The recent case of MT Hojgaard a/s (“MTH”) and E.ON Climate and Renewables UK Robin Rigg East Limited & Others (“EON”) considered this point. One of our lawyers had the opportunity to sit with the judge throughout the trial and we eagerly awaited the decision.
The judgment has now been published and the simple answer is – as always – it depends on the wording of the contract. The judge decided that MTH was liable to ensure a minimum service life for the works notwithstanding that it had exercised reasonable skill and care when executing the design and had relied on an accepted industry standard that was subsequently found to be defective.
The case related to the design and construction of foundations for sixty wind turbines for the Robin Rigg offshore wind farm in the Solway Firth. The foundations were formed of a steel monopile and transition piece. The grouted connection between the monopile and transition piece failed causing movement in the structure. The cost of the remedial works was estimated to be around €26.25 million.
The design of the grouted connection was based on an international standard produced by Det Norske Veritas (“DNV”), an independent classification and certification agency. DNV standards are widely accepted by the industry and formed part of EON’s specification for the project. Unfortunately, the standard was wrong. This was only discovered after the project was completed.
The contract required MTH to design and construct the works with the due care and diligence expected of appropriately qualified and experienced designers. In addition, the works were to be designed and constructed in accordance with good industry practice, were required to comply with the specification (including the DNV standard) and to be fit for the purpose set out in the specification. The specification referred to a design life of twenty years and a minimum service life of twenty years.
Who was responsible for the failure? EON argued that MTH had an absolute obligation to ensure a minimum service life of 20 years for the foundations and, in any event, MTH had not used reasonable skill and care when applying the DNV standard. MTH argued that it was reasonable for it to follow an internationally recognised standard and in doing so had exercised reasonable skill and care.
The two key issues were: (i) was MTH’s design obligation limited to complying with the DNV standard or did it assume an absolute obligation to achieve the minimum service life of 20 years; and (ii) could the “absolute” and “reasonable skill and care” obligations exist side by side in the contract? In particular, were the terms concerning “design life” (which required reasonable skill and care) and “service life” (an absolute requirement) compatible?
There is limited case law on the issue but having reviewed largely Canadian authorities the judge found that an absolute warranty can trump a general obligation to comply with the specification. Given the fitness for purpose obligations in the contract, MTH had therefore assumed an absolute obligation to design and construct the works to achieve a minimum service life of twenty years. The grouted connections had plainly failed to achieve such a purpose.
The judge also pointed out that it was not uncommon for construction contracts to contain obligations both to exercise reasonable skill and care (or to do the work in a workmanlike manner) and to achieve a particular result. These were not incompatible. He gave the example of a brick building with a particular design life that was an eyesore because different types of brick had been used in its construction. The bricks may be sufficiently robust individually and collectively to satisfy the design life but the works would fail the workmanship test due to their poor appearance.
The judge added that he could understand why an employer would want a design life (in accordance with the applicable DNV standard) but it was also open for him to stipulate a particular service life. This would usually come at a price as the contractor would have to consider what additional measures he should take to reduce the potential for failure within the service life.
Put simply the judge said that MTH was obliged to (i) exercise reasonable skill and care in preparing the design; (ii) comply with the DNV standard; and (iii) to meet the service life period. MTH complied with the first two obligations but that didn’t matter because it failed to comply with the separate, absolute, obligation to meet the service life requirement.
At first the decision may seem unfair on MTH. The failure for which it has been found liable is based in part on its reliance on an international standard which it could not possibly have known was defective when it was undertaking the works. But it is clear from the judgment that the judge simply followed the terms of the contract that MTH had agreed to.
The decision does not establish any new law but does serve as a reminder to contracting parties to exercise care when negotiating and agreeing terms. It confirms that if a contractor accepts separate design obligations to exercise skill and care and to achieve a specific performance standard, compliance with the obligation to exercise reasonable skill and care will not be a defence to a claim arising from a failure to meet the specified performance standard, even if the cause is a defect in an industry recognised design detail.