MT Hojgaard A/S v E. ON Climate and Renewables UK
EON Group (E.ON) engaged MT Højgaard (MTH) to design, fabricate and install the foundation structures of two offshore wind farms in Solway Firth.
Prior to the successful appointment of MTH, E.ON released tender documents stipulating the ‘Technical Requirements’ for the foundations; namely the adherence to the international standard J101. J101 is published by an independent certification agency and provides a formula used to design and construct the grouted connection of the foundation. Upon review, the formula was found to be erroneous.
MTH were subsequently awarded the Contract, which included at Clause 8.1 (x) an obligation upon MTH to ensure that ‘each item of Plant and the Works as a whole shall be…. Fit for purpose as determined in accordance with the Specification using Good Industry Practice”. ‘Fit for purpose’ and ‘Good Industry Practice’ were considered to be the compliance with the J101 standard and the exercise of reasonable skill and care.
Upon completion, the grouted connection failed. A scheme for remedial work was agreed between the parties. The dispute lay with who should bear the €26.25m cost.
The reason for the failure was that the calculation in J101 was wrong; responsibility for remedial works therefore turned on whether MTH had discharged its contractual obligations by complying with the erroneous specification.
MTH’s position was that it had complied with all of its contractual obligations and the international standard, and had exercised reasonable care and skill, and so should have no liability for the cost of remedial works.
E.ON contended that MTH had been negligent and that MTH was responsible for the defective connections.
The High Court found MTH liable due to clause 22.214.171.124 of the ‘Technical Requirements’, which specified that the design would have a “lifetime of 20 years in every aspect without planned replacement”.
However, the Court of Appeal ruled otherwise, due to the inconsistencies between the ‘Technical Requirements’ and the Contractual provisions (specifically the adherence to J101). The Court of Appeal ruled that the contractual provisions should take precedence over the ‘Technical Requirements’ and that the contractual provision contained no warranty to the operational life of the foundation
E.ON appealed to the Supreme Court and were successful. The court decided that the two documents were not incompatible.
Although every case turns on the specific words of the contract in question, the Court summarized relevant case law and found that in general an express obligation to carry out work to a certain standard overrides the obligation to comply with a specification. In this case, the Technical Requirements which contained the wrong calculation were stated to be minimum requirements; MTH was still required to ensure that the design was satisfactory and improve on J101 if necessary.
The court also found against MTH’s argument that a provision as important as a 20-year warranty should have been contained in the contract itself rather than being “tucked away” in a technical document. The court found it was clear that the terms of the ‘Technical Requirements’ were intended to be of contractual effect.
Points to Note
- Contractors should be aware that in most cases “it is the contractor who can be expected to take the risk” of an inadequate specification. Compliance with industry standards may not be sufficient if those standards are proved to be inadequate.
- Great care should also be taken when reviewing technical documents that are incorporated into a Contract, to ensure that onerous terms such as extended warranties are not incorporated by the back door.
A full transcript of the case can be read here.
An article written by Alexandre Dansette and Tom Lamb
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Disclaimer: This article is provided for information only and is not intended to provide legal advice. No reliance should be placed on the information contained herein.