In the case of MT Højgaard A/S v E.On Climate And Renewables UK Robin Rigg East Ltd & Anor [2015] EWCA Civ 407, the Court of Appeal dealt with the issue of whether a contractor who is required to comply with industry standards can be held liable if such compliance results in a defect.

Background

The contractor, MT Hojgaard A/S (“MTH”) was contracted to provide foundations for offshore wind turbines in the Solway Firth.  The requirements provided that the design and construction had to accord with DNV-OS-J101 (“J101”), the applicable international standard relating to offshore windfarm construction.

However, J101 as a standard was later revealed to be incorrect.  In particular, a formula to determine whether “shear keys” would be required was wrong. The works were completed in accordance with the standard and without shear keys.  When the foundations started to fail in 2010, the parties completed €26.25m of remedial works, leaving the issue of liability to be decided.

Decision

The Court concluded that it was possible at law for a contractor to be required to comply with an established industry standard and specification, but also to warrant that a particular result would be achieved.

However, on the facts, the Court held that the contractual documents, which were of “multiple authorship” and contained “much loose wording”, did not give rise to such a further obligation on MTH.  This was because:

• A requirement in the Technical Requirements (“TR”) that the “design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement” was not held to give rise to an absolute obligation to ensure a 20 year service life.  Other references in the same document were to a 20 year “design life”.  It was noted that the contract conditions took precedence over the TR and, if an absolute warranty of quality had existed, one would expect to see it in the contract itself, not “tucked away in the Technical Requirements”.
• The contractual conditions themselves contained no absolute warranty, instead requiring compliance with good industry practice, professional skill etc.
• The warranty in the contractual conditions that the works would comply with the employer’s requirements, including the TR, did not contain a free-standing warranty or guarantee.
• The warranty that the works as a whole should be “fit for purpose” was qualified by the further wording, “as determined in accordance with the Specification using Good Industry Practice”.  Good Industry Practice was further defined, including a reference to recognised standards, and therefore the incorrect standard J101.
• The two instances in the drafting of the TR where it was suggested that a 20 year lifetime was guaranteed (as opposed to merely expected based on the design and accepted standards), were inconsistent with the rest of the TR, J101 and were “too slender a thread upon which to hang a finding that MTH gave a warranty of 20 years life for the foundations”.

WAB Comment

The Court of Appeal’s decision highlights a problem that exists in many contracts, whether for the construction of wind farms or the development of software, being inconsistency between primarily technical and primarily legal contractual documents.  Multiple authorship, where the drafting of such documents is split between legal experts on one hand and technical experts on the other, is often to blame.

The Court’s interpretation was based on the approach as stated by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 of “what a reasonable person, having regard to all the background knowledge which would have been available to the parties, would have understood them to be using the language of the contract to mean”.  The Court was therefore not required to follow the strict literal meaning of those provisions imposing the most stringent requirements on MTH, if that frustrated the commercial purpose.

Beyond striving to avoid inconsistency, the simple lesson for drafters is to set out the real extent of what is warranted clearly in the main body of the contract.  It cannot be assumed that referring out to separate technical documents containing such obligations will be effective.