MT Højgaard A/S -v- E.ON

When compliance with specification is not enough

The judgment of the Supreme Court in MT Højgaard A/S -v- E.ON Climate & Renewables UK Robin Rigg East Ltd [2017] is concerned with what the Court of Appeal described as ‘contract documents of multiple authorship, which contain much loose wording’.

The contract in question was a design and build contract for the design, fabrication and installation of the foundations of 60 wind turbines which would comprise the Robin Rigg offshore wind farm in the Solway Firth.

The decision illustrates the approach to be taken to a particular problem of contractual interpretation which arises where (1) a contract includes two terms, one requiring the contractor to provide an article which is produced in accordance with a particular design or specification and the other requiring the article to satisfy certain performance criteria; and (2) the performance criteria cannot be achieved by compliance with the design or specification.

In an offshore location, a wind turbine stands on a monopile which is driven into the seabed.  In this case, the bottom of the turbine tower is connected to the monopile by a steel cylinder known as a transition piece, which is fitted over the top of the monopile. The gap between the transition piece and the pile is filled with grout. The turbine tower fits into the transition piece. The grouted connection works by friction between the grout and the two steel surfaces between which it sits.

In Robin Rigg, the contractor was required to submit a detailed foundation design basis document. A passage in the contract documents required the contractor to prepare a detailed design of the foundations in accordance with an international standard published by Det Norske Veritas, DNV-OS-J101 (J101).

The second part of the very same paragraph then stated:

‘The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement.  The choice of structure, materials, corrosion protection system, operation and inspection programme shall be made accordingly.’

The contractor designed and fabricated the foundations in compliance with J101 and without negligence. Shortly after completion of the works, the grouted connections started to fail and the transition pieces began to slip down the monopiles. It transpired that J101 contained a serious error. In a note to one of the equations, J101 gave a value for the height of surface irregularities (δ) of rolled steel surfaces that was incorrect by a factor of about 10. As a consequence, the contractor overestimated the axial capacity of the grouted connection and the foundations did not have a design life of 20 years.

The question for the court, as it is in many contract cases, was one as to the allocation between the parties of risk – in this case the risk of an error in J101.

In Robin Rigg, the task for the Supreme Court was made easier by the presence of contractual wording which made it clear that E.ON’s requirements were minimum requirements and that the contractor had a duty to identify any areas where the works needed to be designed to any additional or more rigorous requirements or parameters.

But even in the absence of those wordings, the Supreme Court would have reached the same conclusion since, it reasoned, the contractor would not have been in breach of its obligations if it had designed the foundations to a more rigorous requirement, that is, on the basis of a value for δ less than that noted incorrectly in J101. 

The Supreme Court also drew some assistance from a number of old cases, including Hydraulic Engineer Co Ltd -v- Spencer & Sons [1886]. In that case the defendants contracted to make and deliver 15 cast iron cylinders which would be cast according to specifications and plans provided by the plaintiffs, and also that the cylinders would be able to stand a pressure of 25 cwt per square inch. It was contended that it was simply not possible for cylinders cast according to the plaintiff’s specification and plans to withstand a pressure of 25 cwt per square inch. The Court of Appeal case accepted that the defect was unavoidable, but nevertheless held that there was a defect for which the defendants were contractually liable.

In A M Gillespie -v- John Howden [1885] a customer ordered a ship from shipbuilders pursuant to a contract which required the ship ‘to carry 1800 tons deadweight’ and which also required the ship to be built according to a model approved by the customer. The ship, as built, was unable to carry 1800 tons deadweight and the shipbuilders argued unsuccessfully that they should not be liable since it would have been impossible to construct a ship capable of carrying 1800 tons according to the model approved by the customer.

It is always necessary to exercise caution when looking for guidance in judgments which have decided the meaning of uniquely worded contracts. Nevertheless the decision in Robin Rigg contains a very clear indication as to how the courts will look to resolve a tension between different contractual provisions so as to give effect, so far as possible, to all parts of the contract.

In less compendiously drafted contracts, in which there is no requirement that the article should satisfy specified performance criteria, it may be the customer who takes the risk of an error in the specification. Fitness for purpose is a familiar concept in the sale of goods context. What is sometimes forgotten is that a condition as to fitness for purpose will not be implied where the buyer does not rely, or it is unreasonable for him to rely, on the skill or judgment of the seller (Sale of Goods Act 1979, section 14(3)).

In cases where the seller is required to produce an article in accordance with the buyer’s specification, the buyer will not necessarily be relying (or reasonably relying) on the seller’s skill or judgment. It was held in Rotherham -v- Frank Haslam Milan [1996] that the comparative experience, expertise and knowledge of the contracting parties, the architect, engineers, suppliers and material, and the producers of the material, are all relevant to this question.

In the Rotherham case (a case concerning a contract for work and materials), the contractor who was engaged to carry out advanced site preparation work was held not liable when infill materials in the foundations of a building expanded causing damage to the reinforced concrete floor slabs. The materials in question (steel slag) had been selected from the bills of quantities. Only after completion of the works did it come to the parties’ knowledge that steel slag was unsuitable for use as a fill material due to its expansive properties. The Court of Appeal held that the circumstances of that case showed that the claimant did not rely on the contractors’ skill or judgment.

In Robin Rigg the contractor undertook its design obligations confident that it had complied with an international standard prescribed by the contract. The lesson from that case is that compliance with standards and specifications is not always enough.