Højgaard v E.on: Contractor found liable for failure to comply with fitness for purpose obligations
In the recent case of MT Højgaard (MTH) v E.ON, the Supreme Court found a contractor liable for failure to comply with the fitness for purpose obligations relating to the requirement in a technical schedule to the design and build contract, despite the key terms of the contract referring mainly to reasonable skill and care obligations.
Facts of the case:
MT Højgaard (MTH) was hired by E.ON to design and install the foundation structures for 60 offshore wind turbines. The technical requirements included the following wording:
"The Works elements shall be designed for a minimum site specific 'design life' of twenty years without major retrofits or refurbishments…"; and
“(i) It is stressed that the requirements contained in this section and the environmental conditions given are the minimum requirements of [E.ON] to be taken into account in the design.
(ii) It shall be the responsibility of [MTH] to identify any areas where the works need to be designed to any additional or more rigorous requirements or parameters.”
The foundation structures failed. The costs involved amounted to €26.25 million. A dispute arose over who was liable to pay this amount.
MTH had complied with and relied on the international standard for the design of offshore wind turbine structures, J101. J101 was intended to bring a service life of 20 years. However, at the time J101 contained an error resulting in structural failures to the wind turbines and a service life of significantly less than 20 years.
Supreme Court’s Findings:
The Supreme Court ruled that MTH could not rely on the fact that they had complied with the J101 specification and used reasonable skill and care. It was noted that MTH was “expected to take the risk if [MTH] agreed to work to a design which would render the item incapable of meeting the criteria to which [MTH] agreed”.
The Supreme Court found that the technical schedule had been given contractual force by the parties and the wording should be taken at face value. MTH had effectively warranted that the foundations would have a lifetime of 20 years.
The Supreme Court noted that the requirement to comply with J101 was a minimum requirement and therefore MTH was responsible for identifying areas which needed more rigorous requirements or parameters. As MTH had the option to decide whether shear keys were to be used, it was possible that the structural failures may have been avoided.
Conclusions and Implications:
If a contract imposes two obligations (to achieve a particular result and to comply with particular standards), a party may still be found liable even if they comply with a contractual duty to exercise reasonable skill and care.
To avoid such issues, there should be harmonisation between construction contracts and their schedules and technical requirements identifying liability and obligations clearly. Parties should also clarify how technical schedules affect the general design and works obligations.
Contractors may wish to include provisions which limit the obligations within the schedules of the contract to being no more than reasonable skill and care.