Who bears the risk of inconsistent design obligations?
The recent decision of MT Højgaard A/S v E.On Climate & Renewables UK Robin Rigg East Limited and another in the UK Supreme Court highlights the common tension between various obligations in design and construction contracts, as to the final product.
MT Højgaard A/S (MTH) was contracted by E.On Climate & Renewables UK Robin Rigg East Limited (E.On) to design and build wind turbine foundations for an offshore wind farm in Scotland.
A provision in the technical schedule in the contract provided that “the design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement”.
The contract also contained an obligation on MTH to exercise reasonable skill and care and to comply with the J101 standard. J101 was an internationally recognised standard for the design of offshore wind turbines which was consistent with achieving a design life of 20 years.
MTH complied with the J101 standard. However, the foundations failed and it was later discovered that the standard was fundamentally flawed.
At first instance, the Technology & Construction Court (TCC) held that MTH had not been negligent in the design of the foundations but that MTH was responsible for the necessary rectification work due to a breach of a contractual ‘fitness for purpose’ obligation, which also required MTH to achieve a life of 20 years. This decision was later overturned in the Court of Appeal.
Appealed to the UK’s final court of appeal, the Supreme Court, restored the original decision of the TCC, and noted as follows:
courts are generally inclined to give full effect to a requirement that an item produced complies with the prescribed criteria on the basis that, even if the employer had specified or approved the design, it is the contractor who could be expected to take the risk. If a contractor agrees to both work to a specific design and to achieve a specified result, and the design does not achieve the result, the contractor will be in breach; and
the fact that MTH had complied with an internationally recognised standard which proved to be flawed did not assist it. J101 was only a minimum standard, and it was MTH's responsibility to identify any additional or more rigorous requirements.
The Supreme Court’s decision, which helpfully adds to a body of UK case law on this issue, highlights the difficulties that can arise where potentially inconsistent design obligations arise. Important takeaways for contracting parties include:
understanding the difference between specified design and a specified result obligations in a contract;
ensuring that the contract specifies a means for interpreting ambiguities and that the order of precedence clauses delineates between the schedules to a contract; and
avoid the risk that a standard may be incorrect by specifying the standard as the ‘minimum’ requirement.