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13 September 2017

The risk of following someone else's design

Where a contract required works to be carried out in accordance with a prescribed design but it was also agreed the works would meet certain agreed criteria – what should happen where these requirements conflict?

MT Hojgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd and another [2017] UKSC 59 (3 August 2017)

Background

In a contract between MT Hojgaard A/S as the contractor and E.ON Climate and Renewables UK Robin Rigg East Ltd as the employer, to design and build offshore wind turbines, it was agreed that the construction would be in accordance with a prescribed design specified by the employer and would meet agreed criteria.

In this instance, if the prescribed design was followed this would result in the wind turbines not meeting the agreed criteria for the works. The contractor worked to the prescribed design and the foundation structures of the wind turbines failed shortly after completion of the project. The question to be decided by the court was whether the contractor was liable for this failure and for the costs of the remedial work.

Contract Terms

The technical requirements in relation to the design basis for the foundations of the wind turbines included the following points:

  • some of the technical requirements were noted to be minimum requirements only;
  • it was the contractor’s responsibility to identify areas where the works had to be designed to additional or more rigorous requirements;
  • the contractor should prepare the detailed design of the works in accordance with a specific international design standard  J101; and
  • the design shall ensure a lifetime of 20 years and the choice of structure, materials, system operation etc. shall be made accordingly.

It was discovered following construction that there was an error in a value in a key equation in the J101 standard meaning that the capacity of certain connections had been overestimated.

Court of Appeal Decision

The judge at first instance held that the contractor had warranted that the foundations would have a lifetime of 20 years and was therefore liable for breach of that warranty.

The Court of Appeal allowed the contractor’s appeal and took the view that as the contract stated the need to comply with the specified international design standard, the contract should not be construed to contain a warranty from the contractor that the foundations would function for 20 years. The employer appealed to the Supreme Court.

Supreme Court Judgment

The court’s general approach was to give effect to the requirement that the works complied with the agreed criteria and the “fitness for purpose” obligation. The fact that the contractor may need to improve on aspects of the prescribed design (some of which were in any event noted to be minimum requirements) was the contractors’ risk.

Where two provisions of the contract imposed different requirements, one being a minimum requirement and one being more demanding, the proper interpretation was that the more demanding of the two requirements must prevail. The less demanding was to be treated as a minimum requirement only, to be exceeded as necessary.

One argument put forward by the contractor was that the requirement in question was only in the technical specifications and was not set out in the contract itself. The court was quick to reject this suggestion, noting that it was clear from the contract that the technical requirements were intended to be part of the binding contract.

It was ultimately decided that the responsibility to identify areas where the design should have been more rigorous lay with the contractor. The contractor could be expected to take the risk where the contractor agreed to work to a design which would make the works unable to meet the criteria which the contractor had agreed.

Comment

While this case could have significant implications in those sectors where contractors regularly complete works on the customer’s specifications and design (such as construction, manufacturing, and IT systems) it would seem that the decision turned on the specific detail of the legal drafting.

This again demonstrates the reluctance of the court to argue that a contractual provision should not be given its natural meaning.  Further, the determination of the combined effect of various terms in a contract should be decided by reference to the ordinary principles of contractual interpretation.


This article was written by Tanya Wilkie. For more information please contact Tanya on +44 (0)20 7203 5058 or at tanya.wilkie@crsblaw.com

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