As 2018 kicks off, we thought we’d take a look back over a few of the key decisions from last year – this is the first in our series. In MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another [2017] UKSC 59, the Supreme Court, in a significant judgment for the construction industry, allowed E.ON’s appeal and restored the first instance decision of Edwards-Stuart J in the Technology and Construction Court.

Background

E.ON appointed MT Højgaard A/S (“MTH”) under a contract dated 20 December 2006 to design, build and install two offshore wind farms. Unfortunately, some of the turbines developed significant faults shortly after construction was completed and costly repairs were necessary.

This litigation concerned who should be liable for the costs of those repairs and involved a detailed examination of the documents and obligations that formed the contract between E.ON and MTH. The basis of the dispute was whether or not MTH was under a fitness of purpose type obligation which was contained in a technical schedule in the contract. This had the effect of a warranty that the turbine component would not fail within a certain timeframe (20 years). This was despite obligations on MTH elsewhere in the contract to exercise reasonable skill and care and to comply with an international standard (J101) – which as it turned out, was erroneous and even if met, was insufficient to ensure the standard in the technical document was achieved.

E.ON’s tender documents included a set of Employer’s Requirements, which in turn had a set of Technical Requirements within them. It was clear from the Technical Requirements that E.ON wanted a design which would ensure the wind turbines would last for 20 years without the need for repair or refurbishment. The Technical Requirements also stated that the successful contractor would have responsibility for identifying any changes which needed to be made to the designs to ensure that they met a higher fitness for purpose threshold. These references indicated that these requirements were a minimum for the contractor to comply with. J101 was also a required standard to be met in the design and build project.

MTH submitted a tender based on these requirements, which E.ON accepted. The parties subsequently entered into a binding contract for MTH to ‘design, fabricate and install the foundations for the proposed turbines’. The Employer’s Requirements (including the Technical Requirements) and J101 formed part of the contract.

Once MTH had completed the works, it was discovered that there was an inaccuracy in J101, which meant that significant remedial works were required to MTH’s works. MTH did not consider that they should be liable for the cost of these works, as they had complied with the international standards and did not accept that the Technical Requirements placed them under a fitness for purpose obligation.

Decision

The Supreme Court concluded that MTH was liable for breaching the fitness for purpose obligations, which obliged them to deliver foundations that would have a minimum life of 20 years. This was in spite of the fact that (i) the mistaken variable (J101) was an industry standard that E.ON themselves had requested (ii) E.ON accepted the tender on the basis of the design that MTH had submitted and (iii) the design obligation on MTH was stated to be one of reasonable skill and care.

Implications

This is potentially an enormously significant decision for the construction industry. From an employer’s perspective, the case gives clear support for the position that if the technical requirements (properly incorporated into the contract) contain fitness for purpose obligations, then notwithstanding reasonable skill and care obligations elsewhere in the contract, the contractor will be required to meet the higher standard.