue and Labour”
- Decision of 4 May 2018 from the Eastern High Court
- The term must be interpreted in the light of English law

- The specific reasoning is:

- “The provision (...) uses a special term, ("Sue and Labour”) which is not known under Danish
law but is well-known under English law and more precisely defined in English case law
prior to the parties' agreement. Furthermore, the parties agree that when formulating the
policy (including this specific provision), the parties based it on the London Standard
Platform Form and that this is derived from English maritime insurance law. Viewed in the
light of these facts, the High Court decides that the more detailed definition of (the
provision) must be given in the light of the practice of the term “Sue and Labour” which is
developed in English case law in particular and that the provision is not to be interpreted
primarily based on Danish case law regarding the Danish Insurance Contracts Act.”

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THE USE OF FIT FOR PURPOSE IN DENMARK

The Siri Case re. the English term “Sue and Labour”
- The “SIRI-test” on “fit for purpose”

√ Special term not known under DK law, but well known under UK law

√ More precisely defined in English case law prior to the parties' agreement

? The agreement based on a standard contract including “fit for purpose”

√ FIDIC-based contract

÷ Tailor-made contract

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Guarantee
- Aggravated liability, but leaves room for interpretation

- Not insurable because it is seen as a guarantee by insurers

- Guarantees are traditionally given a restrictive interpretation in DK

- “State of the art” defense accepted in previous case law when interpreting the
content of a guarantee (KFE 1983.299 VBA and KFE 1983.318 VBA)

- Balance between the UK/international understanding and Danish law

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Conclusion
- “Fit for purpose” will probably be interpreted as an aggravated liability

- If the contract is based on a standard form including “fit for purpose” (e.g. FIDIC) and
the parties have not defined how “fit for purpose” should be understood → SIRI case
indicates that the UK understanding should prevail

- The very onerous implications of the UK understanding of “fit for purpose” might
point in the direction that it should be specifically mentioned

- Would the MTH case have had a different outcome under Danish law?

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