Features - Legislation

Contract error leads to legal showdown



Can an absolute obligation and an obligation to carry out a design using the required level of skill and care coexist in the same contract? The recent case of MT Højgaard A/s v E.ON Climate And Renewables & Ors [2014] EWHC 1088 (TCC) indicates they can.

In 2006 the Claimant (MT Højgaard), a contractor, entered into an agreement with the Defendant (E.ON Climate and Renewables UK Robin Rigg East Ltd and E.ON Climate and Renewables UK Robin Rigg West Ltd) for the design, fabrication and installation of the foundation for 60 wind turbine generators.

The contract between the parties contained the following clause:

8.1 GENERAL OBLIGATIONS:

The Contractor shall, in accordance with this Agreement design, manufacture, test, deliver and install the complete Works:

with due care and diligence expected of appropriately qualified and experienced designers, engineers and constructors (as the case may be)

(iv) in a professional manner in accordance with Good Industry Practice
(viii)so that the Works, when completed, comply with the requirements of the Agreement
(x)so that each item of Plant and the Works as a whole shall be fit for its purpose as determined in accordance with the Specification using Good Industry Practice
(xv)so that the design of the Works and the Works when completed by the Contractor shall be wholly in accordance with this Agreement and shall satisfy any performance specification or requirements of the Employer as set out in this Agreement …”

Further the Employers Requirements stated that The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement.

The foundations were fabricated in accordance with the industry standards. It later transpired that there was an error in the standards in that a variable in one of the equations was underestimated by a factor of ten. The designer, Rambøll, like everyone else at the time, was unaware of this error when it carried out the design.

The costs of remedying the defects was agreed at 26.25 million. These proceedings were to determine who was liable i.e. which party must bear the responsibility for the error in the standards?

The Claimant argued that the contract merely imposed an obligation to design the foundations on the basis of a 20 year design life in accordance with the standards and it did not take the risk that the standards may contain an error, whilst the Defendant argued that MT Højgaard assumed full responsibility for designand that the contract imposed an absolute obligation to achieve a service life of 20 years. 

Edward-Stuart J looked at the contract as a whole and rejected the submission that an absolute obligation and obligation subject to skill and care cannot coexist in the same contract, these are not mutually incompatible. 

He stated that the existence of an express warranty or fitness for purpose may trump an obligation to comply with a specification. The terms of clause 8.1 were clear and the Claimant warranted that the foundations would have a lifetime of 20 years. The fact that the standard was found to have an error did not diminish the Claimants obligation to provide a structure that would have a lifetime of 20 years. 

This case does not make new law but it serves as a reminder that you must exercise care when agreeing obligations in order to ensure that you are clear as to the risks that you are taking. Obligations to achieve a particular result are onerous and should be avoided. They can also have far reaching and significant consequences as this case illustrates. 

Kasia Dickson, Legal Assistance, Thomas Eggar LLP.

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