New English decision – A contractor has an obligation to meet design objectives even if design supplied inadequate to meet design objective.

November 1, 2017

In this month’s article I wish to review the August 2017 United Kingdom Supreme Court decision of MT HA,jgaard A/S v E.ON Climate & Renewable UK Robin Rigg East Limited and another.

The background

MT HA,jgaard A/S (MTH) designed and installed foundational structures for two windfarms, which failed shortly after the completion of the project. The question posed was whether MTH were liable for this failure.  This was an appeal by E.ON Group (“E.ON”).

The relevant provisions of the Technical Requirements and J101

In May 2006 the appellants, E.ON Group sent documents to MTH, which included Employer’s Requirements, and Technical Requirements (“TR”), and set out the “general description of works and scope of supply, and the key functional requirements”. These included designs which could withstand operational and environmental conditions for a lifetime of 20 years without any aspect having to be replaced.

Subsequent events

MTH completed the construction of the foundation structures for the two wind farms.  This work was completed by February 2009.  However later in 2009 a problem arose with the wind farms’ foundations.  In determining who would pay for the remedial works, MTH argued they had exercised reasonable skill and care and had complied with its contractual obligations so should not bear the costs; E.ON said that MTH had been negligent and had breached the contract. The cost of the remedial work amounted to 26.25m pounds.

Put simply, the reason for the failure of the foundations was the use of grouted connections rather than shear keys, which were not of sufficient strength to manage the structures.  In particular, whilst the TR requirements enabled MTH to make its own decisions on using grouted connections rather than shear keys, it transpired that the strength of the grouted connections had been over estimated in the specific Engineer’s calculation by a factor of about ten, which meant that its strength was substantially over estimated.  It follows that shear keys ought to have been used in the foundations rather than the grouted connections.

The meaning of design warranty of 20 years. 

The question for the Court was whether, in light of the design warranty, MTH was in breach of contract, despite the fact that it had complied with the design specification.  When the natural meaning of the design warranty was considered, it involved MTH guaranteeing that the foundations would have a lifetime of 20 years.  

In deciding this question, the Court had to apply ordinary principles of contractual interpretation to the provisions of the particular contract and its commercial context. Several cases were discussed.

The Courts generally give effect to the requirement that a work is produced to the requested standard on the basis that even if the customer has specified the design, it is the contractor who will take the risk if he agreed to comply with a specific design which would make it incapable of meeting the performance criteria to which he agreed.  If the design specification was not able to meet the design performance criteria, MTH would be liable for the failure to comply with the required criteria, as it needed to identify the improvements needed to meet the design performance criteria.

The Court said that it is no excuse to say a contract was poorly drafted, the intention of the parties can be construed from the interpretation of the language, and the relevant factual matrix.  In this case, when interpreting the design warranty, it uses natural words as to the 20-year design life of the works, and imposes a clear duty on MTH. Further, it is difficult to argue that a contractual provision should not be given its natural meaning.

In addition, the Supreme Court ruled that where a contract imposes two different standards/requirements, rather than the Court concluding that they are inconsistent, the Court ought to impose the more rigorous standard upon the contracting party.

In conclusion then, this English decision says it is not enough for a contractor to slavishly follow a design specification, and if due consideration is not given by a contractor as to whether the design specification will meet the design performance criteria, then the contractor will be liable for the works not reaching the said performance criteria.  This decision (whilst English) will still be highly persuasive authority for any NZ Court charged with deciding upon this issue.

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.