A power station headrace tunnel suffered a catastrophic collapse a few months after take over by the employer and well before the defects period had expired. The cost of the remedial works contract, which involved another contractor constructing a bypass tunnel, came to about £137 million, and the Scottish courts had to decide who should pay for the works. Under the contract, based on NEC2, a collapse after takeover was at the employer’s risk unless due to a ‘Defect’ existing at takeover. So did a ‘Defect’ exist at takeover?

A ‘Defect’ was defined as a part of the works not in accordance with the Works Information, or part of the works designed by the Contractor not in accordance with the applicable law or with the Contractor’s design accepted by the Project Manager.

The Works Information required the tunnel to have a ‘design life’ of 75 years and the contract provided its own definition of ‘design life’, that the tunnel was to provide ‘reliable service without requirement for major refurbishment or significant capital expenditure...’ for the specified period of 75 years. Which, in the view of the majority of the court, entitled the employer to expect that, at hand over, the tunnel would be designed and built to a standard where it could be expected that it would provide reliable service for 75 years without requiring major refurbishment or significant capital expenditure. Implementation of that design, having regard to the ground conditions actually encountered, was also directly relevant. If it was discovered, during the two year defects period, that the tunnel did not have a 75 year design life, then it was not in accordance with the Works Information and there was a ‘Defect’, as defined. To establish a ‘Defect’ all that was needed was to point to the collapse, within months of handover, without any supervening event capable of damaging the tunnel or any other credible explanation. 

The contract provided that the Contractor was not liable for ‘Defects’ due to its design so far as it proved that it used reasonable skill and care to ensure that it complied with the Works Information. What appears to have gone wrong, however, was in the implementation of that design, probably in the failure to identify rock conditions requiring particular types of support, resulting in insufficient support being provided. Whether or not that showed a lack of reasonable skill and care was irrelevant unless the ‘Defect’ was one of design but it was not. The ‘Defect’ was one of implementation of that design.

And were the works not carried out in accordance with the accepted design so that there was also a ‘Defect’ under the second part of the definition? The absence of appropriate protection in relevant areas of the tunnel meant that that part of the works was not in accordance with the contractor’s accepted design. The ‘Defect’ was not one of design; but in implementing the accepted design. 

The collapse was therefore at the risk of the contractor, who was, after the court had ruled on other issues, liable for the repairs. Although the contractor had to provide joint names insurance, an implied term arising from that insurance and displacing the contractor’s liability to the employer did not help the contractor. The insurance was against loss or damage to the works, by events at their risk prior to issue of the defects certificate, and did not cover breach of contract by the contractor in failing to comply with specific contract obligations to carry out repair or reinstatement works. Lord Glennie noted, however, that the reasoning of the Supreme Court in Gard Marine and Energy Ltd v China National Chartering Company Ltd on the displacement of contractual liability by joint names insurance is ‘compelling’. 

SSE Generation Ltd v Hochtief Solutions AG at: https://www.scotcourts.gov.uk/docs/default-source/ cos-general-docs/pdf-docs-for-opinions/2018csih26. pdf?sfvrsn=0