Mark Bailey sees important lessons for tech lawyers in a case concerning wind farm design defects
A case on the defective design and build of wind farm machinery bases (MT Højgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Limited and another  UKSC 59 on appeal from  EWCA Civ 407) is of potential relevance in contracts for other sectors which are reliant on design standards according to international or national standards.
This case has obvious similarities with the way in which many outsourcing and IT services or information security contracts are constructed by reference to a technical specification overlaid with more general obligations of fitness for purpose or performance according to good or best industry practice. The case deserves careful reading by suppliers of complex IT and information security services to establish and eliminate possible risk of a similar adverse contractual result.
In the case, wider general design warranties overrode the specific minimum design standards prescribed in the technical standards used for the construction, increasing the liability of the supplier.
Facts of the case
The case arose from defective foundation structures for two offshore wind farms in the Solway Firth, designed and installed by MT Højgaard A/S ("MTH"). The defects were discovered shortly after completion of the project. The judge at first instance found in favour of E.ON ruling that MTH were liable for the defects and although the Court of Appeal unanimously disagreed, the Supreme Court again ruled in favour of E.ON. The court had to look at a complex document set for the design and build of the foundation structures. Jackson LJ's comment in the Court of Appeal that the issue was ‘how the court should construe the somewhat diffuse documents which constituted, or were incorporated into, the “design and build” contract’ should be viewed.
In the case, the contract provided
that MTH would design the turbines to have a minimum site specific design life
of 20 years without major retrofits or refurbishments. The contract
specifically provided that the basis of design was a minimum requirement for
the design and it was the responsibility of MTH to identify areas where works
needed to be designed to additional or more rigorous requirements or
parameters. The design principles, in particular paragraph 188.8.131.52(ii), stated ‘The
design of the foundation shall ensure a lifetime of 20 years in every aspect
without planned replacement. The choice of structure, materials, corrosion
protection system operation and inspection programme shall be made accordingly’.
The minimum standard specified was international standard J101.
The agreement required MTH to design in accordance with ‘international and national rules, circulars, EU directives, executive orders and standards applying to the Site’. In particular, the works had to be completed in a professional manner in accordance with modern commercial and engineering, design project management and supervisory principles and practices and in accordance with internationally recognised standards and Good Industry Practice and in addition in accordance with all legal requirements, with the effect that the works had to be free from defective workmanship and materials and fit for purpose as determined in accordance with the technical specification using Good Industry Practice.
It became quickly obvious that the works would not have a design life of 20 years. The question for the court was whether MTH was in breach of contract despite the fact it had used due care and skill and acted in accordance with Good Industry Practice and with the specific requirements of standard J101 (which contained an error). The court determined that MTH was liable. On an interpretation of the contract, E.ON had 24 months to discover that the foundations were not, in fact, designed to last for 20 years and therefore the cost of remedial works amounting to some £26 million had to be borne by MTH.
The court referred to a number of cases where contracts included two terms, one requiring production of an article in accordance with a specified design and the other requiring the article to meet particular performance criteria and how any inconsistencies were resolved. The court stated (at ):
‘In those circumstances, in my judgment, where the two provisions of Section 3 impose different or inconsistent standards or requirements, rather than concluding that they are inconsistent, the correct analysis by virtue of paragraph 3.1(i) is that the more rigorous or demanding of the two standards or requirements must prevail as the less vigorous can probably be treated as a minimum requirement.’
The court noted that the contract was ‘long, diffuse and multi-authored with much in the way of detailed description in the [technical requirements] and “belt and braces” provisions both in the [technical requirements] and the contract’. The court still had to interpret these according to normal principles.
Lessons for technology agreements
In many contracts reference to standards are becoming increasingly common, particularly information security standards such as ISO27001 and ISO 27018 (cloud services) and many other more specific environmental and technical standards. Lessons from the case are clear:
The case therefore deserves careful study and interpretation and/or consideration alongside GDPR compliance programmes to ensure that all the good work done in preparing policies, procedures and standards is not lost by unintended or loose contractual drafting where customers seek to transfer risk according to generalised obligations of skill, care or performance.
Mark Bailey is a Partner at Charles Russel Speechlys: https://www.charlesrussellspeechlys.com