MT Højgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Limited and another

A design and build contract may require both compliance with a prescribed design or standard and achievement of specified performance criteria. The obligations are not necessarily inconsistent merely because compliance with the prescribed design cannot achieve the criteria. Construction depends on the contract as a whole and its commercial context.

Where the contract makes prescribed standards minimum requirements and places responsibility on the contractor to identify necessary improvements, the more rigorous requirement prevails. The contractor bears the risk of improving the design sufficiently to meet the agreed performance criteria. A clear obligation incorporated through technical requirements remains enforceable despite diffuse drafting, its location in a technical document, or the contractor’s exercise of reasonable skill and care.

The contractor designed and installed foundations for two offshore wind farms. The contractual Technical Requirements incorporated an international design standard, J101, but also required the design to ensure a 20-year lifetime. An error in J101 caused the strength of the grouted connections to be substantially overestimated, and the foundations failed shortly after completion. The parties agreed remedial costs of €26.25m.

At first instance, Edwards-Stuart J held that the contractor was liable for breach of contract: [2014] EWHC 1088 (TCC). The Court of Appeal allowed the contractor’s appeal, holding that the 20-year requirement was inconsistent with the other contractual provisions and was too slender a basis for the alleged obligation: [2015] EWCA Civ 407.

The central issue was whether the contractor was liable under the 20-year requirement despite exercising due care, following good industry practice and complying with J101.

1. Appeal allowed unanimously. Lord Neuberger, with whom Lord Mance, Lord Clarke, Lord Sumption and Lord Hodge agreed, held that the 20-year requirement in paragraph 3.2.2.2(ii) of the Technical Requirements was an effective contractual term and had been breached. The first-instance order was restored.

2. The natural meaning of the provision was either a warranty that the foundations would have a 20-year lifetime or an agreement that they would be designed to have such a lifetime. It was unnecessary to decide between those meanings because the contractor was in breach on either construction. Lord Neuberger was inclined to the latter construction. Read with the exclusive defects regime, it meant that the employer had 24 months to discover that the foundations had not been designed to last for 20 years.

3. A contract requiring compliance with a prescribed design and satisfaction of performance criteria does not necessarily contain inconsistent obligations. Its meaning depends on ordinary principles of contractual interpretation and the particular commercial context. Depending on the contract, the contractor may have to improve the prescribed design, or the performance criteria may apply only to aspects left unspecified. Courts are generally inclined to give full effect to agreed performance criteria where the contractor has accepted the risk of working to an inadequate design.

4. Here, the Technical Requirements expressly described their standards as minimum requirements and made the contractor responsible for identifying any need for more rigorous requirements. The more demanding standard therefore prevailed. Compliance with the erroneous J101 equation did not excuse failure to satisfy the 20-year requirement. The contractor should have identified the need for a more rigorous value or otherwise improved the design. The contract also contemplated departures from standards where appropriate.

5. The provision was not deprived of effect because it appeared in a detailed technical document or because the contractual documents were diffuse, multi-authored and imperfectly drafted. The Technical Requirements were expressly incorporated into the contract. The obligation’s natural meaning was neither improbable nor unbusinesslike. Nor could the provision be treated as redundant merely because other design and workmanship obligations existed.

1. United Kingdom Supreme Court: The employer’s appeal was allowed unanimously. The order made at first instance was restored: [2017] UKSC 59.
2. Court of Appeal: The contractor’s appeal was allowed. Jackson LJ, with whom Patten and Underhill LJJ agreed, held that the 20-year provisions were inconsistent with the other contractual provisions and were too slender a basis for the asserted warranty: [2015] EWCA Civ 407.
3. High Court, Technology and Construction Court: Edwards-Stuart J held the contractor liable for breach of contract because the incorporated Technical Requirements imposed a 20-year obligation: [2014] EWHC 1088 (TCC).