On Shaky Ground: The Robin Rigg case

In MT Højgaard A/S v E.On Climate & Renewables UK Robin Rigg East Ltd & Anor [2017] UKSC 59 the Supreme Court recently considered the issue of contractual interpretation. This case concerned the foundation structures of two offshore wind farms in the Solway Firth, designed and installed by MT Højgaard A/S (MTH), which failed shortly after the project completed. The issue arose as to who was liable for the failure.

Emily Albou

The origins of the project stretch back more than a decade. In December 2006, MTH agreed to design, fabricate and install foundations for proposed turbines. These were completed in February 2009, but then started to fail. Remedial works were undertaken, mutually agreed at a cost of €26.25M. The question arose as to who should pay.

MTH argued that it had no liability to pay as it had exercised reasonable skill, care and complied with all contractual obligations. Conversely, E.ON contended that MTH had been negligent and was responsible for multiple breaches of contract and was liable for the failure.

The judge at first instance, Edwards-Stuart J found for E.ON – primarily on the grounds of MTH breaching the contract terms which required: the foundations to be fit for purpose, fitness for purpose was to be determined by reference to the Technical Requirements (which formed part of MTH’s tender documents), and the Technical Requirements required the foundations to be designed so that they would have a lifetime of 20 years. In addition, he held that this conclusion was further supported by other contract clauses.

MTH applied to the Court of Appeal which held that an inconsistency existed between the paragraphs relied upon by Edwards-Stuart J and other contractual provisions. In his lead judgment, Jackson LJ (with whom Patten and Underhill LJJ agreed) stated that the other contractual provisions should prevail. Jackson LJ described paragraphs covering the Technical Requirements relied upon by Edwards-Stuart J as “too slender a thread upon which to hang a finding that MTH gave a warranty of 20 years life for the foundations”.

The case went to the Supreme Court, which provided valuable guidance on the interpretation of contractual clauses. Lord Neuberger gave the lead judgment, reasserting the decision in Wood v Capita Insurance Services Ltd [2017], stating that:

“The reconciliation of the terms, and the determination of their combined effect must, of course, be decided by reference to ordinary principles of contractual interpretation (as recently discussed in Wood v Capita Insurance Services Ltd [2017]), and therefore by reference to the provisions of the particular contract and its commercial context.”

Lord Neuberger further stated that:

• First, where a contract contains terms requiring an item (i) which is to be produced in accordance with a prescribed design, and (ii) which, when provided, will comply with prescribed criteria, and literal conformity with the prescribed design will result in the product failing one or more of the prescribed criteria, it does not follow that the two terms are mutually inconsistent.
• Second, Lord Neuberger held that in many contracts, the proper analysis may be that the contractor must improve any aspects of the prescribed design that would otherwise lead to the product falling short of the prescribed criteria, and in other contracts, the correct view could be that the requirements of the prescribed criteria only apply to aspects of the design that are not prescribed.
• Third, Lord Neuberger stated that although each case turns on its own facts, decisions of the United Kingdom and Canada suggest the courts are inclined to give full effect to the requirement that the item as produced complies with the prescribed criteria on the basis that although the customer or employer has specified or approved the design, the contractor is expected to take the risk if they agreed to work to a design that would render the item incapable of meeting the agreed criteria.

In applying these principles to the contract, the Supreme Court overturned the Court of Appeal’s decision and restored the order made at first instance – thereby holding MTH liable for the failure.

Disputed wording in the contract resulted in the matter proceeding to the Supreme Court: the matter rested on conflicting contractual terms that were left open to different interpretations. Ultimately, this cost MTH €26.25M.

The Supreme Court judgment provides valuable guidance on contractual interpretation and warns contractors that contracts require extreme scrutiny at the outset. It is therefore critical that contractors employ expert legal advice when drafting them to ensure that they are not left open to conflicting interpretation later on. They must also ensure that the agreed design will meet the prescribed criteria: the risk lies with the contractor in circumstances where they have agreed to work to a design that later fails the prescribed criteria.

 

Emily Albou is a barrister at 2 Temple Gardens. Her practice focuses on commercial litigations and the closely related areas of property damage, professional negligence and insurance. She also acts for a range of clubs and individual athletes dealing with contractual and personal injury matters in sport disputes.

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