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It is preferable to adjourn the question of remedies to allow time for the Secretary of State to consider her position, and to indicate to the appellants and to the court how she proposes to amend the instructions or other guidance to accord with the law as indicated in this judgment. Ratio |
The court will receive written submissions on such proposals, and consider whether a further hearing is necessary. Ratio |
These proceedings arise from the fact that the foundation structures of two offshore wind farms at Robin Rigg in the Solway Firth, which were designed and installed by MT Hjgaard A/S (MTH), failed shortly after completion of the project. Ratio |
The specific issue to be determined is whether MTH are liable for this failure. Ratio |
As Jackson LJ said in the Court of Appeal, the resolution of that issue turns on how the court should construe the somewhat diffuse documents which constituted, or were incorporated into, the design and build contract in this case. Ratio |
Accordingly, I turn first to consider the relevant provisions of the contractual documentation. Ratio |
The relevant provisions of the Technical Requirements and J101 FAC |
In May 2006, the appellants, two companies in the E.ON group (E.ON), sent tender documents to various parties including MTH, who in due course became the successful bidders. FAC |
The tender documents included Employers Requirements, Part I of which included the Technical Requirements (the TR). FAC |
Section 1 of the TR set out the General Description of Works and Scope of Supply. FAC |
Part 1.6 set out the so-called Key Functional Requirements, which included this: The Works, together with the interfaces detailed in Section 8, shall be designed to withstand the full range of operational and environmental conditions with minimal maintenance. FAC |
The Works elements shall be designed for a minimum site specific design life of twenty (20) years without major retrofits or refurbishments; all elements shall be designed to operate safely and reliably in the environmental conditions that exist on the site for at least this lifetime. FAC |
Section 3 of the TR was concerned with the Design Basis (Wind Turbine Foundations). FAC |
Part 3.1 was entitled Introduction, and it included the following (divided into sub-paragraphs for convenience): (i) It is stressed that the requirements contained in this section and the environmental conditions given are the MINIMUM requirements of [E.ON] to be taken into account in the design. FAC |
(ii) It shall be the responsibility of [MTH] to identify any areas where the works need to be designed to any additional or more rigorous requirements or parameters. FAC |
There were other references elsewhere to the stated requirement being a minimum. FAC |
Para 3.1.2 of the TR required MTH to submit a detailed Foundation Design Basis document, which was required to contain, among other things, a statement as to the Contractors design choices, including, but not limited to, departures from, or aspects not covered by, standards, if any. FAC |
Part 3.2 of the TR was headed Design Principles, and para 3.2.2 was concerned with General Design Conditions, para 3.2.2.1 being directed to the Tender Stage Design, and para 3.2.2.2 to the Detailed Design Stage. FAC |
Para 3.2.2.2 is of central importance for present purposes, and, for convenience, I shall treat it as divided into numbered sub-paragraphs. FAC |
Para 3.2.2.2(i) required MTH to prepare the detailed design of the foundations in accordance with a document known as J101, using the integrated analysis method (which was one of the four methods addressed in J101). FAC |
Para 3.2.2.2(ii) went on to state that: The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement. FAC |
The choice of structure, materials, corrosion protection system operation and inspection programme shall be made accordingly. FAC |
J101 was a reference to an international standard for the design of offshore wind turbines published by Det Norske Veritas (DNV), an independent classification and certification agency based in Norway. FAC |
J101 included a statement that its objectives included the provision of an internationally acceptable level of safety by defining minimum requirements for structures and structural components, as well as being a contractual reference document, and a guideline. FAC |
Section 2 of J101 contained design principles which were, among other things, aimed at limiting the annual probability of failure to be in the range of one in 10,000 to one in 100,000 - para C201. FAC |
Section 7 of J101 dealt with the design of steel structures, and para K104 provided: The design fatigue life for structural components should be based on the specified service life of the structure. FAC |
If a service life is not specified, 20 years should be used. FAC |
Section 9 of J101 dealt with the design and construction of grouted connections. FAC |
Part A included reference to shear keys, which, it was explained, can reduce the fatigue strength of the tubular members and of the grout. FAC |
Part B of section 9 set out a number of equations applicable to such a design, including one (the Equation) which showed how the interface shear strength due to friction is to be calculated, namely: Precisely what the Equation actually means need not be spelled out. FAC |
What is important for present purposes is that it was stated beneath the Equation that should be taken as 0.00037 Rp for rolled steel surfaces (Rp being the outer radius of the pile, and being the height of surface irregularities). FAC |
Para 3.2.3.2 of the TR required MTHs design to accord with international and national rules, circulars, EU directives executive orders and standards applying to the Site and it went on to state that a defined hierarchy of standards shall apply, as listed. FAC |
