MT Højgaard A/S v E.On Climate & Renewables UK Robin Rigg East Ltd & Anor  UKSC 59
The proceedings in this case arose from the fact that the foundation structures of two offshore wind farms, which were designed and installed by MT Højgaard A/S (“MTH”), failed shortly after completion of the project. The issue for the court to determine was whether MTH was liable for this failure.
In December 2006, the parties entered into a written contract under which MTH agreed to design, fabricate and install the foundations for the proposed turbines. In April 2010, the foundations started to fail. Remedial works were commenced in 2014 and the question arose as to who should bear the cost of the remedial works. It was agreed between the parties that the cost of the remdial works was the sum of €26.25 million.
MTH contended that it had exercised reasonable skill and care, and had complied with all its contractual obligations, and so should have no liability for the cost of the remedial works. E.ON contended that MTH had been negligent and had been responsible for numerous breaches of contract. E.ON also claimed declarations to the effect that MTH was liable for the failure.
At first instance, Edwards-Stuart J found for E.ON primarily on the grounds of a breach of contract by MTH – namely that (i) clause 8.1(x) of the contract required the foundations to be fit for purpose, (ii) fitness for purpose was to be determined by reference to the Technical Requirements (which formed part of MTH’s tender documents), and (iii) para 184.108.40.206(ii) (and also para 3b.5.1) of the Technical Requirements required the foundations to be designed so that they would have a lifetime of 20 years. He also held that this conclusion was also supported by clauses 8.1(viii) and (xv) of the contract.
MTH appealed to the Court of Appeal. The Court of Appeal allowed the appeal, stating that there was an inconsistency between certain paragraphs of the contract (those paragrarphs which Edwards-Stuart J had relied upon in finding for E.ON) and all the other contractual provisions on the other hand. Jackson LJ, with whom Patten and Underhill LJJ agreed, stated that the other contractual provisions should prevail. Jackson LJ went on to describe paragraphs 220.127.116.11(ii) and 3b.5.1 of the Technical Requirements as “too slender a thread upon which to hang a finding that MTH gave a warranty of 20 years life for the foundations”.
The Supreme Court gave useful guidance on the interpretation of contractual clauses, reasserting the position as recently discussed in Wood v Capita Insurance Services Ltd  2 WLR 1095, stating that:
“The reconciliation of the terms, and the determination of their combined effect must, of course, be decided by reference to ordinary principles of contractual interpretation (as recently discussed in Wood v Capita Insurance Services Ltd  2 WLR 1095, paras 8 to 15 and the cases cited there), and therefore by reference to the provisions of the particular contract and its commercial context.”
Lord Neuberger, giving the lead judgment, further stated that:
- Where a contract contains terms which require an item (i) which is to be produced in accordance with a prescribed design, and (ii) which, when provided, will comply with prescribed criteria, and literal conformity with the prescribed design will inevitably result in the product falling short of one or more of the prescribed criteria, it by no means follows that the two terms are mutually inconsistent.
- In many contracts, the proper analysis may well be that the contractor has to improve on any aspects of the prescribed design which would otherwise lead to the product falling short of the prescribed criteria, and in other contracts, the correct view could be that the requirements of the prescribed criteria only apply to aspects of the design which are not prescribed.
- While each case must turn on its own facts, the message from decisions and observations of judges in the United Kingdom and Canada is 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 applying those principles to the contract in question, the Supreme Court held that paragraph 18.104.22.168(ii) of the contract was “clear in its terms in that it appears to impose a duty on MTH which involves the foundations having a lifetime of 20 years”. The Supreme Court further stated that “it is the natural meaning of the words used and is unsurprising in the light of the references in the [Technical Requirements] to the design life of the Works being 20 years”.
The Supreme Court allowed E.ON’s appeal and restored the order made at first instance by Edwards-Stuart J.
The judgment provides useful guidance on the issue of contractual interpretation generally. It is important for contractors to note the Court’s comments that a contractor is expected to take the risk in circumstances where the contractor has agreed to work to a design which would render the item incapable of meeting the criteria to which the contractor has agreed.
You can access a fully copy of the judgment here