JUDGMENT
MT Højgaard A/S (Respondent) v E.ON Climate &
Renewables UK Robin Rigg East Limited and
another (Appellants)
before
Lord Neuberger, President
Lord Mance
Lord Clarke
Lord Sumption
Lord Hodge
JUDGMENT GIVEN ON
3 August 2017
Heard on 20 June 2017
Appellants Respondent
John Marrin QC David Streatfeild
-James QC
Paul Buckingham Mark Chennells
(Instructed by Gowling
WLG (UK) LLP
)
(Instructed by Fenwick
Elliott LLP
)
Page 2
LORD NEUBERGER: (with whom Lord Mance, Lord Clarke, Lord
Sumption and Lord Hodge agree)
The background
1. These proceedings arise from the fact that the foundation structures of two
offshore wind farms at Robin Rigg in the Solway Firth, which were designed and
installed by MT Højgaard A/S (“MTH”), failed shortly after completion of the
project. The specific issue to be determined is whether MTH are liable for this
failure.
2. As Jackson LJ said in the Court of Appeal, the resolution of that issue turns
on “how the court should construe the somewhat diffuse documents which
constituted, or were incorporated into, the ‘design and build’ contract in this case”.
Accordingly, I turn first to consider the relevant provisions of the contractual
documentation.
The relevant provisions of the Technical Requirements and J101
3. In May 2006, the appellants, two companies in the E.ON group (“E.ON”),
sent tender documents to various parties including MTH, who in due course became
the successful bidders. The tender documents included Employer’s Requirements,
Part I of which included the Technical Requirements (“the TR”).
4. Section 1 of the TR set out the “General Description of Works and Scope of
Supply”. Part 1.6 set out the so-called Key Functional Requirements, which included
this:
“The Works, together with the interfaces detailed in Section 8,
shall be designed to withstand the full range of operational and
environmental conditions with minimal maintenance.
The Works elements shall be designed for a minimum site
specific ‘design life’ of twenty (20) years without major
retrofits or refurbishments; all elements shall be designed to
operate safely and reliably in the environmental conditions that
exist on the site for at least this lifetime.”
Page 3
5. Section 3 of the TR was concerned with the “Design Basis (Wind Turbine
Foundations)”. Part 3.1 was entitled “Introduction”, and it included the following
(divided into sub-paragraphs for convenience):
“(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.”
There were other references elsewhere to the stated requirement being a minimum.
Para 3.1.2 of the TR required MTH to submit a detailed Foundation Design Basis
document, which was required to contain, among other things, a statement as to “the
Contractor’s design choices, including, but not limited to, … departures from, or
aspects not covered by, standards, if any”.
6. Part 3.2 of the TR was headed “Design Principles”, and para 3.2.2 was
concerned with “General Design Conditions”, para 3.2.2.1 being directed to the
“Tender Stage Design”, and para 3.2.2.2 to the “Detailed Design Stage”. Para 3.2.2.2
is of central importance for present purposes, and, for convenience, I shall treat it as
divided into numbered sub-paragraphs. Para 3.2.2.2(i) required MTH to prepare the
detailed design of the foundations in accordance with a document known as J101,
using the “integrated analysis” method (which was one of the four methods
addressed in J101). Para 3.2.2.2(ii) went on to state that:
“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.”
7. J101 was a reference to an international standard for the design of offshore
wind turbines published by Det Norske Veritas (“DNV”), an independent
classification and certification agency based in Norway. J101 included a statement
that its “objectives” included the provision of “an internationally acceptable level of
safety by defining minimum requirements for structures and structural components”,
as well as being “a contractual reference document”, and a “guideline”. Section 2 of
J101 contained design principles which were, among other things, aimed at limiting
the annual probability of failure to be in the range of one in 10,000 to one in 100,000
Page 4
– para C201. Section 7 of J101 dealt with the design of steel structures, and para
K104 provided:
“The design fatigue life for structural components should be
based on the specified service life of the structure. If a service
life is not specified, 20 years should be used.”
Section 9 of J101 dealt with the design and construction of grouted connections. Part
A included reference to shear keys, which, it was explained, “can reduce the fatigue
strength of the tubular members and of the grout”. Part B of section 9 set out a
number of equations applicable to such a design, including one (“the Equation”)
which showed how the interface shear strength due to friction is to be calculated,
namely:
Precisely what the Equation actually means need not be spelled out. What is
important for present purposes is that it was stated beneath the Equation that δ should
“be taken as 0.00037 Rp for rolled steel surfaces” (Rp being the outer radius of the
pile, and δ being the height of surface irregularities).
8. Para 3.2.3.2 of the TR required MTH’s design to accord with “international
and national rules, circulars, EU directives executive orders and standards applying
to the Site” and it went on to state that a defined “hierarchy of standards shall apply”,
as listed. Ignoring those standards which were irrelevant or not in force, the first in
the list was J101. Para 3.2.5 required the contractor to design and construct grouted
connections in accordance with J101. Para 3.2.6 stated that “[a]ll parts of the Works,
except wear parts and consumables, shall be designed for a minimum service life 20
years” (sic).
