UK: Supreme Court Confirms Breach Of Contract Despite The Absence Of Negligence

Last Updated: 8 August 2017
Article by Daniel Wood

The Supreme Court has today handed down judgment in the high-profile case of MT Højgaard v. E.ON Climate & Renewables. The Supreme Court has overturned the Court of Appeal's decision and - in so doing - has provided useful clarification in respect of various important principles.

Background

In December 2006, E.ON Climate & Renewables (E.ON) engaged MT Højgaard (MTH) to carry out the design, fabrication and installation of the foundations for 60 wind turbine generators at an offshore wind farm, known as Robin Rigg, in the Solway Firth.

The installation of the foundations was completed in February 2009 and, shortly thereafter, serious failures in the grouted connection of each foundation came to light. It was subsequently established that the grouted connection problems were being encountered across the industry and had arisen - to no small degree - due to a fundamental failure in the industry standard design code (J101) that E.ON had specified for use. Remedial works were required to each of the foundations. By agreement, E.ON proceeded to undertake this work.

In parallel with the remedial works, legal proceedings were commenced to determine contractual responsibility for the problem. Ultimately in issue in the proceedings was responsibility for the cost of the rectification - which the parties had agreed in the sum of €26.25m.

The allegations made by E.ON were essentially twofold:

  • that MTH had been negligent in the design of the foundations, in that it had failed properly to apply the requirements of J101; and
  • that MTH was in any event responsible for the problem, pursuant to an overriding fitness for purpose obligation.

E.ON's fitness for purpose argument centred upon a fairly standard fitness for purpose obligation in the conditions, and asserted that the identification of that purpose could be found (most prominently) in para. 3.2.2.2 of the Technical Requirements (i.e. the Employer's Requirements). This paragraph provided that the "... design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement."

MTH relied upon a series of other provisions contained in the Technical Requirements, which imposed a 'design life' of 20 years and maintained that the essence of its contractual obligations was limited to complying with J101, with a 20-year design life in mind, and to otherwise carry out its work non-negligently. MTH argued that para. 3.2.2.2 of the Technical Requirements had to be read in the context of the other obligations and was insufficient by itself to amount to a fitness warranty. MTH maintained that it had complied with its obligations and that responsibility for the problem encountered therefore rested with E.ON.

Decision of the Technology and Construction Court - first instance

At first instance, the Technology and Construction Court (TCC) found that - although MTH had not been negligent (i.e. it had performed its duties appropriately skilfully, and in accordance with J101), MTH was nevertheless contractually responsible for the problem encountered, as it had failed to deliver up foundations that were fit for their purpose - i.e. the foundations self-evidently did not have a service life of 20 years as required by para 3.2.2.2 of the Technical Requirements. The fact that the breach was caused or contributed to by the error in J101 did not assist MTH. MTH was therefore found to be liable for the cost of the remedial works.

Decision of the Court of Appeal

MTH appealed. In 2015, the Court of Appeal (CA) overturned the TCC's judgment. In doing so, the CA rejected the notion that there was an absolute fitness for purpose warranty and focused on the distinction between a design life of 20 years and a service life of 20 years. The CA held that, in this contract, the Technical Requirements simply required MTH - when carrying out its design - to adopt a design life of 20 years. Having done so, it found that MTH was not responsible for the problem encountered. In the CA's view, the obligation in para 3.2.2.2 of the Technical Requirements - to provide a service life of 20 years - was "tucked away", was inconsistent with the general theme of the contract and was "too slender a thread upon which to hang a finding that [MTH] gave a warranty of 20 years life for the foundations".

Decision of the Supreme Court

E.ON appealed. In a unanimous decision promulgated today, the Supreme Court has overturned the CA's findings and has reinstated the findings of the Judge at first instance.

In his Judgment (with which the other Justices - Lords Hodge, Sumption, Mance and Clarke all agreed), Lord Neuberger considered whether para. 3.2.2.2 of the Technical Requirements comprised a warranty that the foundations would have a lifetime of 20 years or whether - in fact - this amounted to a term that the foundations would be designed to have such a lifetime. In his view "there [was] room for argument as to [the term's] precise effect". Whilst Lord Neuberger inclined to the latter interpretation, he also found that the issue did not have to be resolved as - on the facts of this case - the term had been breached by MTH "whichever meaning it has".

When considering the ostensibly competing obligations, namely to comply with the defective standard (J101) and to deliver up foundations that were fit for their purpose, Lord Neuberger stated that:

"...the courts are generally inclined to give full effect to the requirement that the item as produced complies with the prescribed criteria, on the basis that, even if the customer or employer has specified or approved the design, it is the contractor who can be expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed."

In other words, despite its imposition by E.ON, the failings within J101 were matters for which MTH took the contractual risk.

In relation to the CA's decision (and MTH's continuing contention) that the Technical Requirement was "too slender a thread upon which to hang a finding that [MTH] gave a warranty of 20 years life for the foundations", Lord Neuberger further stated:

" ... In this case, para 3.2.2.2(ii) is clear in its terms in that it appears to impose a duty on MTH which involves the foundations having a lifetime of 20 years ... I do not see why that can be said to be an "improbable [or] unbusinesslike" interpretation, especially as it is the natural meaning of the words used and is unsurprising in the light of the references in the TR to the design life of the Works being 20 years, and the stipulation that the requirements of the TR are "minimum"."

MTH had further argued that the interpretation of para. 3.2.2.2 should take into account the fact that it was not included in the conditions, but was found in a technical document (the CA's "tucked away" point). Lord Neuberger explained that he was "not impressed" by that argument. It was clear that the technical documents were intended to be of contractual effect and so the argument was rejected.

Contracts - ensure wording reflects intentions

In this decision, the Supreme Court was willing to render MTH - as contractor - responsible for the failure in an imposed design code, finding that this was a risk that the contractor had agreed to take. In keeping with its recent decisions, the Supreme Court further strived to give effect to the natural meaning of the contractual wording that the parties had used.

The message from the Supreme Court is becoming increasingly clear: parties should expect to be bound by the terms of their contracts. If costly disputes are to be avoided, then parties must ensure that their agreements clearly reflect their intentions. Whilst we have known this for some time, Lord Neuberger's comments illustrate that parties must be careful to extend their consideration to specifications and the like - documentation that may not historically have attracted the same level of scrutiny.

Gowling WLG acted for E.ON, the successful Appellants, throughout the proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
19 Sep 2019, Seminar, Birmingham, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

26 Sep 2019, Seminar, London, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

8 Oct 2019, Seminar, Birmingham, UK

Supporting the development of paralegals, trainees and lawyers of up to five years' PQE by providing valuable knowledge and guidance together with practical tips.

Similar Articles
Relevancy Powered by MondaqAI
Haynes and Boone CDG, LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Haynes and Boone CDG, LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions