Supreme Court Rules on Conflicting Contractual Standards

Assignment of insurance policies and claims in insolvency

In MT Højgaard A/S v E.ON Climate and Renewables UK, the Supreme Court has found the contractor liable to comply with a more onerous “fitness for purpose” obligation contained in a technical schedule despite less onerous obligations elsewhere in the contract to exercise “reasonable skill and care” and comply with international standards.

 

Background

MT Højgaard (“MTH”) was appointed by E.ON to design and install foundation structures for 60 offshore wind turbines in the Solway Firth.  Shortly after completion, the foundation structures failed. E.ON developed a scheme of remedial works, at a cost of around €26 million and litigation ensued to determine which party should bear those remedial costs.

In April 2014, the TCC held that MTH was liable to E.ON for breach of contract because the design was not fit for purpose and should bear the cost of remedial works. The court’s reasoning was based on two paragraphs in the Technical Requirements Schedule which required that the design of the foundations “shall ensure a lifetime of 20 years in every aspect without planned replacement”. This provision applied in addition to MTH’s other less onerous obligation to exercise reasonable skill and care and to comply with an international standard for the design of offshore wind turbines.

The Court of Appeal overturned the TCC’s decision, finding that the Technical Requirements Schedule was inconsistent with the rest of the contract and, in particular, the obligation to comply with international standards. The two relevant paragraphs were described as being "tucked away" in the Technical Requirements Schedules.

Decision

In a unanimous decision, the Supreme Court has overturned the Court of Appeal’s decision and restored the original findings of the TCC. 

The Supreme Court disagreed that the relevant paragraphs of the Technical Requirements Schedule were insufficiently prominent to support the more onerous fitness for purpose obligation alleged by E.ON.  Given that the Technical Requirements Schedule had been given contractual force by the parties, it was to be taken at face value. 

Conclusion

This decision is significant for the interpretation of construction contracts, which routinely incorporate schedules and technical documentation each often containing differing legal standards of design and workmanship.  It should also be of interest to anybody involved in producing contracts and schedules more generally.  Whilst no new law has been created, the case serves as a timely reminder to parties to ensure that both the front-end of the agreement and all schedules are reviewed in sufficient detail and thoroughly understood.  Parties ought to consider how technical schedules affect other contractual obligations and the parties may, for example, include conflict and precedence provisions to clarify the interplay between them.

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