9. Section 3b of the TR was headed “Design Basis for Offshore Substations and
Meteorological Mast”. Para 3b.5.1 stated:
“The design of the structures addressed by this Design Basis
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.”
Page 5
Para 3b.5.6 provided that “[a]ll parts of the Works, except wear parts and
consumables shall be designed for a minimum service life 20 years.”
10. Section 4 of the TR dealt with “Approvals and Certification”. Para 4.4.3
provided that MTH should obtain a Foundation Design Evaluation Conformity
Statement from the Certifying Authority within six months of the commencement
date.
11. Section 10 of the TR covered “Structural Design and Fabrication” (Wind
Turbine Foundations), and para 10.1.1 required MTH to appoint “an accredited
Certifying Authority … to independently evaluate the adequacy of his foundation
design.” Para 10.5.1 was in these terms:
“The Contractor shall determine whether to employ shear keys
within the grouted connection. If shear keys are used, the
design and detailing shall take due account of their presence for
both strength and fatigue design to the satisfaction of the
Certifying Authority and the Engineer. If shear keys are to be
omitted then the Contractor shall demonstrate with test data
that the grouted connection is capable of transmitting axial
loads at the grout/steel interface without dependence upon
flexural (normal) contact pressures, which may not always be
present, to the satisfaction of the Certifying Authority and the
Engineer. Such demonstration shall also account for joint
performance under different temperature conditions.”
12. Para 10.24.9 of the TR stated that the “recorded potential difference
exceedance” was not so great as to “cause accelerated anode depletion to such extent
that the anode material provided is fully utilised before the end of the structure
operational 20 year life”.
13. Having been selected as the contractor for the works, MTH duly set about
preparing its tender in accordance with Employer’s Requirements and J101. MTH’s
design provided for (i) monopiles with a diameter of just over four metres, (ii)
transition pieces about eight metres long, weighing approximately 120 tonnes, and
(iii) grouted connections without shear keys. MTH explained at the time that no
shear keys were specified because, taking δ as 0.00037 Rp, application of the
Equation indicated that the grouted connections, as designed, had more than
sufficient axial capacity to take the axial load.
Page 6
14. After E.ON had accepted MTH’s tender, MTH duly commenced design
work, and in November 2006 it submitted a detailed Foundation Design Basis
document, as required by para 3.1.2 of the TR.
The relevant provisions of the contract
15. On 20 December 2006 E.ON and MTH entered into a written contract (“the
Contract”) under which MTH agreed to design, fabricate and install the foundations
for the proposed turbines. Part C of the Contract contained a List of Definitions. “Fit
for Purpose” was defined as “fitness for purpose in accordance with, and as can
properly be inferred from, the Employer’s Requirements”. “Employer’s
Requirements” was stated to include the TR, which were themselves attached as Part
I of the Contract. And “Good Industry Practice” meant “those standards, practices,
methods and procedures conforming to all Legal Requirements to be performed with
the exercise of skill, diligence, prudence and foresight that can ordinarily and
reasonably be expected from a fully skilled contractor who is engaged in a similar
type of undertaking or task in similar circumstances in a manner consistent with
recognised international standards”.
16. Clause 2.1 of Part D of the Contract provided that any failure by the Engineer
or his Representative to spot defects or mistakes by the contractor would not exempt
the contractor from liability. Clause 5.3 of Part D stated that in the event of
inconsistencies, the order of precedence of the contractual documents should be as
follows:
(a) the form of agreement;
(b) the conditions of contact and the List of Definitions;
(c) the commercial schedules and the schedule of prices, payment profile
and draft programme;
(d) the Employer’s Requirements;
(e) the annexes to the Employer’s Requirements;
(f) volumes 2A, 2B and 3 of the contractor’s tender return.
Page 7
17. Clause 8.1 of Part D required MTH “in accordance with this Agreement, [to]
design, manufacture, test, deliver and install and complete the Works” in accordance
with a number of requirements, including
“(iv) in a professional manner in accordance with modern
commercial and engineering, design, project management and
supervisory principles and practices and in accordance with
internationally recognised standards and Good Industry
Practice; …
(viii) so that the Works, when completed, comply with the
requirements of this Agreement …;
(ix) so that [MTH] shall comply at all times with all Legal
Requirements and the standards of Good Industry Practice;
(x) so that each item of Plant and the Works as a whole shall
be free from defective workmanship and materials and fit for
its purpose as determined in accordance with the Specification
using Good Industry Practice; …
(xv) so that the design of the Works and the Works when
Completed by [MTH] shall be wholly in accordance with this
Agreement and shall satisfy any performance specifications or
requirements of the Employer as set out in this Agreement. …”
