In a landmark decision, the Supreme Court has overturned the Court of Appeal and allowed Eon Climate & Renewables UK 's (Eon) appeal against MT Højgaard (MTH) regarding remedial works to turbine foundations at an off-shore windfarm.
In a nutshell, the contract required MTH to design and build the foundations for a number of off-shore wind turbines. There was a requirement that the installation complied with the tender documents, which included certain international technical standards (including what was known as J101), which specified a "lifetime of 20 years". At the same time, the contract contained a general fitness for purpose obligation. The installation therefore had to be fit for purpose by reference to J101.The foundations failed (and did not therefore have a 20 year life) and it was discovered that J101 in fact contained a fundamental miscalculation which MTH, quite reasonably you may think, had relied upon during its works. The Court had to consider whether MTH were liable.
In 2014, the TCC held that MTH were liable for the defects. Notwithstanding a finding that MTH had not been negligent in that it had carried out its works with reasonable skill and care (in complying strictly with J101), there had been a breach of contract as the foundations did not have a 20 year life (in accordance with J101) and therefore the installation was not fit for purpose even though the issue with the foundations was itself caused (it appears) by the mathematical error in J101. The matter was appealed and came before the Court of Appeal in 2015, where it was decided that MTH could not be liable as the technical standards were ''tucked away'' in the tender documentation. Last week the Supreme Court ratified the decision of the TCC, in finding that MTH were liable for the rectification costs as the installation had to be fit for its purpose (the 20 year life), which included compliance with J101. The technical requirements were only the minimum requirements - MTH therefore took the risk of the errors in the technical requirements (which had caused the failures) and could not rely on the mathematical error as a defence.
One lesson for all parties is that the Courts are striving to give effect to the natural meaning of the contractual wording that the parties had used (as opposed to their intentions at the time). This has been a theme emerging from the Courts for a while now. It has long been the case that contractors and design professionals need to understand that where there is a fitness for purpose obligation, the obligation is about achieving a result regardless of the reasonableness of the conduct. However, this goes a step further as contractors cannot just rely upon any technical standards being correct; in fact, where there is a fitness for purpose obligation, contractors should be checking that those technical standards are error-free. That seems like a heavy burden, especially in the context of competitive tendering. Are technical standards even keeping up with advances in technology? The industry could be penalised here for failing to keep up. Insurers will be having sleepless nights………
If you are concerned about the implications of this case on your current or future projects, then please do get in touch.
court case has significant ramifications that contractors should be aware of