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Before turning to that issue, however, it is appropriate to deal with an argument raised by Mr Streatfeild-James QC in the course of his excellent submissions on behalf of MTH. ARG |
He suggested that it was unlikely that the parties could have intended that there should be what Jackson LJ characterised as a warranty that the foundations will function for 20 years, in the light of those parts of clauses 30, 33 and 42 of the Contract set out in paras 18 to 20 above. ARG |
In summary, he argued that (i) the effect of clause 30 was that, subject to some relatively limited exceptions in clause 30.4, MTH was obliged to rectify any defect in the Works which occurred within 24 months of the Works being handed over, (ii) the effect of clause 42.3 was that any claim by E.ON in respect of a defe... |
In my opinion, there is no answer to that analysis so far as it is directed to the effect of clauses 30, 33 and 42 of the Contract. Ratio |
Clause 42.3 makes it clear that the provisions of clause 30 (and any other contractual term which provides for remedies after the Works have been handed over to E.ON) are intended to operate as an exclusive regime. Ratio |
And that conclusion appears to me to be supported by the terms of clause 33.9 and 33.10, because they tie in very well with the notion that there should be no claims after the Final Certificate, which is to be issued very shortly after the 24-month period. Ratio |
Accordingly, if, as E.ON argue, para 3.2.2.2(ii) of the TR amounts to a warranty that the foundations will last for 20 years, there would be a tension between that provision and clauses 30, 33 and 42 of the Contract. Ratio |
However, I do not consider that the tension would be so problematic as to undermine the conclusion that para 3.2.2.2(ii) amounted to warranties as described by Jackson LJ. Ratio |
In the light of the normal give and take of negotiations, and the complex, diffuse and multi-authored nature of this contract, it is by no means improbable that MTH could have agreed to a 20-year warranty provided that it could have the benefit of a two-year limitation period, save where misconduct was involved. Ratio |
It would simply mean that the rights given to E.ON by paras 3.2.2.2(ii) were significantly less valuable than at first sight they may appear, because any claim based on an alleged failure in the foundations which only became apparent more than two years after the handover of the Works would normally be barred by clause... |
In this case, of course, there is no problem, because the foundations failed well within the 24-month period. Ratio |
However, in my view, although it would therefore be possible to give effect to para 3.2.2.2(ii) of the TR as a 20-year warranty as described by Jackson LJ, the points canvassed in paras 27 to 29 above justify reconsidering the effect of para 3.2.2.2(ii). Ratio |
It appears to me that there is a powerful case for saying that, rather than warranting that the foundations would have a lifetime of 20 years, para 3.2.2.2(ii) amounted to an agreement that the design of the foundations was such that they would have a lifetime of 20 years. Ratio |
In other words, read together with clauses 30 and 42.3 of the Contract, para 3.2.2.2(ii) did not guarantee that the foundations would last 20 years without replacement, but that they had been designed to last for 20 years without replacement. Ratio |
That interpretation explains the reference in para 3.2.2.2(ii) to design, and it obviates any tension between the terms of para 3.2.2.2(ii) and the terms of clauses 30 and 42.3. Ratio |
Rather than the 20-year warranty being cut off after 24 months, E.ON had 24 months to discover that the foundations were not, in fact, designed to last for 20 years. Ratio |
On the basis of that interpretation, E.ONs ability to invoke its rights under para 3.2.2.2(ii) would not depend on E.ON appreciating that the foundations were failing (within 24 months of handover), but on E.ON appreciating (within 24 months of handover) that the design of the foundations was such that they will not la... |
That, of course, raises the question as to what, on that reading, was precisely meant by ensur[ing] a lifetime of 20 years, given that the forces of nature, especially at sea, are such that a lifetime of 20 years, or any other period, could never in practice be guaranteed. Ratio |
The answer is to be found in J101. Ratio |
As explained in para 7 above, J101 requires the annual probability of failure to be in the range of one in 10,000 to one in 100,000, and specifically provides that, if a service life is not specified in a contract 20 years should be used, which ties in with the proposition, agreed between the parties, that an offshore ... |
This aspect could be expanded on substantially by reference to the detailed terms, requirements and recommendations of J101. Ratio |
In particular, one of the two so-called Limit States in terms of loadbearing requirements, FLS, is calculated by reference to the design life of the structure in question: hence para C201 of section 2 and para K104 of section 7 referred to in para 7 above. Ratio |
However, the simple point is that J101, while concerned with making recommendations and requirements linked to the intended life of a structure to which it applies, makes it clear that there is a risk, which it quantifies, of that life being shortened. Ratio |
That risk is, in my view, the risk which should be treated as incorporated in para 3.2.2.2(ii) - if it is indeed concerned with the designed life of the Works. Ratio |
I turn then to the central issue on this appeal. Ratio |
