Højgaard1 was about defective foundations for off-shore wind-farms where the contract contained two competing standards. One required the works to be carried out with reasonable skill and care and in accordance with international standards and the other provided that “the Works as a whole shall be fit for purpose as determined in accordance with the Specification using Good Industry Practice”. Good Industry Practice itself was defined as reasonable skill and care, with reference to international standards.
The Contractor complied with J101, an international design standard, which was specified in the Technical Requirements (TR) but was flawed, resulting in the failure of the grouted connections to the monopiles. Was the Contractor in breach, notwithstanding that it used Good Industry Practice and followed J101?
At first instance, it was held that the Contractor breached the fitness for purpose standard, as set out in the TR notwithstanding its compliance with J101. However, the Court of Appeal held that the fitness for purpose requirement, when defined by reference to an industry standard, did not create an absolute warranty of suitability. Ultimately, the Supreme Court found that J101 was actually only a “minimum requirement” as stated elsewhere in the TR, and so there was no inconsistency with it and the fitness for purpose requirement. The Supreme Court also observed that, in design-build type scenarios, if there are two competing standards, the more onerous fitness for purpose requirement is likely to prevail. On this basis, an express obligation to construct work to a specified performance criteria would override an inconsistent obligation to comply with a specification.
The TR stated that the design was to “ensure a lifetime of 20 years in every respect without planned replacement”. On the face of the wording, this warranted that the foundations would have a lifespan of 20 years – something that might be considered to be an operational life warranty. The Supreme Court noted that the requirement that this 20 year requirement was either a warranty that the foundations would have a 20 year lifetime or that the foundations would be designed to have a lifetime of 20 years. There is a subtle but important difference between the two.
Although it did not need to decide in Højgaard which was correct because “it was breached whatever meaning it has”, the Supreme Court indicated its preference for interpreting the 20 year requirement as a contractual term that the foundations will be designed to have a 20 year lifetime. Crucially, this was based, not only on the wording of the specific 20 year requirement, but on the interpretation of the contract as a whole. This interpretation was consistent with the exclusive remedies provision: “EON’s ability to invoke its right ... would not depend on EON appreciating that the foundations were failing (within 24 months of handover) but on EON appreciating (within 24 months of handover) that the design of the foundations was such that they would not last for 20 years”.
Therefore, in this case, what might have seemed to be a 20-year lifetime warranty was construed by the Supreme Court as more likely to be of more limited effect.
For a more detailed commentary of the Supreme Court decision, and practical guidance, please refer to our earlier briefing A Supreme Judgment that’s Fit for Purpose2.