It is often argued by contractors with a design responsibility that where they have complied with a prescribed specification set out in their contract, such that their design meets that specification, then that is a defence to the allegation that they were negligent/in breach of contract in relation to their design in the event that the Employer’s specification was in some way defective.
Supreme Court clarification
The recent (3 August 2017) judgment of the Supreme Court, the highest Court in the land, has provided valuable clarification on this issue. The case in question was MT Hojgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Limited and another (Appellants)  UKSC 59.
MT Hojgaard (“MTH”) agreed to design, fabricate and install the foundations for E.ON for offshore wind farms at Robin Rigg in the Solway Firth.
MTH carried out the design and installation of those foundations. However in 2009 it was discovered that there was movement in the grouted connections. The cost of rectification amounted to €26.25m.
Under MTH’s contract with E.ON, it was required to carry out its design in accordance with a design specification known as “J101”. This was an international standard prepared by an independent certification agency.
The source of the problem with the foundations was found to be the J101 specification itself. It was not in dispute that MTH had designed and installed the foundations in accordance with that J101 specification. Rather, the dispute or issue in the case was who was liable for the error in the J101 specification – MTH or E.ON?
This issue was complicated by the fact that the contract documents were not as clear as they could have been. As well as the obligation to design in accordance with the J101 specification, there was also a clause in the contract that “The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement”, and that “It is stressed that the requirements contained in this section [of the Contract] and the environmental conditions given are the MINIMUM requirements of [E.ON] to be taken into account in the design”.
When this case originally came to court in the Technology and Construction Court, the Judge, Edwards-Stuart J, found that MTH was responsible for the cost of rectification. That Decision was however reversed on appeal to the Court of Appeal.
Understandably unhappy with the Court of Appeal’s decision, particularly given the €26.25m cost of rectification, E.ON appealed to the Supreme Court, which is the highest court in the land.
The Supreme Court’s judgment is dated 3 August 2017, although the hearing took place towards the end of June 2017.
The key issue for the court to decide
The key issue for the Supreme Court to decide was whether, as a result of the above contract conditions requiring MTH to design the foundations such that they have a lifetime of 20 years, and that the design requirements imposed on them were stated to be the “minimum” requirements, MTH were liable for the costs of rectification due to being in breach of contract. This was despite the fact that MTH used reasonable skill and care and adhered to good industry practice in carrying out its design, and complied with J101. At the time the parties entered into the contract, J101 was regarded as an appropriate design.
MTH argued that its contract with E.ON required it to design in accordance with the requirements of J101, and that is what it had done. The references in the contract clauses above regarding a lifetime of 20 years and that the specification requirements were only minimum requirements, did not, it argued, render MTH liable for the costs of rectification. MTH said it was not in breach of contract because it had complied with the employer’s J101 specification.
By contrast, E.ON argued that the contract required the design to have a lifetime of 20 years, which they did not, as evidenced by the recent failures in them. It was therefore irrelevant that MTH had complied with J101.MTH was liable, they said, for the cost of rectification.
Lord Neuberger, giving the lead judgment for the Supreme Court, held that “…the courts are generally inclined to give full effect to the requirement that the item as produced complies with the prescribed criteria, on the basis that, even if the customer or employer has specified or approved the design, it is the contractor who can be expected to take the risk if they agree to work to a design which would render the item incapable of meeting the criteria to which he has agreed”.
MTH had argued that there was an inconsistency between the obligation to comply with J101 and the 20 year minimum lifespan, such that it should not face liability for the cost of rectification.
Lord Neuberger disagreed with MTH. He said that MTH faced an “insurmountable difficulty” with that argument. He held that there was no such inconsistency, and that the more rigorous requirement, here the 20 year lifespan, should prevail.
As a result of the reference to the 20 year lifespan and the reference to the imposed requirements of J101 being of a “minimum” standard, the Supreme Court allowed E.ON’s appeal, and restored the Decision of the original trial Judge, which had found MTH liable as being in breach of contract, and so responsible for the costs of rectification.
Clearer drafting of contract could have prevented dispute
The fact that this case reached the Supreme Court shows that the case was not straightforward. The decision in the Court of appeal, overturned on appeal to the Supreme Court, was given by Lord Justice Jackson, who was formerly the judge in charge of the Technology and Construction Court. The underlying message is that what would have been very significant costs involved in these appeals may well have been avoided by clearer drafting of the contract. It remains to be seen, in light of this decision, whether Employers who want a Contractor to follow a specified design or other such specification, will nevertheless seek to put the design risk on the Contractor by setting out certain design or outcome criteria to be achieved. If so, clear drafting of the contract will be required to try and avoid expensive litigation such as in this MTH case.