MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd & Anor [2017] UKSC 59

MTH designed and installed offshore wind turbine foundations at Robin Rigg that failed shortly after completion due to an error in an international standard (J101). The Supreme Court held MTH liable, finding the Technical Requirements imposed a 20-year design life obligation that prevailed over compliance with J101.

Facts

MT Højgaard A/S (MTH) contracted with E.ON in December 2006 to design, fabricate and install foundation structures for two offshore wind farms at Robin Rigg in the Solway Firth. The contract incorporated detailed Technical Requirements (TR), which themselves required compliance with an international standard known as J101, published by Det Norske Veritas (DNV).

MTH designed the foundations using monopiles and grouted connections without shear keys, relying on an equation contained in J101 to calculate axial capacity. Unbeknown to the parties, J101 contained a material error in the value given for δ (the height of surface irregularities for rolled steel), which was wrong by a factor of approximately ten. This caused the axial capacity of the grouted connections to be substantially overestimated.

The Works were completed in February 2009. Following the discovery of failures at the Egmond aan Zee wind farm in 2009, DNV identified the error and notified the industry. In April 2010, the Robin Rigg grouted connections began to fail and the transition pieces started slipping down the monopiles. Remedial works were agreed at €26.25m, with the parties litigating to determine liability.

Issues

The central issue was whether, despite MTH having exercised reasonable skill and care, adhered to good industry practice, and complied with J101, MTH was nevertheless in breach of contract by virtue of paragraph 3.2.2.2(ii) (and paragraph 3b.5.1) of the TR, which referred to ensuring a lifetime of 20 years for the foundations.

Subsidiary issues included: (i) whether paragraph 3.2.2.2(ii) constituted a warranty that the foundations would actually last 20 years, or merely that they were designed to do so; (ii) whether such an obligation was inconsistent with the obligation to comply with J101; and (iii) whether the paragraph was too slender a basis on which to rest such an onerous obligation.

Arguments

E.ON’s submissions

E.ON argued that clause 8.1(x) required the Works to be fit for purpose, which Part C defined by reference to the Employer’s Requirements (including the TR), and that paragraph 3.2.2.2(ii) clearly required a 20-year lifetime. Since the foundations failed almost immediately, MTH was in breach.

MTH’s submissions

MTH supported Jackson LJ’s reasoning in the Court of Appeal, contending: (i) the Contract required compliance with J101 and reasonable care, both of which MTH had achieved; (ii) the TR references to a 20-year life merely reflected a ‘design life’ as envisaged by J101; (iii) the contractual documents were diffuse, multi-authored and contained ambiguities; (iv) if such an onerous warranty had been intended, it would have appeared in plain terms, probably as a Key Functional Requirement; and (v) clauses 30, 33 and 42 of the Contract created an exclusive 24-month defects liability regime inconsistent with a 20-year warranty.

Judgment

The Supreme Court (Lord Neuberger giving the leading judgment, with whom Lord Mance, Lord Clarke, Lord Sumption and Lord Hodge agreed) unanimously allowed E.ON’s appeal and restored the order of Edwards-Stuart J.

Effect of clauses 30, 33 and 42

Lord Neuberger accepted that these clauses created an exclusive regime barring claims after the 24-month Defects Liability Period. However, this did not undermine the construction of paragraph 3.2.2.2(ii) as imposing a substantive 20-year obligation; it simply meant E.ON had only 24 months to discover any failure or design deficiency. Lord Neuberger indicated he was inclined to read paragraph 3.2.2.2(ii) as an agreement that the foundations had been designed to last 20 years, rather than a warranty they would last 20 years, though it was unnecessary to decide between these constructions since MTH was in breach on either interpretation.

Inconsistency with J101

The Court reviewed authorities including Thorn v Mayor and Commonalty of London (1876) 1 App Cas 120, The Hydraulic Engineering Co Ltd v Spencer and Sons (1886) 2 TLR 554, A M Gillespie & Co v John Howden & Co (1885) 22 SLR 527, The Steel Company of Canada Ltd v Willand Management Ltd [1966] SCR 746, and Cammell Laird and Co Ltd v The Manganese Bronze and Brass Co Ltd [1934] AC 402. These authorities established that where a contract requires both compliance with a prescribed design and satisfaction of specified performance criteria, courts generally give effect to the performance criteria, with the contractor bearing the risk of inadequate design.

Decisively, paragraph 3.1 of the TR stated that the J101 requirements were ‘MINIMUM requirements’ and placed responsibility on MTH ‘to identify any areas where the works need to be designed to any additional or more rigorous requirements or parameters’. Therefore, where two provisions of Section 3 imposed different standards, the more rigorous prevailed. Lord Neuberger held that, even absent paragraph 3.1, the same conclusion would follow.

‘Too slender a thread’

The Court rejected the argument that paragraph 3.2.2.2(ii) was too weak a basis to support such an onerous obligation. The diffuse and inelegant drafting did not displace the natural meaning of the words. Lord Neuberger cited Lord Bridge in Mitsui Construction Co Ltd v Attorney General of Hong Kong (1986) 33 BLR 7 on the approach to badly drafted contracts. The provision was clear on its face, and its location within technical documents incorporated into the Contract did not diminish its effect.

Implications

The decision reaffirms a long-established principle of construction in design-and-build contracts: where contractual documents impose both a duty to comply with a specified design or standard and a duty to achieve a specified result, the courts will typically give effect to both, with the more rigorous obligation prevailing. The contractor bears the risk of inadequacy in a specified design or standard if the contract also requires achievement of a performance outcome.

The judgment is particularly significant for the construction, engineering and offshore energy sectors. It makes clear that a contractor cannot escape liability for failure to meet a fitness-for-purpose or design-life obligation merely by demonstrating compliance with an industry standard incorporated into the contract, particularly where that standard is expressly designated as a minimum requirement. Practitioners drafting such contracts should be alert to provisions tucked away in technical schedules, which may impose substantive contractual obligations of significant commercial consequence.

The decision also illustrates the interaction between performance warranties and defects liability regimes: a long-term performance obligation may be effectively curtailed by an exclusive remedies clause limiting claims to a defects liability period. The case provides important guidance that even loosely drafted technical provisions will be enforced according to their natural meaning, and that the burden of identifying deficiencies in employer-supplied standards may rest squarely on the contractor where the contract so provides.

Verdict: Appeal allowed. The Supreme Court restored the first instance order of Edwards-Stuart J, holding that MTH was liable for breach of contract for the failure of the foundations, notwithstanding that MTH had complied with J101 and exercised reasonable skill and care.

Source: MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd & Anor [2017] UKSC 59