18. Clause 30 of Part D of the Contract was headed “Defects after taking over”.
Clause 30.2 provided that MTH “shall be responsible for making good any defect
… or damage” arising from “defective materials, workmanship or design”, “any
breach by [MTH] of his obligations under this Agreement” or “Works not being Fit
for Purpose”, “which may appear or occur before or during the Defects Liability
Period”. That period was defined in clause 30.1 as being a period of 24 months from
the date E.ON takes over the Works from MTH. Clause 30.3 required E.ON to give
notice “forthwith” of any such defects to MTH. Clause 30.4 extended that Period in
certain limited circumstances. Clause 30.10 required E.ON to produce a Defects
Liability Certificate once the Defects Liability Period has expired and MTH has
satisfied all its obligations under clause 30.
19. Clause 33.9 of Part D of the Contract entitled MTH to apply, within 28 days
of the issue of a Defects Liability Certificate, for a Final Certificate of Payment, and
to accompany the application with a final account; clause 33.10 provided for the
Page 8
consequential issue of a Final Certificate of Payment; and clause 33.11 provided the
Final Certificate of Payment is conclusive.
20. Clause 42.3 of Part D of the Contract stated that:
“[E.ON] and [MTH] intend that their respective rights,
obligations and liabilities as provided for in this Agreement
shall alone govern their rights under this Agreement.
Accordingly, the remedies provided under this Agreement in
respect of or in consequence of:
(a) any breach of contract; or
(b) any negligent act or omission; or
(c) death or personal injury; or
(d) loss or damage to any property,
are, save in the case of … Misconduct, to be to the exclusion
of any other remedy that either may have against the other
under the law governing this Agreement or otherwise.”
Subsequent events
21. MTH duly proceeded with the design and construction of the two wind farms
(“the Works”), and, on its instructions, Rambøll Danmark A/S supplied in June 2007
a detailed design for the grouted connections, which did not include shear keys.
Pursuant to para 10.1.1 of the TR, MTH appointed DNV as the Certifying Authority,
and DNV evaluated and approved MTH’s foundation designs. Pursuant to para 4.4.3
of the TR, DNV issued Foundation Design Evaluation Conformity Statements for
the various phases of the works. MTH began the installation of foundations in the
Solway Firth in December 2007, and completed the Works in February 2009.
22. During 2009 a serious problem came to light at Egmond aan Zee wind farm,
where the grouted connections did not have shear keys. Those connections started
to fail, and the transition pieces started to slip down the monopiles. DNV carried out
Page 9
an internal review during late summer 2009, and discovered that there was an error
in the value given for δ in the note to the Equation mentioned in para 7 above. It was
wrong by a factor of about ten. This meant that the axial capacity of the grouted
connections in wind farm foundations at various locations including Egmond aan
Zee and Robin Rigg had been substantially over-estimated.
23. On 28 September 2009, DNV sent a letter to MTH and others in the industry,
alerting them to the situation (and DNV subsequently revised J101 to correct the
error). In April 2010 the grouted connections at Robin Rigg started to fail, as they
had done a year earlier at Egmond aan Zee, and the transition pieces began to slip
down the monopiles. Very sensibly E.ON and MTH deferred any legal dispute and
set about finding a practical solution to the problem. It was agreed between the
parties that E.ON would develop a scheme of remedial works. Those remedial works
were commenced in 2014.
24. In order to ascertain who should bear the cost of the remedial works, the
parties embarked upon the present proceedings. In very summary terms, the parties’
respective positions were as follows. MTH contended that it had exercised
reasonable skill and care, and had complied with all its contractual obligations, and
so should have no liability for the cost of the remedial works. By contrast E.ON
contended that MTH had been negligent and also had been responsible for numerous
breaches of contract, and they claimed declarations to the effect that MTH was liable
for the defective grouted connections. The parties in due course agreed the cost of
the remedial works in the sum of €26.25m, leaving the court to decide which of them
should bear that cost.
25. The case came before Edwards-Stuart J, and after an eight-day hearing in
November 2013, he gave judgment in April 2014 – [2014] EWHC 1088 (TCC). He
rejected the suggestion that MTH had been negligent, and he also rejected a number
of allegations of breach of contract made by E.ON. However, he found for E.ON
primarily on the ground that (i) clause 8.1(x) of the contract required the foundations
to be fit for purpose, (ii) fitness for purpose was to be determined by reference to
the TR, and (iii) para 3.2.2.2(ii) (and also para 3b.5.1) of the TR required the
foundations to be designed so that they would have a lifetime of 20 years. He also
held that this conclusion was also supported by clauses 8.1(viii) and (xv).