It is unnecessary to decide whether para 3.2.2.2(ii) is a warranty that the foundations will have a lifetime of 20 years or a contractual term that the foundations will be designed to have such a lifetime. Ratio |
The former meaning has been taken as correct by the parties and by the courts below, but, for the reasons given in paras 28 to 31 above, I am currently inclined to favour the latter meaning. Ratio |
On the other hand, as the TR were produced and, to an extent, acted on before the Contract was agreed, it may be questionable whether it would be right to interpret the TR by reference to clauses of the Contract. Ratio |
However, it is clear that, if para 3.2.2.2(ii) is an effective term of the Contract, it was breached by MTH whichever meaning it has, and therefore the issue need not be resolved. Ratio |
The enforceability of para 3.2.2.2(ii) according to its terms: introductory Ratio |
E.ONs case is that para 3.2.2.2(ii) of the TR is incorporated into the Contract, because (i) clause 8.1(x) of the Contract required the Works to be fit for purpose, (ii) Part C of the Contract equated fitness for purpose with compliance with the Employers Requirements, (iii) Part C also defined Employers Requirements a... |
On that basis, E.ON argues that para 3.2.2.2(ii) was clearly infringed, and, as it was a term of the Contract, it must follow that MTH is, as Edwards-Stuart J held, liable for breach of contract. ARG |
By contrast, MTH supports the reasoning of Jackson LJ, and contends that it is clear that the Contract stipulated that the Works must be constructed in accordance with the requirements of J101 (and with appropriate care), and it is unconvincing to suggest that a provision such as para 3.2.2.2(ii) of the TR renders MTH ... |
MTH contends that the references to a 20-year life in various provisions of the TR, including para 3.2.2.2(ii), ultimately do no more than reflect the fact that, as envisaged by J101, Part 1.6 of the TR specifies a design life for the Works. ARG |
MTH also adopts Jackson LJs description of the contractual documentation as being of multiple authorship [and] contain[ing] much loose wording, and that it includes many ambiguities, infelicities and inconsistencies (quoting Lord Collins in In re Sigma Finance Corp (in administrative receivership) [2010] 1 All ER 571, ... |
More specifically, MTH makes the points that the TR are in their nature technical rather than legal, and that if the parties had intended MTH to warrant that the foundations would have a 20-year lifetime, or that they would be designed to have a 20-year life, a term to that effect would have been included in plain term... |
As already explained, it appears to me that, if one considers the natural meaning of para 3.2.2.2(ii) of the TR, it involved MTH warranting either that the foundations would have a lifetime of 20 years (as Jackson LJ accepted) or agreeing that the design of the foundations would be such as to give them a lifetime of 20... |
As Mr Streatfeild-James realistically accepted, the combination of the terms of clause 8.1(x) of the Contract and the definitions of Employers Requirements and Fit for Purpose result in the provisions of the TR being effectively incorporated into the Contract - unsurprisingly as they are included in the contractual doc... |
The first argument is that such an interpretation results in an obligation which is inconsistent with MTHs obligation to construct the Works in accordance with J101. Ratio |
The second argument is that para 3.2.2.2(ii) is simply too slender a thread on which to hang such an important and potentially onerous obligation. Ratio |
The enforceability of para 3.2.2.2(ii) according to its terms: inconsistency with Ratio |
J101 Ratio |
There have been a number of cases where courts have been called on to consider a contract which includes two terms, one requiring the contractor to provide an article which is produced in accordance with a specified design, the other requiring the article to satisfy specified performance criteria; and where those crite... |
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] 2 WLR 1095, paras 8 to 15 and the cases cited there), and therefore by refer... |
However, it is worth considering some of the cases where such an issue has been discussed. Ratio |
Thorn v The Mayor and Commonalty of London (1876) 1 App Cas 120 has been treated as the first decision on this point (including in the judgments discussed in paras 39 to 43 below), although it seems to me to be only of indirect relevance. PRE |
The contractor successfully tendered for work involving the replacement of the existing Blackfriars Bridge pursuant to an employers invitation, which stated that the work was to be carried out pursuant to a specification. PRE |
The specification included wrought iron caissons which were to form the foundations of the piers as shewn on [certain] drawings (p 121). PRE |
It subsequently turned out that the caissons as designed would not answer to their purpose, and the plan of the work was altered, causing consequential expense and delay to the contractor (p 122). PRE |
The contractors claim was based on the contention that the employer had impliedly warranted that the bridge could be built according to the specification. PRE |
The unanimous rejection of the existence of such a warranty by the House of Lords does not directly relate to the issue in this case. PRE |
However, it is worth noting that, as reconstruction of the bridge had been completed, the employer was not responsible for the contractors losses and expenses flowing from the defective specification (at least on the basis of an implied warranty). PRE |
