Introduction
E.ON Climate & Renewables (E.ON)hired MT Hjgaard (MTH) in December 2006 to design, fabricate, and install the foundations for 60 wind turbine generators at the Robin Rigg offshore wind farm in the Solway Firth. The foundations were installed in February 2009, and shortly afterward, serious failures in the grouted connections of each foundation were discovered. It was later determined that the grouted connection issues were widespread in the industry and were caused, in part, by a fundamental flaw in the industry standard design code9J101) that E.ON had specified for use. Each of the foundations required remedial work. E.ON agreed to do this work and proceeded with it.
Parallel to the remedial work legal proceedings were initiated to determine contractual responsibility for the problem. The responsibility for the cost of the rectification- on which the parties had agreed- became an issue in the proceedings. E. ON’s allegations were twofold: MTH was negligent in the design of the foundations in that it failed to apply the requirements of J101 properly, and MTH was responsible for the problem under an overriding fitness for the purpose obligation. E.ON’s fitness for the purpose defense concentrated on the conditions’ generally accepted requirement for fitness for purpose, and it claimed that the Technical Requirements para 3.2.2.2, or the Employer’s Requirements, most conspicuously identified that purpose (Wood, D., 2017). According to the Court of Appeal and Supreme Court decision statement is that the foundations shall be designed to ensure a lifetime of 20 years in service and design life without planned replacement.
Specific Disagreement Ruling of the Court
The TCC’s decision was overturned by the Court of Appeal (CA) in 2015. In doing so, the CA rejected the notion of an absolute fitness-for-purpose warranty, instead focusing on the distinction between a 20-year design life and a 20-year service life. The CA determined that the Technical Requirements in this contract required MTH to use a design life of 20 years when carrying out its design. After doing so, it was discovered that MTH was not to blame for the problem. The CA believed that the requirement to guarantee a service life of 20 years in para 3.2.2.2 of the Technical Requirement was “tucked away”, at odds with the contract’s overall tone, and “too slender a thread” to support a conclusion that MTH provided a warranty of 20 years for the foundations.
Importance to Business Law & Ethical Implications
E.ON decided to appeal. The Supreme Court unanimously decided to reinstate the Judge’s conclusions at first instance and reverse the CA’s findings. Lord Neuberger considered whether para. 3.2.2.2 of the Technical Requirements constituted a warranty that the foundations would have a lifetime of 20 years or whether this amounted to a term designed to have such a lifetime. The other Justices, Lords Hodge, Sumption, Mance, and Clarke, agreed with Lord Neuberger’s conclusion. There was room for argument as to the term’s precise effect. While Lord Neuberger favored the latter interpretation, he also concluded that the issue did not need to be resolved because MTH had violated the term “whichever meaning it has” on the facts of this case.
When it came to the ostensibly competing obligations of complying with the defective standard (J101) and delivering up foundations that were fit for their purpose, Lord Neuberger stated 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 employer has specified or approved the design, it is the contractor who can be expected to take.
The court of appeals initially ruled against the plaintiff. Still, the Supreme Court unanimously decided that the contract stated that the foundations would have a lifetime of 20 years. That failure of the imposed design would hold the contractor E. ON liable.
This case serves as a clear reminder to contractors and subcontractors to closely follow the requirements outlined in the JCT Employer’s Requirements and the NEC Works Information. One might not be aware of it, but the contract they have may have an onerous fitness for purpose obligation in the Works Information or Employer’s Requirements. This case is strongly applied to business because it is very important for third -parties who sign a contract in a business. It can negatively affect a business that enters into a contract with a third- party without proper deployment of contractual responsibilities to all parties involved. On the other hand, it can positively affect the third party that follows the ethical standards of contracts by designing a reliable project without the business having replacements.
Conclusion
I think the parties in the case conducted themselves ethically. The Supreme Court’s message is clearer: parties should expect to be bound by the terms of their contracts. To avoid costly disputes, parties must ensure that their agreements reflect their intentions. While this has been known for a while, Lord Neuberger’s comments show that parties must be careful to extend their consideration to specifications and the like – documentation that may not have previously received the same level of scrutiny. The courts determined that the parties’ agreement on service life amounted to a promise that the foundations would endure for 20 years.
Reference
Wood, G. W.-D. (2017). Supreme Court confirms breach of contract despite the absence of negligence. Lexology. Web.