26. MTH appealed to the Court of Appeal, and after a two-day hearing in
February 2015, they handed down their decision two months later, allowing the
appeal for reasons given by Jackson LJ, with whom Patten and Underhill LJJ agreed
– [2015] EWCA Civ 407. Jackson LJ accepted that, if one was confined to the TR,
para 3.2.2.2(ii) appeared to be “a warranty [on the part of MTH] that the foundations
will function for 20 years”. However, in the light of the provisions of the Contract,
he said that there was “an inconsistency between [paras 3.2.2.2(ii) and 3b.5.1 of the
Page 10
TR] on the one hand and all the other contractual provisions on the other hand”, and
that the other contractual provisions should prevail. He went on to describe paras
3.2.2.2(ii) and 3b.5.1 of the TR as “too slender a thread upon which to hang a finding
that MTH gave a warranty of 20 years life for the foundations”.
The meaning of para 3.2.2.2(ii) of the TR
27. The central question on this appeal is whether, in the light of para 3.2.2.2(ii)
(and para 3b.5.1) of the TR, which refer to ensuring a life for the foundations (and
the Works) of 20 years, MTH was in breach of contract, despite the fact that it used
due care and professional skill, adhered to good industry practice, and complied with
J101. Before turning to that issue, however, it is appropriate to deal with an argument
raised by Mr Streatfeild-James QC in the course of his excellent submissions on
behalf of MTH. He suggested that it was unlikely that the parties could have
intended that there should be what Jackson LJ characterised as “a warranty that the
foundations will function for 20 years”, in the light of those parts of clauses 30, 33
and 42 of the Contract set out in paras 18 to 20 above. In summary, he argued that
(i) the effect of clause 30 was that, subject to some relatively limited exceptions in
clause 30.4, MTH was obliged to rectify any defect in the Works which occurred
within 24 months of the Works being handed over, (ii) the effect of clause 42.3 was
that any claim by E.ON in respect of a defect appearing thereafter was barred, and
(iii) the notion that there was no room for claims outside the 24-month period was
reinforced by clauses 33.9 and 33.10.
28. In my opinion, there is no answer to that analysis so far as it is directed to the
effect of clauses 30, 33 and 42 of the Contract. Clause 42.3 makes it clear that the
provisions of clause 30 (and any other contractual term which provides for remedies
after the Works have been handed over to E.ON) are intended to operate as an
exclusive regime. And that conclusion appears to me to be supported by the terms
of clause 33.9 and 33.10, because they tie in very well with the notion that there
should be no claims after the Final Certificate, which is to be issued very shortly
after the 24-month period.
29. Accordingly, if, as E.ON argue, para 3.2.2.2(ii) of the TR amounts to a
warranty that the foundations will last for 20 years, there would be a tension between
that provision and clauses 30, 33 and 42 of the Contract. However, I do not consider
that the tension would be so problematic as to undermine the conclusion that para
3.2.2.2(ii) amounted to warranties as described by Jackson LJ. In the light of the
normal give and take of negotiations, and the complex, diffuse and multi-authored
nature of this contract, it is by no means improbable that MTH could have agreed to
a 20-year warranty provided that it could have the benefit of a two-year limitation
period, save where misconduct was involved. It would simply mean that the rights
given to E.ON by paras 3.2.2.2(ii) were significantly less valuable than at first sight
Page 11
they may appear, because any claim based on an alleged failure in the foundations
which only became apparent more than two years after the handover of the Works
would normally be barred by clause 42.3. In this case, of course, there is no problem,
because the foundations failed well within the 24-month period.
30. However, in my view, although it would therefore be possible to give effect
to para 3.2.2.2(ii) of the TR as a 20-year warranty as described by Jackson LJ, the
points canvassed in paras 27 to 29 above justify reconsidering the effect of para
3.2.2.2(ii). It appears to me that there is a powerful case for saying that, rather than
warranting that the foundations would have a lifetime of 20 years, para 3.2.2.2(ii)
amounted to an agreement that the design of the foundations was such that they
would have a lifetime of 20 years. In other words, read together with clauses 30 and
42.3 of the Contract, para 3.2.2.2(ii) did not guarantee that the foundations would
last 20 years without replacement, but that they had been designed to last for 20
years without replacement. That interpretation explains the reference in para
3.2.2.2(ii) to design, and it obviates any tension between the terms of para 3.2.2.2(ii)
and the terms of clauses 30 and 42.3. Rather than the 20-year warranty being cut off
after 24 months, E.ON had 24 months to discover that the foundations were not, in
fact, designed to last for 20 years. On the basis of that interpretation, E.ON’s ability
to invoke its rights under para 3.2.2.2(ii) would not depend on E.ON appreciating
that the foundations were failing (within 24 months of handover), but on E.ON
appreciating (within 24 months of handover) that the design of the foundations was
such that they will not last for 20 years.
