MT Højgaard A/S –v- E.ON Climate & Renewables UK Robin Rigg East Limited and another
On 3 August 2017, the Supreme Court upheld the appeal of MT Højgaard, finding that a contractor was liable to comply with an obligation contained in a technical schedule as to fitness for purpose, despite the fact that the construction contract contained seemingly contrary obligations that the contractor should exercise reasonable skill and care and comply with an international standard.
This decision will have a significant impact upon the interpretation of construction contacts, in particular and how the court will determine the effect of “somewhat diffuse documents” which are incorporated into a construction contract.
In summary, MT Højgaard submitted a successful tender to design and build the foundation structures for sixty offshore wind turbines. The works were completed in 2009 however, shortly after, the grouted connections started to fail and the transition pieces started to slip. Remedial works in the sum of £26.25m were completed in 2014. The parties brought proceedings to determine who should be liable for the costs of the remedial works.
The contract was made up of a number of documents, including: (a) the form of agreement; (b) the conditions of contract and the List Definitions; (c) the commercial schedules and schedule of prices, payment profile and draft programme; (d) the Employer’s Requirements; (e) the annexes to the Employer’s Requirements; and (f) volumes 2A, 2B and 3 of the contractor’s tender return.
Within these contractual documents were a number of fitness for purpose obligations. The contractor was required to exercise reasonable skill and care and comply with J101, an international standards for the design of offshore wind turbines. In addition, the Employer’s Requirements included a Technical Requirements section which required that the design of the foundations “shall ensure a lifetime of 20 years in every aspect without planned replacement”.
It appears to have been common ground that MT Højgaard used due care and professional skill, adhered to good industry practice and complied with J101. The central issue was whether MT Højgaard was in breach of contract because the wording of the Technical Requirements referred to ensuring a life for the foundations (and the works) of 20 years.
The Technology and Construction Court (TCC) found that MT Højgaard was in breach of contract. On appeal, Court of Appeal found that the Technical Requirements were inconsistent with the rest of the contract and overturned the TCC’s decision. Both the TCC and the Court of Appeal considered that the Technical Requirements amounted to a warranty that the foundations would last for 20 years. The Court of Appeal stated the Technical Requirements were too weak a basis on which to contend that the contractor had a liability to warrant that the foundations would last for 20 years. If a more onerous obligation was to be imposed on the contractor, above and beyond the usual fitness for purpose requirements and compliance with J101, more was required than just a couple of paragraphs “tucked away” in the Technical Requirements.
Yesterday the Supreme Court overturned the Court of Appeal. The Supreme Court interpreted the Technical Requirements as an agreement that foundations would be designed to last 20 years as opposed to a warranty that the foundations will have a lifetime of 20 years. The Supreme Court also did not consider that the Technical Requirements were inconsistent with the other contractual documents.
Based on the terms of the contract, the Technical Requirements were not just a “technical document”. The Technical Requirements were intended by the parties to be of contractual effect and must therefore be taken at face value.
It is important to note that even in a “complex, diffuse and multi-authored” contract, where technical schedules do not appear to be consistent with the rest of the contractual documents, they will still have full contractual force. This is particularly significant where onerous requirements are placed on a party.
This decision has important implications on the interpretation of construction contacts. Parties must consider technical specifications and schedules which are included in contracts very closely, especially, any obligations as to design and workmanship.
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