The UK Supreme Court has performed a U-turn and decided to grant E.ON permission to appeal to sue its windfarm contractor for the £18.74 million cost of remedial work to grouted foundations at Scotland’s first offshore wind farm – the Robin Rigg turbine arrays in the Solway Firth.
Last month, the Supreme Court had first refused E.ON permission to appeal the Court of Appeal’s decision that contractor MT Højgaard was not responsible for the cost.
It is thought that this is the first time in history that the UK Supreme Court has done so.
MT Højgaard had initially set aside £18.74 million as a special item in its 2015 accounts to offset potential losses related to the case. Following the initial ruling, this was removed and now following the recent ruling has had to be re-established.
The Supreme Court has not commented on the reasons for its change of heart. However, should E.ON’s appeal to the Supreme Court proceed to a judgment in its favour, there could be wide-reaching consequences regarding contractual interpretation and warranty obligations, not only for the offshore wind farm sector specifically, but also for the construction and engineering sectors generally.
Mark de la Haye, a Senior Associate at law firm Clyde & Co. explains:
How significant is this?
This is a very significant development for two reasons.
Firstly, because it appears likely that the UK Supreme Court will be asked to reconsider some fundamental principles regarding contractual interpretation, in particular with regards to fitness for purpose warranties in construction contracts.
The Supreme Court’s judgment in this regard could have wide-reaching consequences, not only for those involved in the construction and engineering sectors specifically, but also for lawyers and businessmen involved in the drafting, negotiation and operation of commercial contracts more generally.
Secondly, because the Supreme Court previously refused E.ON permission to appeal the Court of Appeal’s decision in this case. As such, in now granting E.ON permission to appeal the Court of Appeal’s decision, the Supreme Court has effectively done a U-turn, which is a highly unusual, if not unprecedented, step for the Supreme Court to take.
Normally, the Supreme Court considers whether there are sufficient grounds for a case to be determined by it (for example, if an application raises a point of law of general public importance) and then, having done so, the Supreme Court will either ‘grant’ or ‘refuse’ permission to appeal.
However, in this case, the Supreme Court originally refused permission to appeal but then, a few weeks later and without any explanation or warning, the Supreme Court did a U-Turn and granted permission to appeal.
What (are) the issues?
In 2006 MT Højgaard (MTH, the contractor) and E.ON Climate and Renewables (E.ON, the employer) agreed that MTH would design, fabricate and install 60 wind turbine foundations at the Robin Rigg offshore wind farm in the Solway Firth.
In designing the foundations, and the grouted connections in particular, MTH’s designer, Rambøll, relied on the international standard DNV-OS-J101 (J101). But J101 contained a fundamental error that resulted in a significant overestimation of the axial load capacity for wind turbines with grouted connections.
Rambøll, like everyone else in the offshore wind farm sector at the time, was unaware of this error when it carried out the design. In 2009, movement was discovered in the grouted connections, following which the error in J101 came to light. All of the foundations required remedial work, at an agreed cost of €26.25 million. The contract contained various warranties regarding fitness for purpose and the lifetime of the foundations.
The issue before the court was which of the parties must bear responsibility for the error in J101 and, therefore, the cost of the remedial work.
The TCC decision
In the Technology and Construction Court (TCC), MTH first submitted that it had exercised reasonable skill and care and had complied with its contractual obligations to produce a design that was compliant with J101.
E.ON, on the other hand, argued that MTH had warranted that the foundations would have a service life of 20 years, which had not been achieved, and that MTH was liable as a result.
The judge held that the contract required MTH to provide foundations with a service life of 20 years and, as the foundations did not in fact have a 20 year service life, MTH was in breach of contract. As such, MTH was held responsible for the cost of the remedial work.
The Court of Appeal decision
The Court of Appeal held that, although there was “much loose wording” contained in “somewhat diffuse contract documents”, on balance MTH had not given a warranty of 20 years guaranteed operational life for the foundations. Rather, MTH had agreed to comply with J101, which was intended to lead to offshore structures with a design life of 20 years.
MTH had in fact complied with J101. As such, the Court of Appeal allowed MTH’s appeal and, in doing so, held that E.ON was responsible for the cost of the remedial work.
The Supreme Court
E.ON subsequently sought permission from the Supreme Court to appeal the Court of Appeal’s decision.
The Supreme Court originally refused permission to appeal but then, in late November 2015, and without any explanation or warning, the Supreme Court did a U-Turn and granted permission to appeal.
This is, by any standards, a very unusual development for the Supreme Court.