Design and build contract – minimum lifespan provision taking precedence over specific design requirements agreed upon
The employer, EON, accepted the tender of the contractor, MTH, to design and build the generators for two adjacent windfarms in the Solway Firth.
The contract contained a provision regulating the hierarchy of documents, with the contract provisions placed first and the employer’s requirements, including its technical requirements, placed fourth.
The employer’s technical requirements required the contractor to prepare a detailed design of the foundations in accordance with the prevailing industry standard (“J101”) formulated by Det Norske Veritas (DNV), an independent classification and certification agency.
The same clause provided:
“The design of the foundations shall ensure a life time of 20 years in every aspect without planned replacement. The choice of structure, materials, corrosion protection system operation and inspection program shall be made accordingly.”
A further provision stated: “All parts of the works, except wear parts and consumables shall be designed for a minimum service life of 20 years.”
The contractor designed the foundations: steel piles driven into the seabed with steel sleaves placed over them. The space between the outer sleave and the pile was filled with grout.
Shortly after construction, the foundations failed with the sleaves slipping down over the piles.
It was discovered that a component of the J101 specification was erroneous which led to the under design of the foundations.
The parties agreed to carry out remedial works to the value of approximately €26m and to refer the question of liability to the court.
After an 8 day trial, Edwards-Stuart J in the Technology and Construction Court, found in favour of the employer.
Relying on a passage in the 8th edition of Hudson (repeated in the current, 12th edition) and Canadian cases, he held that the contractor had warranted a minimum lifespan. This was not inconsistent with the specified design regimen (J101) because J101 was only a minimum requirement.
The Court of Appeal, per Jackson LJ (Patten and Underhill LJJ concurring), thought otherwise.
In a convincing analysis, Jackson LJ pointed out that the contractor had employed the design standard expressly required by the contract. There was therefore a conflict between this obligation and the undertaking to provide a design with a minimum life of 20 years.
He quoted Lord Collins in Re Sigma Corp (UKSC) 2009:
“In complex documents of the kind in issue, there are bound to be ambiguities, infelicities and inconsistencies. An over-literal interpretation of one provision without regard to the whole may distort or frustrate commercial purpose.”
An illuminating passage in Jackson LJ’s judgment is:
“In essence, a court seeking to construe the contract between EON and MTH must postulate a reasonable person (X) having all the knowledge available to those two parties. The Court must consider what (X) would have understood [by the specific provisions]. This is an iterative process, which involves checking each of the rival meanings against the other contractual provisions and investigating its commercial consequences. The Court must accept that there are likely to be ambiguities and inconstencies within the documents [my emphasis]. It must not allow itself to be led astray by those ambiguities and inconsistencies. Approaching matters in that way the Court must determine whether or not clause 8.1 of the contract conditions in conjunction with TR paragraph 18.104.22.168 (2) required MTH not only to comply with J101 but also to achieve a result, namely, foundations with a service life of 20 years.”
Jackson LJ concluded as follows:
“A reasonable person in the position of EON and MTH would know that the normal standard required in the construction of offshore windfarms was compliance with J101 and that such compliance was expected by not absolutely guaranteed, to produce a life of 20 years. If one adopts an iterative approach to the construction of TR paragraphs 22.214.171.124 (2) and 3b 5(1) it does not make sense to regard them as overriding all over provisions of the contract and converting it into one with a guarantee of 20 years life. Put another way, there is an inconsistency between TR paragraph 126.96.36.199 (2) and 3b 5 (1) on the one hand and all the other contractual provisions on the other hand. The Court must not be led astray by that inconsistency.”
The UKSC, Lord Neuberger (Lords Mance, Clarke, Sumption and Hodge concurring) preferred and restored the judge at first instance.
At one level, the outcome in the Court of Appeal is more realistic. It recognizes that there are inconsistencies in complex, multi authored contracts such as this. The default position where there is no fault on either side is that a loss lies where it falls. In a case such as this, there was no sound reason to prefer one of the conflicting provisions over the other.
On another level, the case illustrates the hazards of litigation: among the finest judges in the world there was stark disagreement and the outcome in the Court of Appeal could easily have been the last word on the dispute.