In June the Supreme Court was presented with another contract puzzle. Who should be given a €26 million bill for dealing with the failed foundations of two wind farms in the Solway Firth? Was it the contractor, MT Højgaard A/S, or its employer, two E.On companies?
In designing the foundations MTH had two key obligations, to comply with an international standard, J101, and to ensure the foundations had a lifetime of 20 years without planned replacement. MTH complied with J101 but, after the foundations were constructed, J101 was discovered to contain a significant error. The foundations started to fail and remedial works costing €26.25 million had to be carried out. The Court of Appeal said that the two obligations were inconsistent and the 20 year requirement could effectively be ignored. The Supreme Court disagreed.
Lord Neuberger noted that, although each case depends on its own facts, the UK and Canadian courts have generally been inclined to give full effect to the requirement that the item produced complies with the contract criteria. Even if the customer or employer has specified or approved the design, the contractor is expected to take the risk if it agrees to work to a design which would make the item incapable of meeting those criteria.
Where the two relevant contract obligations imposed different or inconsistent standards or requirements, rather than concluding that they were inconsistent, the correct analysis under the contract was that the more rigorous or demanding of the two standards or requirements must prevail. The less rigorous could be treated as a minimum requirement. And if there was an inconsistency between a design requirement and the required criteria, the contract made it clear that, although it may have complied with the design requirement, MTH would be liable for the failure to comply with those required criteria, as it was their duty to identify the need to improve on the design accordingly. Which, consequently, left MTH with the bill.