Ignoring those standards which were irrelevant or not in force, the first in the list was J101. FAC |
Para 3.2.5 required the contractor to design and construct grouted connections in accordance with J101. FAC |
Para 3.2.6 stated that [a]ll parts of the Works, except wear parts and consumables, shall be designed for a minimum service life 20 years (sic). FAC |
Meteorological Mast. FAC |
Para 3b.5.1 stated: Section 3b of the TR was headed Design Basis for Offshore Substations and The design of the structures addressed by this Design Basis shall ensure a lifetime of 20 years in every aspect without planned replacement. FAC |
The choice of structure, materials, corrosion protection system operation and inspection programme shall be made accordingly. FAC |
Para 3b.5.6 provided that [a]ll parts of the Works, except wear parts and consumables shall be designed for a minimum service life 20 years. FAC |
Section 4 of the TR dealt with Approvals and Certification. FAC |
Para 4.4.3 provided that MTH should obtain a Foundation Design Evaluation Conformity Statement from the Certifying Authority within six months of the commencement date. FAC |
Section 10 of the TR covered Structural Design and Fabrication (Wind Turbine Foundations), and para 10.1.1 required MTH to appoint an accredited Certifying Authority to independently evaluate the adequacy of his foundation design. FAC |
Para 10.5.1 was in these terms: The Contractor shall determine whether to employ shear keys within the grouted connection. FAC |
If shear keys are used, the design and detailing shall take due account of their presence for both strength and fatigue design to the satisfaction of the Certifying Authority and the Engineer. FAC |
If shear keys are to be omitted then the Contractor shall demonstrate with test data that the grouted connection is capable of transmitting axial loads at the grout/steel interface without dependence upon flexural (normal) contact pressures, which may not always be present, to the satisfaction of the Certifying Authori... |
Such demonstration shall also account for joint performance under different temperature conditions. FAC |
Para 10.24.9 of the TR stated that the recorded potential difference exceedance was not so great as to cause accelerated anode depletion to such extent that the anode material provided is fully utilised before the end of the structure operational 20 year life. FAC |
Having been selected as the contractor for the works, MTH duly set about preparing its tender in accordance with Employers Requirements and J101. FAC |
MTHs design provided for (i) monopiles with a diameter of just over four metres, (ii) transition pieces about eight metres long, weighing approximately 120 tonnes, and (iii) grouted connections without shear keys. FAC |
MTH explained at the time that no shear keys were specified because, taking as 0.00037 Rp, application of the Equation indicated that the grouted connections, as designed, had more than sufficient axial capacity to take the axial load. FAC |
After E.ON had accepted MTHs tender, MTH duly commenced design work, and in November 2006 it submitted a detailed Foundation Design Basis document, as required by para 3.1.2 of the TR. FAC |
The relevant provisions of the contract FAC |
On 20 December 2006 E.ON and MTH entered into a written contract (the Contract) under which MTH agreed to design, fabricate and install the foundations for the proposed turbines. FAC |
Part C of the Contract contained a List of Definitions. FAC |
Fit for Purpose was defined as fitness for purpose in accordance with, and as can properly be inferred from, the Employers Requirements. FAC |
Employers Requirements was stated to include the TR, which were themselves attached as Part I of the Contract. FAC |
And Good Industry Practice meant those standards, practices, methods and procedures conforming to all Legal Requirements to be performed with the exercise of skill, diligence, prudence and foresight that can ordinarily and reasonably be expected from a fully skilled contractor who is engaged in a similar type of undert... |
Clause 2.1 of Part D of the Contract provided that any failure by the Engineer or his Representative to spot defects or mistakes by the contractor would not exempt the contractor from liability. FAC |
Clause 5.3 of Part D stated that in the event of inconsistencies, the order of precedence of the contractual documents should be as follows: (a) (b) (c) and draft programme; (d) (e) (f) volumes 2A, 2B and 3 of the contractors tender return. FAC |
the form of agreement; the conditions of contact and the List of Definitions; the commercial schedules and the schedule of prices, payment profile the Employers Requirements; the annexes to the Employers Requirements; FAC |
Clause 8.1 of Part D required MTH in accordance with this Agreement, [to] design, manufacture, test, deliver and install and complete the Works in accordance with a number of requirements, including (iv) in a professional manner in accordance with modern commercial and engineering, design, project management and superv... |
Clause 30 of Part D of the Contract was headed Defects after taking over. FAC |
Clause 30.2 provided that MTH shall be responsible for making good any defect or damage arising from defective materials, workmanship or design, any breach by [MTH] of his obligations under this Agreement or Works not being Fit for Purpose, which may appear or occur before or during the Defects Liability Period. FAC |
That period was defined in clause 30.1 as being a period of 24 months from the date E.ON takes over the Works from MTH. FAC |
Clause 30.3 required E.ON to give notice forthwith of any such defects to MTH. FAC |
Clause 30.4 extended that Period in certain limited circumstances. FAC |
