Gowling WLG Represens MT Højgaard v. E.ON Climate & Renewables – Supreme Courts affirm parties should be bound by the terms of the contract

07/01/2017

Gowling WLG's dispute resolution and construction & engineering experts have guided longstanding client E.ON Climate & Renewables (E.ON) to victory in the Supreme Court, in a case which has provided much-needed clarification on various important principles related to contractual obligations.

The case covered the appointment of MT Højgaard (MTH) to design, build and install the foundations for 60 wind turbines at the Robin Rigg offshore wind farm in the Solway Firth.

E.ON discovered soon after installation there were serious failures in the grouted connections of the foundations and that this problem was systemic across the industry and due in large part to a fundamental failure in the industry standard design code, J101. Remedial works were required to all 60 foundations and E.ON agreed to undertake this work.

E.ON also commenced legal proceedings to determine contractual responsibility for the problem, and Gowling WLG was engaged in this task. E.ON's allegations were twofold:

  • MTH had been negligent in the design of the foundations, in that it had failed properly to apply the requirements of J101; and
  • MTH was in any event responsible for the problem, pursuant to an overriding fitness for purpose obligation.

At first instance, the Technology and Construction Court (TCC) found that, although MTH had not been negligent (i.e. it had performed its duties appropriately skilfully, and in accordance with J101), it was nevertheless contractually responsible for the problem encountered, by failing to deliver up foundations that met the technical requirements in the contract. The fact that the breach was caused or contributed to by the error in J101 did not assist MTH, who was found to be liable for the cost of the remedial works.

MTH appealed. In 2015, the Court of Appeal (CA) overturned the TCC's judgment. In doing so, the CA rejected the notion that there was an absolute fitness for purpose warranty and focused on the distinction between a design life of 20 years and a service life of 20 years. The CA held that, in this contract, the Technical Requirements simply required MTH to incorporate a design life of 20 years. Because MTH had done this, it was not responsible for the problem encountered.

In the CA's view, the obligation in para 3.2.2.2 of the Technical Requirements - to provide a service life of 20 years - was "tucked away", was inconsistent with the general theme of the contract and was "too slender a thread upon which to hang a finding that [MTH] gave a warranty of 20 years life for the foundations".

E.ON appealed, and in a unanimous decision in July 2017, the Supreme Court overturned the CA's findings and reinstated the findings of the Judge at first instance.

In his Judgment (with which the other Justices - Lords Hodge, Sumption, Mance and Clarke - all agreed), Lord Neuberger considered whether para. 3.2.2.2 of the Technical Requirements comprised a warranty that the foundations would have a lifetime of 20 years or whether - in fact - this amounted to a term that the foundations would be designed to have such a lifetime. In his view "there [was] room for argument as to [the term's] precise effect". While Lord Neuberger inclined to the latter interpretation, he also found that the issue did not have to be resolved as - on the facts of this case - the term had been breached by MTH "whichever meaning it has".

When considering the ostensibly competing obligations, namely to comply with the defective standard (J101) and to deliver up foundations that were fit for their purpose, Lord Neuberger stated that:

"…the courts are generally inclined to give full effect to the requirement that the item as produced complies with the prescribed criteria, on the basis that, even if the customer or employer has specified or approved the design, it is the contractor who can be expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed."

In other words, despite its imposition by E.ON, the failings within J101 were matters for which MTH took the contractual risk.

This was clearly a complex and long-running legal battle, which Gowling WLG fought every step of the way alongside its client, to reach not only the best outcome for E.ON, but to provide clarity on contracts in general. The message from the Supreme Court is becoming increasingly clear: parties should expect to be bound by the terms of their contracts.