Mt Hojgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and anor [2015 EWCA Civ 407
E.On engaged Hojgaard to design and build monopile foundations for the turbines in an offshore wind farm in the Solway Firth. The contract included an International Design Standard known as ‘J101’, which Hojgaard was required to comply with. After the works were completed it was discovered that there was an error in that Standard. This led to defects in the monopile foundations requiring remedial works, with a cost of €26,000,000. E.On sued Hojgaard, and won at first instance on the basis that the contract contained a warranty by Hojgaard that the monopile foundations would function for 20 years.
The contract included various design obligations. The contract conditions included requirements to complete the works with due care and diligence to the standard of properly qualified and experienced designers, and in a professional manner, but also to complete the works in accordance with the Agreement, to ensure the works were fit for purpose, and to satisfy all performance specifications or requirements as set out in the Agreement.
The Agreement included a requirement to design in accordance with the erroneous Design Standard J101. In addition, paragraph 220.127.116.11 of the Employer’s Technical Requirements stated that “the design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement“.
At first instance, the Court ruled that this (in conjunction with the obligations in the contract conditions) was enough to amount to a strict warranty on the part of Hojgaard that the monopile foundations would last 20 years. Hojgaard’s defence was that it had complied with the Design Standard as required and it was this compliance which had caused the problem. Further it had used skill and care. (The Judge found as a fact that it had used skill and care and had not been negligent).
Although under certain conditions contractors may have a double obligations both to comply with stipulated standard or specification and also to achieve a specific result, as a matter of law Hojgaard’s contract did not impose such a double obligation. There was therefore no absolute warranty (that the foundations would last 20 years) which overruled compliance with the design standard.
The Court of Appeal drew a distinction between ‘design life’ and ‘service life’. If a structure is to have a ‘design life’ of 20 years, the Court of Appeal reasoned, “that does not mean that inevitably it will function for 20 years, although it probably will“. Thus, a requirement to design something with a 20 year ‘design life’ will not usually amount to a warranty that the works will last that long; it merely sets the standard which the designer must follow.
Finally, the contract conditions took precedence over the Employer’s Technical Requirements document. The contract conditions, which required due skill and care, and work to be done in a professional manner etc, were held to be “the opposite of requiring an absolute warranty of quality“.
In conclusion, when the contract was taken as a whole, the CA decided that paragraph 18.104.22.168 was insufficient to create an absolute warranty on the part of Hojgaard to construct the foundation with a 20 year lifetime.
- There is a general principle applicable when a contractor is required both to comply with a standard or specification but also to achieve a specific outcome. If problems arise because of compliance with the owner’s specification, this would not be the responsibility of the contractor – unless the contractor was found to have expressly guaranteed that the construction works would be fit for specific purpose or can otherwise be shown that it was appropriate for the employer to rely upon the contractor’s skill and judgement. This is very important. At first instance it was suggested that the contractor ought to in effect re-examine and check an internationally accepted standard. The implication would have been that every time a BSI or a DIN was referred to, the contractor must examine it for competence and accuracy.
- Many contracts contain requirements that the contractor shall use skill and care, that he should work in a professional manner, but also that he shall achieve compliance with specifications, even fitness for purpose (as here). The implication of this case is that the Court will interpret such compendium drafting as being fundamentally subject to the reference to skill and care.
- The words of the contract appeared to be fairly stark against Hojgaard but the Court of Appeal used the concept of “business common sense” to interpret the contract to give an outcome which would be regarded as reasonable by most business people.
- If there is an outcome or an aspect of the works which is of supreme importance to an employer, which meant that the mere performance of skill and care is not a high enough standard, then the employer would be well advised to use very careful and very clear drafting to achieve that effect. At the same time he should consider whether such obligations are covered by insurance or otherwise recoverable from the contractor in the event of default.
Also of interest is the distinction between ‘design life’ and ‘service life’. The CA clearly considered the distinction to be important, and provided some comment on what ‘design life’ actually means. Indeed, the CA went as far to say that had the ‘service life’ obligation been higher up the pecking order, it could well have been sufficient to impose a warranty on Hojgaard. This suggests that Employers, if they have design requirements that they consider to be absolute, should include them in the contract conditions themselves.