John Dugdale, associate at A&L Goodbody in Belfast, explores a recent decision of the Supreme Court with implications for clients and contractors alike.

Following a competitive tender process, MT Højgaard A/S (MTH) was employed by two companies in the E.ON group to design and install the foundation structures of two offshore windfarms in the Solway Firth, on the border between England and Scotland.

The tender documents included Employer’s Requirements, specifying Technical Requirements which set out that:

“The design of the foundations 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 preceding paragraph of the Technical Requirements required MTH to prepare the detailed design of the foundations in accordance with a document known as J101, an international standard for the design of offshore wind turbines.

The foundation structures of both windfarms failed shortly after completion, due to an error in the J101 standard which was subsequently revised by its publisher.

MTH and the clients worked together to find a practical solution to the problem, and a scheme of remedial works was developed and carried out to a cost of €26.25m. The primary issue for the Supreme Court was whether MTH was liable to pay that cost – the key to which was determining if MTH was in breach of a contractual obligation to “ensure a lifetime of 20 years”, even though it had used due care and professional care, adhered to good industry practice, and complied with the J101 standard.

MTH deployed various arguments in support of its case, including that:

The Supreme Court concluded that the Technical Requirements were clear in imposing “a duty on MTH which involves the foundations having a lifetime of 20 years”. That duty was not inconsistent with the other terms of the contract, and prevailed over the requirement to comply with the J101 and use reasonable skill and care in the design of the foundations.

More often than not, contractors, consultants and others in the construction industry are faced with voluminous tender documents and a tight deadline to respond to an invitation to tender. Substantial resources could be required to prepare detailed quality and pricing submissions, which can leave limited time for a detailed review of all of the proposed contract documents. This judgment, in which the requirement for a 20-year design life was “tucked away” in the Technical Requirements (essentially a technical document) – rather than front and centre in the contract terms – provides a stark reminder of the need to carefully consider contract documents in their entirety.

Most professional indemnity insurance policies exclude contractual liabilities that are not caused by negligence. MTH found itself in a position where it had not been negligent, but was still liable for breach of contract. Such a scenario gives rise to a potential uninsured “gap”, which will be a concern to contractors who may face having to foot the bill for uninsured losses, and clients who may be unable to recover losses if contractors do not have the means to pay.