Rather more to the point, the speeches of Lord Chelmsford (at pp 132 to 133) and Lord OHagan (at p 138) strongly indicate that a contractor who bids on the basis of a defective specification provided by the employer only has himself to blame if he does not check their practicality and they turn out to be defective. PRE |
The Hydraulic Engineering Co Ltd v Spencer and Sons (1886) 2 TLR 554 appears to me to be more directly in point. PRE |
In that case, the defendants contracted to make and deliver to the plaintiffs 15 cast iron cylinders. PRE |
The contract provided that the cylinders would be cast according to specifications and plans provided by the plaintiffs, and also that the cylinders would be able to stand a pressure of 25 cwt per square inch. PRE |
The Court of Appeal, upholding Coleridge CJ, rejected the defendants contention that, because the flaw was the inevitable result of the plan upon which the plaintiffs ordered them to do the work the defendants could not be held liable for a defect caused by that plan (to quote from the report of counsels argument). PRE |
Lindley LJ said that it was manifest that the defendants thought that they could cast the cylinders on [the] pattern [sent by the plaintiffs] without defects. PRE |
Although he accepted that the defect was unavoidable, he said that [t]here was no doubt that it was a defect and the [defendants] were therefore liable. PRE |
Lord Esher MR and Lopes LJ agreed. PRE |
A similar view was taken in Scotland by the Inner House in A M Gillespie & Co v John Howden & Co (1885) 22 SLR 527, where a customer ordered a ship from shipbuilders pursuant to a contract which required the ship to carry 1,800 tons deadweight, and which also required the ship to be built according to a model approved ... |
The ship as built was unable to carry 1,800 tons deadweight, and the shipbuilders argued that they should not be liable for damages because it would have been impossible to construct a ship capable of carrying 1,800 tons according to the model approved by the customer. PRE |
Upholding the Sheriff- Substitute, Lord Rutherfurd-Clark (with whom Lords Craighill and Young agreed) said at p 528 that this [was] no defence, as [t]he fact remains that the [shipbuilders] undertook a contract which they could not fulfil and they are consequently liable in damages for the breach. PRE |
The issue has also come up in the courts of Canada. PRE |
In The Steel Company of Canada Ltd v Willand Management Ltd [1966] SCR 746, the respondents were claiming for repair work to three defective roofs on buildings which they had constructed for the appellants. PRE |
The respondents argued that the defects were not their fault, as they had constructed the buildings under a contract which required them to comply with the requirements of the appellants, and the defects resulted from defects in those requirements. PRE |
Reversing the Ontario Court of Appeal, the Supreme Court of Canada rejected this argument on the ground that the contract also contained a term that the respondent guaranteed that all work would remain weather tight and that all material and workmanship would be first class and without defect. PRE |
In the course of giving the judgment of the court, Ritchie J at p 751 rejected the respondents contention, which was supported by a decision of the courts of New York, that they guaranteed only that, as to the work done by it, the roof would be weather-tight in so far as the plans and specifications with which it had t... |
Nor will he be entitled to extra payment for amending the work so that it will perform the stipulated duty. PRE |
The reasoning of the Canadian Supreme Court was fairly recently applied by the Court of Appeal for British Columbia in Greater Vancouver Water District v North American Pipe & Steel Ltd 2012 BCCA 337, where a clear and unambiguous provision whereby a supplier warrant[ed] and guarantee[d] that the supplied goods were fr... |
The law on the topic was well summarised by Lord Wright in Cammell Laird and Co Ltd v The Manganese Bronze and Brass Co Ltd [1934] AC 402, 425, where he said that [i]t has been laid down that where a manufacturer or builder undertakes to produce a finished result according to a design or plan, he may be still bound by ... |
After referring to Thorn as being [s]uch a case, he mentioned Gillespie v Howden (1885) 12 R 800, where the Court of Session held it was no defence to a shipbuilder who had contracted to build a ship of a certain design and of a certain carrying capacity, that it was impossible with the approved design to achieve the a... |
Lord Wright then went on to explain that [t]hough this is the general principle of law, its application in respect of any particular contract must vary with the terms and circumstances of that contract. PRE |
Where a contract contains terms which require 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 inevitably result in the product falling short of one or more of the presc... |
That may be the right analysis in some cases (and it appears pretty clear that it was the view of the Inner House in relation to the contract in A M Gillespie). PRE |
However, in many contracts, the proper analysis may well be that the contractor has to improve on any aspects of the prescribed design which 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 on... |
While each case must turn on its own facts, the message from decisions and observations of judges in the United Kingdom and Canada is that the courts are generally inclined to give full effect to the requirement that the item as produced complies with the prescribed criteria, on the basis that, even if the customer or ... |