31. That, of course, raises the question as to what, on that reading, was precisely
meant by “ensur[ing] a lifetime of 20 years”, given that the forces of nature,
especially at sea, are such that a lifetime of 20 years, or any other period, could never
in practice be guaranteed. The answer is to be found in J101. As explained in para 7
above, J101 requires the annual probability of failure to be in the range of one in
10,000 to one in 100,000, and specifically provides that, if a service life is not
specified in a contract “20 years should be used”, which ties in with the proposition,
agreed between the parties, that an offshore wind farm is typically designed for a
20-year lifetime. This aspect could be expanded on substantially by reference to the
detailed terms, requirements and recommendations of J101. In particular, one of the
two so-called “Limit States” in terms of loadbearing requirements, FLS, is
calculated by reference to the design life of the structure in question: hence para
C201 of section 2 and para K104 of section 7 referred to in para 7 above. However,
the simple point is that J101, while concerned with making recommendations and
requirements linked to the intended life of a structure to which it applies, makes it
clear that there is a risk, which it quantifies, of that life being shortened. That risk
is, in my view, the risk which should be treated as incorporated in para 3.2.2.2(ii) –
if it is indeed concerned with the designed life of the Works.
Page 12
32. It is unnecessary to decide whether para 3.2.2.2(ii) is a warranty that the
foundations will have a lifetime of 20 years or a contractual term that the foundations
will be designed to have such a lifetime. The former meaning has been taken as
correct by the parties and by the courts below, but, for the reasons given in paras 28
to 31 above, I am currently inclined to favour the latter meaning. On the other hand,
as the TR were produced and, to an extent, acted on before the Contract was agreed,
it may be questionable whether it would be right to interpret the TR by reference to
clauses of the Contract. However, it is clear that, if para 3.2.2.2(ii) is an effective
term of the Contract, it was breached by MTH whichever meaning it has, and
therefore the issue need not be resolved.
33. I turn then to the central issue on this appeal.
The enforceability of para 3.2.2.2(ii) according to its terms: introductory
34. E.ON’s case is that para 3.2.2.2(ii) of the TR is incorporated into the
Contract, because (i) clause 8.1(x) of the Contract required the Works to be fit for
purpose, (ii) Part C of the Contract equated fitness for purpose with compliance with
the Employer’s Requirements, (iii) Part C also defined Employer’s Requirements as
including the contents of the TR, and (iv) the TR included para 3.2.2.2(ii), which
specifically refers to the foundations having a life of 20 years. On that basis, E.ON
argues that para 3.2.2.2(ii) was clearly infringed, and, as it was a term of the
Contract, it must follow that MTH is, as Edwards-Stuart J held, liable for breach of
contract.
35. By contrast, MTH supports the reasoning of Jackson LJ, and contends that it
is clear that the Contract stipulated that the Works must be constructed in accordance
with the requirements of J101 (and with appropriate care), and it is unconvincing to
suggest that a provision such as para 3.2.2.2(ii) of the TR renders MTH liable for
faulty construction, given that the Works were constructed fully in accordance with
J101 (and with appropriate care). MTH contends that the references to a 20-year life
in various provisions of the TR, including para 3.2.2.2(ii), ultimately do no more
than reflect the fact that, as envisaged by J101, Part 1.6 of the TR specifies a “design
life” for the Works. MTH also adopts Jackson LJ’s description of the contractual
documentation as being “of multiple authorship [and] contain[ing] much loose
wording”, and that it includes many “ambiguities, infelicities and inconsistencies”
(quoting Lord Collins in In re Sigma Finance Corp (in administrative receivership)
[2010] 1 All ER 571, para 35). More specifically, MTH makes the points that the
TR are “in their nature technical rather than legal”, and that if the parties had
intended MTH to warrant that the foundations would have a 20-year lifetime, or that
they would be designed to have a 20-year life, a term to that effect would have been
included in plain terms, probably as a Key Functional Requirement in para 1.6 of
the TR.
Page 13
36. As already explained, it appears to me that, if one considers the natural
meaning of para 3.2.2.2(ii) of the TR, it involved MTH warranting either that the
foundations would have a lifetime of 20 years (as Jackson LJ accepted) or agreeing
that the design of the foundations would be such as to give them a lifetime of 20
years. As Mr Streatfeild-James realistically accepted, the combination of the terms
of clause 8.1(x) of the Contract and the definitions of “Employer’s Requirements”
and “Fit for Purpose” result in the provisions of the TR being effectively
incorporated into the Contract – unsurprisingly as they are included in the contractual
documentation as Part I. In those circumstances, I consider that there are only two
arguments open to MTH as to why the paragraph should not be given its natural
effect (and while they are separate arguments, they can fairly be said to be mutually
reinforcing). The first argument is that such an interpretation results in an obligation
which is inconsistent with MTH’s obligation to construct the Works in accordance
with J101. The second argument is that para 3.2.2.2(ii) is simply too slender a thread
on which to hang such an important and potentially onerous obligation.
