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Supreme Court decision on conflicting contractual standards – MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59

Published on 25 September 2017

How will the Court resolve conflicting contractual standards, e.g. between general obligations and specified international standards?

The facts

MT Højgaard (MTH) was engaged by E.ON to design, manufacture and install the foundation structures for 60 offshore wind turbines for the Robin Rigg wind farm in the Solway Firth in Scotland.

The agreement contained various general obligations on the provision of the services, e.g. due care and diligence, works to be fit for purpose, and a 'design life' of 20 years.

The agreement also included detailed technical requirements, including that the design of the foundations be in accordance with an international standard published by Det Norske Veritas DNV – a leading classification and certification agency.  The international standard DNV-OS-J101 (J101) was intended to deliver a service life of 20 years, subject to a small failure rate of less than 0.001%.

MTH performed the works in accordance with J101 but, due to an error in the international standard, the design did not have a service life of 20 years. The remedial work cost over €26 million and the parties disputed which of them was liable (or who bore the risk of an error in J101).

At first instance, the Technology and Construction Court (TCC) held that MTH was responsible for the necessary remedial work for breaching the 'fitness for purpose' obligation and the requirement the design life would be 20 years. The Court of Appeal overturned this decision but awarded E.ON only nominal damages of £10 (as the breach of a separate testing obligation would not have revealed the error in J101).

The decision

In a unanimous decision, the Supreme Court overturned the Court of Appeal and restored the earlier decision of the TCC. The key points were:

  • the Court decided that there was a contractual duty that the design would give a lifetime of 20 years and this has been breached (whether this was expressed as a warranty that the foundations would have a lifetime of 20 years or as a contractual term that they had been designed to last 20 years was irrelevant to the outcome)
  • the Court cited the case of Cammell Laird v The Manganese Bronze and Brass Co [1934] AC402¸ to confirm that a contractor is required to “be bound by his bargain even though he can show an unanticipated difficulty or even impossibility in achieving the result desired” – in this case relying on the J101 standard
  • the Court held that where there are apparently inconsistent provisions or standards, rather than concluding that they are inconsistent, the proper interpretation is that the more higher standard must prevail and the less rigorous standard will be treated as a minimum requirement.  In this case, the minimum requirement was J101 and MTH was held to the higher standards of a design life of 20 years. 

Why is this important?

This Supreme Court decision confirms how the Courts will seek to resolve apparent conflicts between different contractual provisions/standards so as to give effect, if possible, to all parts of the contract. Instead of finding only one of the standards will apply, the Court can resolve the apparent conflict by applying the higher standard, with the other(s) acting as minimum requirements.

Any practical tips

Consider how general obligations and specific standards will interact and whether they are consistent.  This can be particularly challenging for technical or complex projects (with detailed schedules – that may or may not be subject to legal review). 

For example in software agreements, these issues are often avoided by not providing general obligations such as “satisfactory quality” or “fitness for purpose”, with standards being tied to performance in accordance with technical specifications (and often further qualified by “in all material respects”).

If there is a risk of inconsistency, consider provisions dealing with precedence/hierarchy of clauses, defining minimum requirements and/or acknowledging that compliance with technical standards will satisfy general obligations.