Turning to the centrally relevant contractual provisions in the instant case, it seems to me that MTHs case, namely that the obligation which appears to be imposed by para 3.2.2.2(ii) is inconsistent with the obligation imposed by para 3.2.2.2(i) to comply with J101, faces an insurmountable difficulty. Ratio |
The opening provision of Section 3, para 3.1, (i) stresse[s] that the requirements contained in this section are the MINIMUM requirements of [E.ON] to be taken into account in the design, and (ii) goes on to provide that it is the responsibility of [MTH] to identify any areas where the works need to be designed to any ... |
In those circumstances, in my judgment, where two provisions of Section 3 impose different or inconsistent standards or requirements, rather than concluding that they are inconsistent, the correct analysis by virtue of para 3.1(i) is that the more rigorous or demanding of the two standards or requirements must prevail,... |
Further, if there is an inconsistency between a design requirement and the required criteria, it appears to me that the effect of para 3.1(ii) would be to make it clear that, although it may have complied with the design requirement, MTH would be liable for the failure to comply with the required criteria, as it was MT... |
As to the facts of the present case, para 3.2.2.2(i) could indeed be said to require that (as recorded in the note to the Equation in J101) should be taken as 0.00037 Rp for rolled steel surfaces, and, as explained above, this was a mistake, in that it substantially over-estimated the connection strength. Ratio |
However, given the terms of para 3.1(i), this figure for was a MINIMUM requirement, and, if para 3.2.2.2(ii) was to be complied with, the value of stipulated by J101 had to be decreased (as it happens by a factor of around ten). Ratio |
Furthermore, para 3.1(ii) makes it clear that MTH should have identified that there was a need for a more rigorous requirement than being taken as 0.00037 Rp to ensure that the design was satisfactory, or at least complied with para 3.2.2.2(ii). Ratio |
It is right to add that, even without para 3.1(i) and (ii), I would have reached the same conclusion. Ratio |
Even in the absence of those paragraphs, it cannot have been envisaged that MTH would be in breach of its obligations under para 3.2.2.2(i) if it designed the foundations on the basis of being less than 0.00037 Rp for rolled steel surfaces. Ratio |
Accordingly, at least in relation to the Equation, it represented a minimum standard even in the absence of paras 3.1(i) and (ii), and therefore there would have been no inconsistency between para 3.2.2.2(i) and 3.2.2.2(ii). Ratio |
I also draw assistance in reaching that conclusion from the cases discussed in paras 38 to 43 above. Ratio |
The notion that the Contractor might be expected to depart from the stipulations of J101, where appropriate, is also supported by para 3.1.2 of the TR, which specifically envisages that the Contractors Foundation Design Basis document may include departures from standards, and J101 is expressly treated as a standard in... |
In addition, given that satisfaction of the Equation is required to justify the absence of shear keys, E.ONs contention is assisted by the terms of para 10.5.1, which starts by stating that MTH shall determine whether to employ shear keys within the grouted connection; had shear keys been provided, the problems which a... |
The enforceability of para 3.2.2.2(ii) according to its terms: too slender a thread Ratio |
MTH relies on a number of factors to support the contention that para 3.2.2.2(ii) of the TR is too weak a basis on which to rest a contention that it had a liability to warrant that the foundations would survive for 20 years or would be designed so as to achieve 20 years of lifetime. Ratio |
First, it is said that the diffuse and unsatisfactorily drafted nature of the contractual arrangements, with their ambiguities and inconsistencies, should be recognised and taken into account. Ratio |
The contractual arrangements are certainly long, diffuse and multi-authored with much in the way of detailed description in the TR, and belt and braces provisions both in the TR and the Contract. Ratio |
However, that does not alter the fact that the court has to do its best to interpret the contractual arrangements by reference to normal principles. Ratio |
As Lord Bridge of Harwich said, giving the judgment of the Privy Council in Mitsui Construction Co Ltd v Attorney General of Hong Kong (1986) 33 BLR 7, 14, inelegant and clumsy drafting of a badly drafted contract is not a reason to depart from the fundamental rule of construction of contractual documents that the inte... |
In this case, para 3.2.2.2(ii) is clear in its terms in that it appears to impose a duty on MTH which involves the foundations having a lifetime of 20 years (although, as discussed in paras 27 to 32, there is room for argument as to its precise effect). Ratio |
I do not see why that can be said to be an improbable [or] unbusinesslike interpretation, especially as it is the natural meaning of the words used and is unsurprising in the light of the references in the TR to the design life of the Works being 20 years, and the stipulation that the requirements of the TR are minimum... |
Secondly, MTH argues that it is surprising that such an onerous obligation is found only in a part of a paragraph of the TR, essentially a technical document, rather than spelled out in the Contract. Ratio |
Given that it is clear from the terms of the Contract that the provisions of the TR are intended to be of contractual effect, I am not impressed with that point. Ratio |
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