This month, the UK’s Supreme Court has given its verdict in the construction dispute involving MT Højgaard and E.On Climate & Renewables at the 174MW offshore wind farm Robin Rigg.

Rebecca Williams, partner in the dispute resolution team at law firm Watson Farley & Williams says the case shows why firms should take care when allocating design risk under construction contracts.

The Case

E.On employed Danish engineering group MT Højgaard to design and build foundations for the Robin Rigg offshore wind farm, agreeing to base the design upon international design standard J101. However, an error within J101 resulted in a design that substantially overestimated the foundations’ strength. The foundations began to fail shortly after completion, and a dispute arose as to who was liable for the cost of remedying the defect.

The Court addressed whether MTH had breached a contractual provision of ‘ensuring a life […] of 20 years’, despite employing due care and skill and having complied with J101. It considered the ‘natural meaning’ of these provisions to be a warranty either for an intended design life or for an absolute service life.

The Court did not decide definitively between these, but held that MTH had failed in its obligation either way and that there was no inconsistency between a warranty for fitness for purpose and an obligation to comply with J101. Since the contract expressed compliance with J101 to be a minimum standard only, MTH bore responsibility for ensuring a design life of 20 years, even where J101 itself fell short of that standard.

Comment

This decision is a harsh result for contractors and suppliers in the offshore industry, albeit consistent with the approach taken by the Supreme Court in recent cases such as Wood v Capita and Arnold v Britton. Parties will be held to the agreement they have reached as it appears from the contract in question, and may be held liable even in the absence of any negligence. Commercial teams should therefore be very clear about the allocation of risks under the bargain which has been struck.

The result could significantly affect the terms of future offshore wind deals, the up-front costs associated with contract drafting, the risk assessment of existing deals, insurance premiums and finance packages. Parties will need to carefully consider the interaction of main provisions of construction contracts with the detailed Technical Requirements to ensure consistency and clarity across all components of the contract. In particular, it will be important to maintain dialogue across teams working on contracts, as separate parts of the contract can no longer be treated as compartmentalised.

You can read the full judgment here