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Supreme surprise: Anticipating the Supreme Court's decision in MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd

14.07.2016 Energy & infrastructure

Martin Sandgren

Martin Sandgren Partner

We have reported in the past on this long running litigation and the decisions in the High Court and the Court of Appeal. The Supreme Court initially rejected the application for permission to appeal the Court of Appeal’s decision, but in an unprecedented U-turn late November last year it has now granted permission.

The Supreme Court ruling can be expected to have wide-ranging consequences for those with warranty, “fitness for purpose”, “good industry practice” and similar obligations in construction contracts, and may have wider implications for the construction of contracts.

The context

The case revolves around who bears the contractual risk of a significant error in an industry design standard “J101”. The contractor, MT Højgaard (“MTH”), relied on J101 when designing, fabricating and installing the wind turbine foundations for the offshore wind farm Robin Rigg in the UK for E.ON Climate Change and Renewables (“E.ON”). An element of J101 was wrong by a factor of ten which caused the transition pieces to slide down the foundations. The core issue in the lower courts was whether references in the Technical Requirements (which formed part of the contract) to an onerous 20 year service lifetime were sufficiently clear to create additional strict obligations for MTH on top of more common general obligations for the design to be in accordance with J101, for the works to be “Fit for Purpose” and in accordance with “Good Industry Practice” and references to a 20 year design lifetime. At first instance the Technical and Construction Court held that there was a 20 year service lifetime guarantee and the risk of the error in J101 lay with the contractor.

The Court of Appeal (MT Højgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd and another [2015] EWCA Civ 407) held that there was no such warranty and left the risk with E.ON.

The Court of Appeal's iterative contract interpretation

It may surprise some that the Court of Appeal did not find that the several seemingly clear specific references to a 20 year service lifetime in the Technical Requirements were sufficient to override the more general obligations in the contract and that it found that the 20 year design lifetime was qualified by compliance with J101 and Good Industry Practice. One of the keys to the Court of Appeal’s decision was an iterative interpretation approach. Stepping into the shoes of a reasonable person with the knowledge available to the parties the Court checked the rival contract meanings against each other and their commercial consequences and found that it did not make sense to regard the references to a 20 year lifetime as overriding all other provisions of the contract. The normal standard required was compliance with J101, which was expected (but not absolutely guaranteed) to produce a life of 20 years. If E.ON had required a guaranteed operational life of 20 years it should have flagged it clearly in the contract documents and not “tucked it away” in the Technical Requirements. That marks a much more sympathetic approach to the contractor than at first instance, particularly since the provisions appear to have been contained in several places of the main body of the Technical Requirements.

The Supreme Court's "U-turn"

We can only speculate as to why the Supreme Court changed its mind, and has now granted permission to appeal. The test to be met is that there is an “arguable point of law of general public importance”. Given the very unusual feature of the Supreme Court’s change of heart clearly one of the points raised is something the Supreme Court particularly wishes to clarify. That will be of interest to all involved in this field.

The case is listed to be heard next year. We will provide a further update once the Supreme Court judgment has been handed down.

Article authors:

Martin Sandgren