The enforceability of para 3.2.2.2(ii) according to its terms: inconsistency with
J101
37. There have been a number of cases where 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. The reconciliation of the
terms, and the determination of their combined effect must, of course, be decided by
reference to ordinary principles of contractual interpretation (as recently discussed
in Wood v Capita Insurance Services Ltd [2017] 2 WLR 1095, paras 8 to 15 and the
cases cited there), and therefore by reference to the provisions of the particular
contract and its commercial context. However, it is worth considering some of the
cases where such an issue has been discussed.
38. Thorn v The Mayor and Commonalty of London (1876) 1 App Cas 120 has
been treated as the first decision on this point (including in the judgments discussed
in paras 39 to 43 below), although it seems to me to be only of indirect relevance.
The contractor successfully tendered for work involving the replacement of the
existing Blackfriars Bridge pursuant to an employer’s invitation, which stated that
the work was to be carried out pursuant to a specification. The specification included
wrought iron caissons which were to form the foundations of the piers “as shewn on
[certain] drawings” (p 121). It subsequently turned out that the caissons as designed
“would not answer to their purpose, and the plan of the work was altered”, causing
consequential expense and delay to the contractor (p 122). The contractor’s claim
was based on the contention that the employer had impliedly warranted that the
bridge could be built according to the specification. The unanimous rejection of the
existence of such a warranty by the House of Lords does not directly relate to the
Page 14
issue in this case. However, it is worth noting that, as reconstruction of the bridge
had been completed, the employer was not responsible for the contractor’s losses
and expenses flowing from the defective specification (at least on the basis of an
implied warranty). Rather more to the point, the speeches of Lord Chelmsford (at
pp 132 to 133) and Lord O’Hagan (at p 138) strongly indicate that 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.
39. The Hydraulic Engineering Co Ltd v Spencer and Sons (1886) 2 TLR 554
appears to me to be more directly in point. In that case, the defendants contracted to
make and deliver to the plaintiffs 15 cast iron cylinders. The contract provided that
the cylinders 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. The Court of Appeal, upholding Coleridge CJ, rejected the defendants’
contention that, because “the flaw was the inevitable result of the plan upon which
the plaintiffs ordered them to do the work the defendants could not be held liable for
a defect caused by that plan” (to quote from the report of counsel’s argument).
Lindley LJ said that “it was manifest that the defendants thought that they could cast
the cylinders on [the] pattern [sent by the plaintiffs] without defects”. Although he
accepted that “the defect was unavoidable”, he said that “[t]here was no doubt that
it was a defect” and “the [defendants] were therefore liable”. Lord Esher MR and
Lopes LJ agreed.
40. A similar view was taken in Scotland by the Inner House in A M Gillespie &
Co v John Howden & Co (1885) 22 SLR 527, where a customer ordered a ship from
shipbuilders pursuant to a contract which required the ship “to carry 1,800 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 1,800 tons
deadweight, and the shipbuilders argued that they should not be liable for damages
because it would have been impossible to construct a ship capable of carrying 1,800
tons according to the model approved by the customer. Upholding the SheriffSubstitute, Lord Rutherfurd-Clark (with whom Lords Craighill and Young agreed)
said at p 528 that “this [was] no defence”, as “[t]he fact remains that the
[shipbuilders] undertook a contract which they could not fulfil and they are
consequently liable in damages for the breach”.
41. The issue has also come up in the courts of Canada. In The Steel Company of
Canada Ltd v Willand Management Ltd [1966] SCR 746, the respondents were
claiming for repair work to three defective roofs on buildings which they had
constructed for the appellants. The respondents argued that the defects were not their
fault, as they had constructed the buildings under a contract which required them to
comply with the requirements of the appellants, and the defects resulted from defects
in those requirements. Reversing the Ontario Court of Appeal, the Supreme Court
Page 15
of Canada rejected this argument on the ground that the contract also contained a
term that the respondent guaranteed that all work would remain weather tight and
that all material and workmanship would be first class and without defect. In the
course of giving the judgment of the court, Ritchie J at p 751 rejected the
respondents’ contention, which was supported by a decision of the courts of New
York, that they “guaranteed only that, as to the work done by it, the roof would be
weather-tight in so far as the plans and specifications with which it had to comply
would allow”, and at pp 753 to 754 approved a statement in the then current (8th)
edition of Hudson’s Building and Engineering Contracts, p 147, to this effect:
“generally the express obligation to construct a work capable
of carrying out the duty in question overrides the obligation to
comply with the plans and specifications, and the contractor
will be liable for the failure of the work notwithstanding that it
is carried out in accordance with the plans and specification.
Nor will he be entitled to extra payment for amending the work
so that it will perform the stipulated duty.”
42. The reasoning of the Canadian Supreme Court was fairly recently applied by
the Court of Appeal for British Columbia in Greater Vancouver Water District v
North American Pipe & Steel Ltd 2012 BCCA 337, where a “clear and
unambiguous” provision whereby a supplier “warrant[ed] and guarantee[d]” that the
supplied goods were “free from all defects … arising from faulty design” was held
to apply in full, notwithstanding the immediately preceding warranty by the supplier
that the goods would “conform to all applicable specifications”, and that those
specifications were unsatisfactory and led to the defect complained of.
