Does a breach of contract depend on fault? If a builder is asked to conform to an industry standard that turns out to be inconsistent with its other obligations, is the builder liable? If all the terms of a contract cannot be followed simultaneously, does that make some of the terms unenforceable?
The case involved a design and build contract concerning foundations of wind turbines. The contract stipulated that the ‘design of the foundations shall ensure a lifetime of 20 years’ (‘the 20-year term’), but also required compliance with an international standard for the design of offshore wind turbines (‘J101’) including an erroneous variable used in determining axial load capacity. MT Højgaard (‘MTH’) took the variable as stated in J101, and using it to determine axial capacity concluded in their design tender that no ‘shear keys’ (elements designed to strengthen the connection of the tower to the foundation against lateral forces) were needed. E.ON accepted MTH’s tender on the basis of the design without shear keys.
MTH designed and built the wind farms, which were independently approved and certified by the international body (‘DNV’) that published J101. The connections at the wind farm foundations started to fail. DNV discovered the error in the key variable in an internal review and notified MTH and others in the industry. MTH and E.ON agreed on a scheme of remedial works, and brought proceedings to ascertain who should bear the cost of those works.
The issue at the Supreme Court was whether MTH was in breach of contract despite the fact that it used due care and professional skill, adhered to good industry practice and complied with the specifications incorporated into the contract. The Court of Appeal had found that there was no warranty of a 20-year service life and that MTH was therefore under no liability for its purported breach.
The Supreme Court reversed the decision, for slightly different reasons. Lord Neuberger stated that while it is possible to give effect to the relevant term as a 20-year warranty, the better reading is that it amounted to an agreement that the ‘design of the foundations was such that they would have a lifetime of 20 years’ (para 30). As the 20-year term, if enforceable, was clearly breached by MTH whether it was a warranty of service life or an agreement to design the foundations in a certain way, it was unnecessary to decide whether it amounted to a warranty (para 32).
Turning to the issue of enforceability, Lord Neuberger considered only two arguments open to MTH: 1) that the 20-year term was inconsistent with J101, both being incorporated into the contract, and 2) that the 20-year term was ‘too slender a threat’ to hang such an onerous obligation on (para 36).
In finding against MTH on the first argument, Lord Neuberger conducted a review of authorities (Thorn v The Mayor and Commonalty of London (1876) 1 App Cas 120, stated not to be of direct relevance; The Hydraulic Engineering Co Ltd v Spencer and Sons (1886) 2 TLR 554; the Scottish case of A M Gillespie & Co v John Howden & Co (1885) 22 SLR 527; the Canadian case of The Steel Company of Canada Ltd v Willand Management Ltd  SCR 746; and Cammell Laird and Co Ltd v The Manganese Bronze and Brass Co Ltd  AC 402) to the effect that even if a manufacturer or builder undertakes to produce a certain outcome and to follow a specific design that is inconsistent with that outcome, the builder is still liable for breach of contract where the outcome is not achieved.
In MTH’s case, Lord Neuberger interpreted the J101 standard to be a minimum requirement (in accordance with s. 3.1 of the contract), and held that the correct analysis of the purported inconsistency was that the more rigorous or demanding standard must prevail. This meant that MTH had to ensure a 20-year design lifespan, by identifying improvements in the technical specifications if necessary, including the need to identify that the erroneous variable should have been decreased (paras 45-46).
The term was therefore enforceable, and had been breached.
As to the second argument, Lord Neuberger rejected five sub-arguments that essentially relied on the fact that the 20-year term was found in the technical requirements and not the main contract. As the technical requirements were duly incorporated into the contract, these arguments did not persuade. The first sub-argument, that the drafting was ambiguous and inconsistent was rejected on the basis that the 20-year term, on the reading given to it by Lord Neuberger, was sufficiently clear and the reading was not ‘improbable or unbusinessmanlike’.
MTH was accordingly liable to bear the cost of the remedial works.
In the case the main method of analysis was contractual interpretation, which could in future have a limiting impact on the applicability of this case. However, the effect of it remains that reasonable care and skill were not enough in a breach of contract claim, nor was an accepted body of opinion. The MTH had to pay for the remedial works despite the fact that 1) the erroneous variable was provided in an industry standard, 2) that E.ON specifically requested that the standard be used, 3) an international body certified the works and 4) E.ON accepted the tender on the basis of the design provided.
The 20-year term reigned supreme over all these considerations, showing plainly that when it comes to contract terms, nothing short of strict performance will do even if the breach is caused by no fault of the defendant. Here the case is not that the design itself was somehow flawed (as in the cases cited by Lord Neuberger), but that it had been arrived at using a prevalent error in the industry. It is doubtful as to whether MHT would have been in a position to recalculate the variable to a more rigorous standard than the DNV, but the wind farm pylons were sliding down towards the sea nonetheless.