Design obligations - When is a slender thread strong enough?
The Supreme Court has today handed down its decision in the case of MT Højgaard A/S v E.On Climate & Renewables UK Robin Rigg East Limited  UKSC 59.
The case is about the design of Scotland's first commercial offshore wind farm (Robin Rigg) and in particular who is liable for c. €26.25 million in remedial costs caused by a defective design to the wind turbine bases.
The employer (E.On) employed the contractor (Højgaard) to design and build the foundations for the wind turbines. In particular, Højgaard was responsible for engineering the connection between the monopile foundation and the towers for the wind turbines, an 8m 120 tonne steel collar called the transition piece. The foundations were designed in accordance with an international industry standard (J101) published by Det Norske Veritas – DNV, a leading classification and certification agency. However, after the foundations were built, it was discovered that J101 contained a flaw. A key factor was inaccurate by a factor of ten. The connection began to fail soon after the foundations were built, and the transition pieces began to slip down the piles.
The Court was asked to decide who must bear the cost of the remedial works. The issue was how the various obligations in the contract documents interact and whether Højgaard had agreed to an obligation to ensure that the foundations had a design life of 20 years.
The key contract terms (with emphasis added to the key phrases) were:
(a) Clause 8.1(x) of the contract terms:
|"[Højgaard] must design, manufacture, test, deliver and install and complete the Works… so that each item of Plant and the Works as a whole shall be free from defective workmanship and materials and fit for its purpose as determined in accordance with the Specification using Good Industry Practice."|
(b) Fitness for purpose was defined by reference to the Employer's Requirements. These included the "Technical Requirements" which laid out minimum design requirements, as follows:
(i) 188.8.131.52(1): "The detailed design of the foundation structures shall be according to the method of design by direct simulation of the combined load effect of simultaneous load processes (ref: DNV-OS-J101) [the British Standard]"
(ii) 184.108.40.206(2): "The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement"
(iii) 3.2.6: “All parts of the Works, except wear parts and consumables shall be designed for a minimum service life of 20 years.”
(iv) 220.127.116.11 set the document hierarchy as:
"Unless otherwise specified in the Contract, the following hierarchy of standards shall apply (1 highest and 8 lowest):..
7. Other standards….
Where conflict arises between standards, the standard with the highest priority as indicated above shall take precedence."
So, the issue was whether Højgaard's obligation was to comply with J101, and by doing so exercise reasonable skill and care, or whether Højgaard was obliged to ensure that the foundations had a design life of 20 years.
The Technology and Construction Court – contractor is liable
At first instance (in 2014) Højgaard sought a declaration from the Court that it had complied with its contractual obligations. The Court disagreed and found that the contract contained a fitness for purpose obligation and required the turbine bases to have a service life of 20 years. Højgaard was in breach of that obligation (because the turbine bases clearly did not have a service life of 20 years) and so were liable for the remedial costs.
The Court of Appeal – employer is liable
Højgaard appealed to the Court of Appeal in 2015 – who upheld its appeal. The Court of Appeal said that the contract required only that the foundations should have a "design life" of 20 years, meaning that they would probably, but not necessarily, function for 20 years. In other words, Højgaard had to try to ensure the turbines had a service life of 20 years – but they were not guaranteeing it. This was not a fitness for purpose obligation, and so the employer was liable for the remedial costs. In addition, the Court of Appeal said that paragraph 18.104.22.168(2) which said that "The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement" was "too slender a thread upon which to hang a finding that [Højgaard] gave a warranty of 20 years life for the foundations".
E.On appealed to the Supreme Court.
The Supreme Court…
Agreed with the Technology and Construction Court – Højgaard is liable for the cost of remedial work.
The Supreme Court reached this conclusion for three reasons:
- As a matter of law, if a contractor agrees to both work to a specific design and to achieve a specified result, if the design does not achieve the result the contractor will be in breach.
- The Technical Requirements specified that the standards it set out were "MINIMUM requirements" and that it was Højgaard's responsibility to identify any additional or more rigorous requirements.
- The Court of Appeal's conclusion that the wording of the Technical Requirements was "too slender a thread" was wrong. There were clear words in the contract that indicated that Højgaard was to achieve a 20 year design life.
This is a good example of how it is often not a simple job to determine what a contractor has in fact agreed to, especially in complex projects with bespoke contracts and numerous technical documents which inevitably will contain conflicting provisions.
Purchasers need to be careful about specifying particular standards if they really expect their contractor to produce a design that achieves specific outputs, or is generally fit for purpose.
Contractors need to ensure that they understand whether they are responsible for ensuring an outcome, or merely conforming to industry norms.
As well as determining liability between parties, the contract wording is very important in deciding whether a contractor has cover under its professional indemnity policy – PI policies often exclude cover for fitness for purpose obligations.
Clear drafting will always help avoid disputes, although sometimes a muddy compromise reached in negotiation precludes it. Above all, no-one can rely on confusion to override a clearly stated obligation. A slender thread may yet be strong enough.