43. The law on the topic was well summarised by Lord Wright in Cammell Laird
and Co Ltd v The Manganese Bronze and Brass Co Ltd [1934] AC 402, 425, where
he said that “[i]t has been laid down that where a manufacturer or builder undertakes
to produce a finished result according to a design or plan, he may be still bound by
his bargain even though he can show an unanticipated difficulty or even
impossibility in achieving the result desired with the plans or specification”. After
referring to Thorn as being “[s]uch a case”, he mentioned Gillespie v Howden (1885)
12 R 800, where “the Court of Session held it was no defence to a shipbuilder who
had contracted to build a ship of a certain design and of a certain carrying capacity,
that it was impossible with the approved design to achieve the agreed capacity: the
shipbuilder had to answer in damages”. Lord Wright then went on to explain that
“[t]hough this is the general principle of law, its application in respect of any
particular contract must vary with the terms and circumstances of that contract”.
44. 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,
Page 16
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 by no means follows that the two terms are mutually
inconsistent. That may be the right analysis in some cases (and it appears pretty clear
that it was the view of the Inner House in relation to the contract in A M Gillespie).
However, in many contracts, the proper analysis may well be that 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. While each case must turn on its own facts,
the message from decisions and observations of judges in the United Kingdom and
Canada is 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 he agreed to work to a design
which would render the item incapable of meeting the criteria to which he has
agreed.
45. Turning to the centrally relevant contractual provisions in the instant case, it
seems to me that MTH’s case, namely that the obligation which appears to be
imposed by para 3.2.2.2(ii) is inconsistent with the obligation imposed by para
3.2.2.2(i) to comply with J101, faces an insurmountable difficulty. The opening
provision of Section 3, para 3.1, (i) “stresse[s]” that “the requirements contained in
this section … are the MINIMUM requirements of [E.ON] to be taken into account
in the design”, and (ii) goes on to provide that it is “the responsibility of [MTH] to
identify any areas where the works need to be designed to any additional or more
rigorous requirements or parameters”. In those circumstances, in my judgment,
where two provisions of Section 3 impose different or inconsistent standards or
requirements, rather than concluding that they are inconsistent, the correct analysis
by virtue of para 3.1(i) is that the more rigorous or demanding of the two standards
or requirements must prevail, as the less rigorous can properly be treated as a
minimum requirement. Further, if there is an inconsistency between a design
requirement and the required criteria, it appears to me that the effect of para 3.1(ii)
would be to make it clear that, although it may have complied with the design
requirement, MTH would be liable for the failure to comply with the required
criteria, as it was MTH’s duty to identify the need to improve on the design
accordingly.
46. As to the facts of the present case, para 3.2.2.2(i) could indeed be said to
require that (as recorded in the note to the Equation in J101) δ should “be taken as
0.00037 Rp for rolled steel surfaces”, and, as explained above, this was a mistake,
in that it substantially over-estimated the connection strength. However, given the
terms of para 3.1(i), this figure for δ was a “MINIMUM requirement”, and, if para
3.2.2.2(ii) was to be complied with, the value of δ stipulated by J101 had to be
Page 17
decreased (as it happens by a factor of around ten). Furthermore, para 3.1(ii) makes
it clear that MTH should have identified that there was a need for a “more rigorous”
requirement than δ being “taken as 0.00037 Rp” to ensure that the design was
satisfactory, or at least complied with para 3.2.2.2(ii).
47. It is right to add that, even without para 3.1(i) and (ii), I would have reached
the same conclusion. Even in the absence of those paragraphs, it cannot have been
envisaged that MTH would be in breach of its obligations under para 3.2.2.2(i) if it
designed the foundations on the basis of δ being less than 0.00037 Rp for rolled steel
surfaces. Accordingly, at least in relation to the Equation, it represented a minimum
standard even in the absence of paras 3.1(i) and (ii), and therefore there would have
been no inconsistency between para 3.2.2.2(i) and 3.2.2.2(ii). I also draw assistance
in reaching that conclusion from the cases discussed in paras 38 to 43 above. The
notion that the Contractor might be expected to depart from the stipulations of J101,
where appropriate, is also supported by para 3.1.2 of the TR, which specifically
envisages that the Contractor’s Foundation Design Basis document may include
“departures from … standards”, and J101 is expressly treated as a “standard” in para
3.2.3.2. In addition, given that satisfaction of the Equation is required to justify the
absence of shear keys, E.ON’s contention is assisted by the terms of para 10.5.1,
which starts by stating that MTH “shall determine whether to employ shear keys
within the grouted connection”; had shear keys been provided, the problems which
arose would, it appears, have been averted.
