Simon Lewis, a partner in the Construction and Engineering team at Womble Bond Dickinson, provides more thoughts and a case law example on the consideration of design liability.

Every now and then a decision is made by the courts which affects the way that contracts will be interpreted for some time to come. The most recent such decision is that handed down by the Supreme Court in M T Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg Limited [2017].

The case

The precise details of the E.ON case are not relevant to the finishes and interiors sector given that they concern the design of an offshore wind array, but the principles which underlie the court’s approach are important for any contractor working in the sector. The case was about design liability, but it was also, more broadly, about the nature of the obligations that one contracting party can have to the other.

The contractor (MTH) was constructing a wind turbine array. Part of the wind turbine tower which supported the generator was known as the transition piece (TP). This was a steel cylinder which fits over the top of the cylindrical steel pile driven into the seabed. The TP was grouted into place and designed to comply with the relevant international standards for the design of offshore wind turbines. One such standard, DNV-OS-J101, in fact contained an error of which no one was aware. A particular value in the equation used for the design of the grouted connection was overestimated by a factor of 10. The effect of this error was that the design was incorrect and, as a result, the TPs failed shortly after the construction of the turbines had been completed.

The contract

The contract entered into by MTH was long and complex and had been drafted by a number of different people. As a result, it was difficult to follow. It contained many obligations on MTH’s part, including an obligation whereby the works would be fit for their purpose as determined by the Specification and using Good Industry Practice, and also that the design of the foundations would ensure a lifetime of 20 years in every aspect without planned replacement. There was also a 24-month warranty period in which the employer (E.ON) could bring any claims after which no further claims could be made.

The outcome

The Technology and Construction Court (TCC) decided that MTH had warranted the foundations would have a 20-year service life but that MTH’s design was not fit for purpose because of the error in standard J101 of which it (and everyone else) was unaware. MTH appealed and the Court of Appeal decided that the contract did not in fact contain a warranty for 20 years’ service life. E.ON appealed and the Supreme Court reversed the Court of Appeal’s decision and agreed with the TCC.

The Supreme Court decided that the contract required that the foundations should be designed to have a lifetime of 20 years. This was not inconsistent with a 24-month warranty period because it would be possible to prove that the foundations had not been designed to have a lifetime of 20 years within this 24-month warranty period even if no failure had actually occurred during that period. The contract provided for a number of minimum requirements and MTH had responsibility to identify any areas where the work needed to be designed to any additional or more rigorous requirements. Consequently, the obligation to comply with J101 was a minimum requirement but there was a further, more specific requirement which was that the foundations would be designed to have a lifetime of 20 years.

The important lessons

There are two particularly important things to bear in mind from all this: first, the court is comfortable with the idea that there can be a double obligation in a contract, where a contractor is required to comply with specified design standards and achieve a particular result as well. Secondly, given that MTH had agreed to this specific 20-year design life requirement, the fact that it was actually impossible for the turbines to achieve a 20-year design life did not mean that MTH could not be found liable when the turbines failed. The contractor takes the risk if it agrees to work to a design which would render the work incapable of actually meeting the design requirements. This raises the inevitable question of how on earth contractors should be expected to price for the risk of correctly following a design code only to discover that that code is wrong.

There are obvious implications for the way in which large and complex projects such as wind turbine arrays are procured and priced in the future, but the more general point to bear in mind is one which you will have heard many times: make sure you understand what it is you are agreeing to when you sign a contract or receive a set of terms and conditions. The court will hold you to your obligations even if they appear to be inconsistent with each other. In short, always read the small print.

As of 1 November 2017, Bond Dickinson became Womble Bond Dickinson following its combination with US law firm Womble Carlyle Sandridge & Rice LLP.