MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59

This case should be required reading for those in the offshore infrastructure and ship-building industries and sets out the modern approach to conflicting design and performance obligations under infrastructure contracts and who bears the risk when compliance with design does not result in contractual performance.

The Issue

The issue before the Supreme Court was whether a designer and manufacturer (MTH) of the foundation structures of two offshore wind farms at Robin Rigg in the Solway Firth were in breach of contract. The structures failed shortly after their installation.

The problem arose because under the contract MTH was required to design and install foundations which both (a)  complied with a particular design principle (called “J101”) and which also (b) “ensure[d] a lifetime of 20 years”.

MTH produced the foundations in accordance with the required design principle but within 2 years the foundations failed. This was because the design principle (J101) contained a mathematical error such that compliance with the design standard could not give a lifetime of 20 years.

This was not the first time that the English Courts have been called on to consider a contract which includes two terms, one requiring the contractor to provide an article which is produced in accordance with a specified design, the other requiring the article to satisfy specified performance criteria; and where those criteria cannot be achieved by complying with the design. However it is the most complete examination of the issue by the Supreme Court to date.

The Decision

The Supreme Court decided that MTH were liable for the costs associated with the failure of the foundations on the basis that:-

1. The reconciliation of the conflicting terms and the determination of their combined effect is to be decided by reference to ordinary principles of contractual interpretation (Wood v Capita Insurance Services Ltd [20l7] 2 WLR l095);
2. A contractor who bids on the basis of a defective specification provided by the employer only has himself to blame if he does not check their practicality and they turn out to be defective;
3. Where a contract contains terms which require an item (i) which is to be produced in accordance with a prescribed design, and (ii) which, when provided, will comply with prescribed criteria, and literal conformity with the prescribed design will inevitably result in the product falling short of one or more of the prescribed criteria, it does not follow that the two terms are mutually inconsistent.
4. Instead, the proper analysis is likely to be that in most contracts the contractor has to improve on any aspects of the prescribed design which would otherwise lead to the product falling short of the prescribed criteria, and in other contracts, the correct view could be that the requirements of the prescribed criteria only apply to aspects of the design which are not prescribed.
5. Thus the English 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 he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed” (Lord Neuberger paragraph 44).

Conclusion

The trenchant comments of the UK Supreme Court ought to be a warning to manufacturers working to design principles that they need to both adopt more careful drafting of their guarantees of performance limiting these where necessary and to check that compliance with design requirements will in fact give the desired performance before signing contracts.