Clause 30.10 required E.ON to produce a Defects Liability Certificate once the Defects Liability Period has expired and MTH has satisfied all its obligations under clause 30. FAC |
Clause 33.9 of Part D of the Contract entitled MTH to apply, within 28 days of the issue of a Defects Liability Certificate, for a Final Certificate of Payment, and to accompany the application with a final account; clause 33.10 provided for the consequential issue of a Final Certificate of Payment; and clause 33.11 pr... |
Clause 42.3 of Part D of the Contract stated that: [E.ON] and [MTH] intend that their respective rights, obligations and liabilities as provided for in this Agreement shall alone govern their rights under this Agreement. FAC |
Accordingly, the remedies provided under this Agreement in respect of or in consequence of: any breach of contract; or (a) any negligent act or omission; or (b) (c) death or personal injury; or (d) loss or damage to any property, are, save in the case of Misconduct, to be to the exclusion of any other remedy that eithe... |
Subsequent events FAC |
MTH duly proceeded with the design and construction of the two wind farms (the Works), and, on its instructions, Rambll Danmark A/S supplied in June 2007 a detailed design for the grouted connections, which did not include shear keys. FAC |
Pursuant to para 10.1.1 of the TR, MTH appointed DNV as the Certifying Authority, and DNV evaluated and approved MTHs foundation designs. FAC |
Pursuant to para 4.4.3 of the TR, DNV issued Foundation Design Evaluation Conformity Statements for the various phases of the works. FAC |
MTH began the installation of foundations in the Solway Firth in December 2007, and completed the Works in February 2009. FAC |
During 2009 a serious problem came to light at Egmond aan Zee wind farm, where the grouted connections did not have shear keys. FAC |
Those connections started to fail, and the transition pieces started to slip down the monopiles. FAC |
DNV carried out an internal review during late summer 2009, and discovered that there was an error in the value given for in the note to the Equation mentioned in para 7 above. FAC |
It was wrong by a factor of about ten. FAC |
This meant that the axial capacity of the grouted connections in wind farm foundations at various locations including Egmond aan Zee and Robin Rigg had been substantially over-estimated. FAC |
On 28 September 2009, DNV sent a letter to MTH and others in the industry, alerting them to the situation (and DNV subsequently revised J101 to correct the error). FAC |
In April 2010 the grouted connections at Robin Rigg started to fail, as they had done a year earlier at Egmond aan Zee, and the transition pieces began to slip down the monopiles. FAC |
Very sensibly E.ON and MTH deferred any legal dispute and set about finding a practical solution to the problem. FAC |
It was agreed between the parties that E.ON would develop a scheme of remedial works. FAC |
Those remedial works were commenced in 2014. FAC |
In order to ascertain who should bear the cost of the remedial works, the parties embarked upon the present proceedings. FAC |
In very summary terms, the parties respective positions were as follows. FAC |
MTH contended that it had exercised reasonable skill and care, and had complied with all its contractual obligations, and so should have no liability for the cost of the remedial works. FAC |
By contrast E.ON contended that MTH had been negligent and also had been responsible for numerous breaches of contract, and they claimed declarations to the effect that MTH was liable for the defective grouted connections. FAC |
The parties in due course agreed the cost of the remedial works in the sum of 26.25m, leaving the court to decide which of them should bear that cost. FAC |
The case came before Edwards-Stuart J, and after an eight-day hearing in November 2013, he gave judgment in April 2014 - [2014] EWHC 1088 (TCC). FAC |
He rejected the suggestion that MTH had been negligent, and he also rejected a number of allegations of breach of contract made by E.ON. FAC |
However, he found for E.ON primarily on the ground that (i) clause 8.1(x) of the contract required the foundations to be fit for purpose, (ii) fitness for purpose was to be determined by reference to the TR, and (iii) para 3.2.2.2(ii) (and also para 3b.5.1) of the TR required the foundations to be designed so that they... |
He also held that this conclusion was also supported by clauses 8.1(viii) and (xv). FAC |
MTH appealed to the Court of Appeal, and after a two-day hearing in February 2015, they handed down their decision two months later, allowing the appeal for reasons given by Jackson LJ, with whom Patten and Underhill LJJ agreed - [2015] EWCA Civ 407. RLC |
Jackson LJ accepted that, if one was confined to the TR, para 3.2.2.2(ii) appeared to be a warranty [on the part of MTH] that the foundations will function for 20 years. RLC |
However, in the light of the provisions of the Contract, he said that there was an inconsistency between [paras 3.2.2.2(ii) and 3b.5.1 of the TR] on the one hand and all the other contractual provisions on the other hand, and that the other contractual provisions should prevail. RLC |
He went on to describe paras 3.2.2.2(ii) and 3b.5.1 of the TR as too slender a thread upon which to hang a finding that MTH gave a warranty of 20 years life for the foundations. RLC |
The meaning of para 3.2.2.2(ii) of the TR Ratio |
The central question on this appeal is whether, in the light of para 3.2.2.2(ii) (and para 3b.5.1) of the TR, which refer to ensuring a life for the foundations (and the Works) of 20 years, MTH was in breach of contract, despite the fact that it used due care and professional skill, adhered to good industry practice, a... |
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