The enforceability of para 3.2.2.2(ii) according to its terms: too slender a thread
48. MTH relies on a number of factors to support the contention that para
3.2.2.2(ii) of the TR is too weak a basis on which to rest a contention that it had a
liability to warrant that the foundations would survive for 20 years or would be
designed so as to achieve 20 years of lifetime. First, it is said that the diffuse and
unsatisfactorily drafted nature of the contractual arrangements, with their
ambiguities and inconsistencies, should be “recognised and taken into account”. The
contractual arrangements are certainly long, diffuse and multi-authored with much
in the way of detailed description in the TR, and “belt and braces” provisions both
in the TR and the Contract. However, that does not alter the fact that the court has
to do its best to interpret the contractual arrangements by reference to normal
principles. As Lord Bridge of Harwich said, giving the judgment of the Privy
Council in Mitsui Construction Co Ltd v Attorney General of Hong Kong (1986) 33
BLR 7, 14, “inelegant and clumsy” drafting of “a badly drafted contract” is not a
“reason to depart from the fundamental rule of construction of contractual
documents that the intention of the parties must be ascertained from the language
that they have used interpreted in the light of the relevant factual situation in which
the contract was made”, although he added that “the poorer the quality of the
drafting, the less willing any court should be to be driven by semantic niceties to
attribute to the parties an improbable and unbusinesslike intention”. In this case,
Page 18
para 3.2.2.2(ii) is clear in its terms in that it appears to impose a duty on MTH which
involves the foundations having a lifetime of 20 years (although, as discussed in
paras 27 to 32, there is room for argument as to its precise effect). I do not see why
that can be said to be an “improbable [or] unbusinesslike” interpretation, especially
as it is the natural meaning of the words used and is unsurprising in the light of the
references in the TR to the design life of the Works being 20 years, and the
stipulation that the requirements of the TR are “minimum”.
49. Secondly, MTH argues that it is surprising that such an onerous obligation is
found only in a part of a paragraph of the TR, essentially a technical document,
rather than spelled out in the Contract. Given that it is clear from the terms of the
Contract that the provisions of the TR are intended to be of contractual effect, I am
not impressed with that point.
50. Thirdly, MTH suggests that, given the other obligations with regard to
design, manufacture, testing, delivery, installation and completion expressly
included, or impliedly incorporated, in clause 8.1 of the Contract, it is unlikely that
an additional further and onerous obligation was intended to have been included in
the TR. The trouble with that argument is that it involves saying that para 3.2.2.2(ii)
adds nothing to other provisions of the TR or the contract. I accept that redundancy
is not normally a powerful reason for declining to give a contractual provision its
natural meaning especially in a diffuse and multi-authored contract (see In re
Lehman Bros International (Europe) (in administration) (No 4) [2017] 2 WLR
1497, para 67). However, it is very different, and much more difficult, to argue that
a contractual provision should not be given its natural meaning, and should instead
be given no meaning or a meaning which renders it redundant.
51. Fourthly, MTH argues that, if the parties had intended a warranty or term
such as is contended for by E.ON, it would not have been “tucked away” in para
3.2.2.2 of the TR, but would, for instance, have been a Key Functional Requirement
in Section 1.6 of the TR. Section 1.6 is concerned with general provisions about the
two proposed wind farms, and there is no reference in it to any specific component,
in particular the foundations. In any event, as mentioned in para 4 above, the Key
Functional Requirements include a requirement “for a minimum site specific ‘design
life’ of twenty (20) years without major retrofits or refurbishments”, and there is no
definition of that expression. Jackson LJ said below, in para 91, “If a structure has a
design life of 20 years, that does not mean that inevitably it will function for 20
years, although it probably will.” Assuming (without deciding) that that is correct,
it seems to me that there is a powerful case for saying that, given a Key Functional
Requirement is that there is a minimum 20-year design life, it is scarcely surprising
that a provision dealing with the “General Design Conditions” at the “Detailed
Design Stage” includes a provision which has the effect for which E.ON contends
in this case.
Page 19
52. Fifthly, MTH contends that the TR are concerned in a number of places (eg
paras 1.6, 3.2.6 and 3b.5.6) with emphasising that the “design life” of the Works or
various components of the Works should be 20 years, which does not carry with it
a warranty that the Works, or foundations, will last for 20 years or that they will be
designed to last for 20 years, and so it is unlikely that para 3.2.2.2(ii) was concerned
with imposing a greater obligation on MTH. The points I have already made at the
end of para 49 and the end of para 50 above appear to me to answer this contention.
53. Sixthly, MTH points out that para 3.2.2.2(ii) was concerned with planned
maintenance and should not be given the sort of broad effect which E.ON’s case
involves. It appears to me that the reference to planned maintenance at the end of
the first sentence of para 3.2.2.2(ii) emphasises that the design of the foundations
should not simply be such as to last for 20 years, but should be able to do so without
the need for planned maintenance.
Conclusion
54. In these circumstances, I would allow E.ON’s appeal and restore the order
made at first instance by Edwards-Stuart J.
