MT Hojgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd

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MT Hojgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd [2015] EWCA Civ 407

This case deals with the construction of conflicting provisions in a contract as a whole

Facts

In May 2006, E.ON invited tenders from a number of contractors, including MT Hojgaard (‘MTH’), for the design, fabrication and installation of foundations for 60 turbines, which would comprise a new wind farm. In due course, E.ON accepted MTH’s tender and the parties entered into a contract dated 20 December 2006.

The Technical Requirements specified, inter alia, that MTH must comply with the internationally recognised standard (“J101”) and included a requirement that the foundations would have a service life of 20 years.

It subsequently transpired that J101 contained an error of which MTH was unaware when it undertook the design. Shortly after completion of the works, the grouted connections in the foundations started to fail as a result of that error. Remedial works were commenced in 2014 amounting to EUR 26.25 million and a dispute arose as to whether MTH was liable for the cost of the remedial works.

Judgement

At first instance, the judge found MTH liable due to a breach of the fitness for purpose obligation contained in the contract, namely that MTH warranted the foundations would have a service life of 20 years. Whilst MTH had relied on the erroneous standard J101 for the design of the foundations, due to the fitness for purpose guarantee it gave, it still had to deliver the design it guaranteed regardless of the error. MTH appealed to the Court of Appeal on the ground that the Technology and Construction Court (TCC) had erred in construing the provisions of the contract.

The Court of Appeal determined that the question for it to decide was whether or not clause 8.1 of the contract conditions in conjunction with the Technical Requirements required MTH not only to comply with J101, but also to achieve a result, namely foundations with a service life of 20 years. Part of the problem lay with the error contained in J101, not known about at the time the contract was entered into, which dramatically reduced the service life of thefoundations; compliance with J101 would not therefore allow the foundations to fulfil their intended purpose for a period of 20 years, as envisaged by a number of contractual provisions.

The Court started by considering the Technical Requirement which stated that the design of the foundations “shall ensure a lifetime of 20 years in every respect without planned replacement”. The Court stated that “at first sight, such a provision, if incorporated into the contract, is a warranty that the foundations will function for 20 years”. However, such a warranty was inconsistent with the Contract conditions, which instead required “due care, professional skill, adherence to good industry practice, compliance with the Employer’s Requirements and so forth”. The Court took into account the hierarchy of the various contract documents and stated that the contract conditions took precedence over other contract documents, the Technical Requirements falling fourth in the order of precedence. Jackson LJ reasoned that, “if the contract required an absolute warranty of quality, one would expect to see it in [the conditions of the contract], not tucked away in the Technical Requirements”.

The Court also held that the fit for purpose obligation was also inconsistent with all of the other provisions of the Technical Requirements, which referred to a “design life” of 20 years, which fell short of a guarantee to achieve an operational life of that period. The Court concluded that a reasonable person in the position of E.ON and MTH would know that the normal standard required in the construction of offshore wind farms was compliance with J101 and that such compliance was expected, but not absolutely guaranteed, to produce a service life of 20 years.

Accordingly, the Court found 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 […] Clause 8.1 does not contain any warranty that the foundations will have a 20 year life”.

This case turned upon the construction of conflicting provisions in a contract as a whole and provides a useful summary of the principles of contract interpretation and emphasises the judgment in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 that “…if there are two possible interpretations of a provision, the court is entitled to prefer the construction which is consistent with business common sense”.