MT HØJGAARD A/S v E.ON CLIMATE AND RENEWABLES

A construction contract may impose a double obligation: compliance with specified standards and achievement of a stated result. That occurs only where the language, read as a whole, clearly warrants the result. A 20-year design life does not necessarily guarantee 20 years of operation, particularly where the contract adopts a stochastic design standard and obligations of reasonable skill and care. Complex contractual documents must be construed iteratively, by testing rival meanings against the other provisions and their commercial consequences. A contractor who omits shear keys may still be required to carry out specified experimental testing. Approval by an engineer or certifier does not discharge that obligation. A breach causing no loss attracts nominal damages only.

E.ON engaged MTH to design, fabricate and install foundations for offshore wind turbines. The contract incorporated detailed Employer’s Requirements and the DNV standard J101. MTH designed grouted connections without shear keys, relying on J101’s parametric equation. An error in J101 caused the axial capacity of the connections to be overstated, and the foundations later failed.

The High Court held that MTH had warranted a 20-year service life and was liable for breach of contract, but rejected further alleged breaches. The agreed remedial cost was €26.25 million. MTH appealed against the warranty finding, while E.ON cross-appealed on testing obligations. The central issues were whether the contract guaranteed a 20-year operational life and whether MTH breached its testing obligations.

Jackson LJ gave the leading judgment. Underhill LJ agreed with the result and reasoning, adding observations on the expert evidence and appellate restraint. Patten LJ agreed with both judgments.

1. Contractual construction. A construction contract can impose a double obligation where its language is sufficiently clear: the contractor must comply with specified standards and also achieve a specified result. This principle was illustrated by The Steel Company of Canada Limited v Willand Management Limited [1966] SCR 746, Greater Vancouver Water District v North American Pipe & Steel Ltd and Moody International Ltd [2012] BCCA 337, and Independent Broadcasting Authority v EMI Electronics Ltd (1980) 14 BLR 1.
2. The contract had to be construed by reference to what a reasonable person, possessing the parties’ available background knowledge, would understand. The process was iterative, requiring comparison of rival meanings with the other provisions and their commercial consequences. The approach was informed by Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, Re Sigma Corp (in administrative receivership) [2009] UKSC 2, and Rainy Sky SA v Kookmin Bank [2011] UKSC 50.
3. The references in TR paragraphs 3.2.2.2(2) and 3b.5.1 to a 20-year life were inconsistent with the wider scheme of the TR and J101, which concerned design life and probabilistic engineering standards. Clause 8.1 imposed obligations of skill, care, compliance and fitness for purpose as determined by the Specification and Good Industry Practice. It did not impose a free-standing warranty of 20 years’ operational life. MTH’s appeal was therefore allowed.
4. TR paragraph 10.5.1 required MTH, if omitting shear keys, to carry out tests and submit test data demonstrating adequate axial capacity without relying on flexural contact pressures. Calculations alone were insufficient. The obligation survived contract formation, and neither the Engineer’s nor DNV’s approval relieved MTH from it. MTH was in breach.
5. J101 section 9 paragraph D101 was directed to the designer, namely MTH acting through Rambøll, and required experimental verification where sufficient documentation was unavailable. MTH was also in breach of that provision. However, the trial judge’s finding that testing would not have revealed the defect or changed the design was open to him. Applying the restraint recognised in Yorkshire Water Services v Taylor Woodrow Construction Northern Ltd [2005] EWCA Civ 894, the Court declined to interfere. The breaches caused no loss, so E.ON recovered nominal damages of £10. The declarations were set aside and judgment was substituted for E.ON in that sum.

• Court of Appeal (Civil Division): [2015] EWCA Civ 407. MTH’s appeal and E.ON’s cross-appeal were allowed. The High Court declarations were set aside and judgment for E.ON for £10 was substituted.
• High Court, Technology and Construction Court: judgment dated 15 April 2014. MTH was held liable for breach of a 20-year service-life warranty, while the further alleged breaches were rejected. The citation is not stated in the judgment.