The Supreme Court held the contractor liable for the early failure of the foundations of two offshore wind farms. The technical requirements stated that the design of the foundations shall ensure a lifetime of 20 years, and that requirement was a binding contractual obligation which had not been met. Compliance with an international standard containing a serious error, and the exercise of due care, did not discharge it.
MT Højgaard A/S (“MTH”) designed and installed the foundations of two offshore wind farms at Robin Rigg in the Solway Firth for two companies in the E.ON group (“E.ON”). The foundations failed shortly after completion. MTH had used grouted connections without shear keys. Those connections began to fail and the transition pieces started to slip down the monopiles. The parties agreed the cost of the remedial works at €26.25 million and litigated only the question of which of them should bear that cost.
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MTH followed J101, an international design standard. A value in its formula overstated the strength of the grouted connections by a factor of about ten. The certifying authority approved the design. The connections failed during the contract’s 24-month defects period.
The contractual provisions
The contract required MTH to design, fabricate and install the foundations. “Fit for Purpose” meant fitness for purpose in accordance with the Employer’s Requirements, which included the Technical Requirements. Clause 8.1 required the works, when completed, to be fit for their purpose and to satisfy the employer’s performance specifications.
Paragraph 3.2.2.2 required the detailed design to be prepared in accordance with J101 and stated:
The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement.
A matching provision applied to other structures. Paragraph 3.1 stressed that the requirements in that section were minimum requirements and that MTH had to identify any need for additional or more rigorous requirements. Other provisions also referred to a minimum service or design life of 20 years.
The decisions below
Edwards-Stuart J rejected the allegation that MTH had been negligent and rejected a number of other alleged breaches. He nevertheless found for E.ON. Fitness for purpose was to be judged by the Technical Requirements, and those requirements obliged MTH to design the foundations for a lifetime of 20 years. Clauses 8.1(viii) and (xv) supported that conclusion.
The Court of Appeal allowed MTH’s appeal. Jackson LJ, with whom Patten and Underhill LJJ agreed, accepted that the paragraph looked, if read alone, like a warranty that the foundations would function for 20 years. He held, however, that it was inconsistent with the other contractual provisions, including the duties to follow J101 and to use due care and good industry practice, and that it was too slender a thread on which to hang a 20-year warranty. Those other provisions should prevail.
The Supreme Court’s reasoning
Lord Neuberger, with whom Lord Mance, Lord Clarke, Lord Sumption and Lord Hodge agreed, held that the paragraph was an effective contractual term and had been broken. He considered two possible meanings: a warranty that the foundations would last 20 years, or a term that they would be designed to last 20 years. Clauses confining post-completion remedies largely to the 24-month defects period created a tension with an unqualified 20-year performance warranty, and he was inclined to prefer the design reading. On that reading, J101’s quantified risk of failure would be treated as built into the promised design life. It was unnecessary to decide between the two meanings, because MTH was in breach on either of them.
The contract described the specified standards as minimum requirements. MTH also had to identify where a more rigorous design was necessary. Following J101 therefore did not exhaust its obligations. The parties could allocate the risk of an inadequate design to the contractor even where the employer had prescribed or approved the design standard.
The paragraph was not too slender a thread. Its natural meaning was clear. The length, diffuse drafting and multiple authorship of the documents did not justify depriving a clear provision of that meaning or treating it as redundant. The Technical Requirements were intended to have contractual effect, and an obligation that the foundations have, or be designed for, a 20-year life was neither improbable nor unbusinesslike in light of the repeated references to a 20-year design life.
Verdict: The Court unanimously allowed E.ON’s appeal and restored the first-instance order. MTH was liable for the agreed remedial costs. The foundations fell short under either interpretation of the 20-year term, so the Court left the choice between those interpretations open.
Source: MT Højgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Limited and another [2017] UKSC 59
