Introduction
This case is a dispute referring to the liability of a contractor in charge of the design and construction for wind turbine structures of two wind farms in Scotland. These structures collapsed, and the contractor identified the source of failure. The contractor proposed remedial actions, and both parties agreed to implement them. However, a disagreement arose regarding who should pay for these corrective measures.
Portugal has set goals to continue its transition to renewable energy sources, and it plans to invite tenders to participate in an auction to build floating offshore wind platforms. Learned lessons from this case can be valuable during this process.
This note presents the legal background and a summary of the case, followed by an analysis and discussion of the main findings, and it ends with conclusions that highlight the relevance of the case.
Factual Background
The parties involved in this case are MT Højgaard (MTH), a Danish company that designs and installs different types of infrastructures worldwide; and E. ON – UK Climate & Renewables Group (E. ON), a leading company that provides green energy. The case was presented at The Supreme Court of the United Kingdom, which is the final court of appeal in the UK for civil and criminal cases from England, Wales, and Northern Ireland, MT Højgaard v E. ON Ltd. [2017] UKSC 59.
On December 2006, E. ON accepted MTH’s tender to design, fabricate and install turbine foundations structures of two wind farms at Robin Rigg in the Solway Firth (Scotland). E. ON sent the Technical Requirements document (TR) to MTH stating that “the Works elements shall be designed for a minimum site-specific design life of twenty 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”. It was also required for MTH to use the standard design of Offshore Wind Turbine Structures known as J101 as a reference. The work was completed in February 2009. At that same year, structures failed in one of the wind farms, and one year later the same happened at the other. The remedial works started in 2014. The issue in dispute is whether MTH are liable for this failure, and who should assume the costs of corrective works, MT Højgaard v E. ON Ltd. [2017].
Legal background
The contractual relationship between MTH and E. ON is firstly based on the documents presented by MTH to demonstrate its capability to design, fabricate and install the required turbines. MTH presented a tender in accordance with the Employer’s Requirements that included technical specifications. This offer was accepted by E. ON, and the parties entered into a written contract, MT Højgaard v E. ON Ltd. [2017].
The contract has three relevant specifications:
- MTH had to follow a “Good Industry Practice” that included the exercise of skill, diligence, prudence, and foresight performance expected from fully skilled contractors in a manner consistent with recognized international standards, MT Højgaard v E. ON Ltd. [2017] [1].
- MTH design of structures shall ensure a lifetime of 20 years and should be done following EU directives, appointing a Certifying Authority, and using the manual J101[2], MT Højgaard v E. ON Ltd. [2017] [3].
- The contract included a statement referred to “any failure by the Engineer to spot defects or mistakes by the contractor would not exempt the contractor from liability”, MT Højgaard v E. ON Ltd. [2017] [4]
MTH properly continued with the design and construction of the wind farms, but a severe error in the design caused the foundation to fail, and remedial work was necessary. E. ON contended that MTH had been negligent and had been responsible for defective grouted connections, and MTH contended that it had exercised reasonable skills and care, and it had complied with all its contractual obligations, more specifically regarding the design following the contract’s term.
The parties agreed the cost of remedial works is the sum of €26.25 m, leaving it to the court to decide which of them should bear the cost. The court gave judgement and rejected that MTH had been negligent, however, it favored E. ON primarily on the ground of the requirement that foundations had to fit for purpose and a lifetime of 20 years. MTH appealed to the Court of Appeal, and it was accepted based on the design requirements that were fulfilled.
The legal reasoning of the Court considered precedent cases which had previously included a discussion regarding two terms: specified design v. specific performance criteria due to MTH arguing that they complied with the requirements of design, MT Højgaard v E. ON Ltd. [2017] [5]. The Court determined that the two terms are not mutually inconsistent, and that specifications – as described above – showed that it was MTH duty to identify inconsistency between a design requirement and the required criteria to improve on the design if needed. E. ON appeal was allowed and order restored, MT Højgaard v E. ON Ltd. [2017] [6].
Critical Assessment
Wind energy is a renewable alternative that plays an important role in climate change mitigation efforts; therefore, the good functioning of wind farms is essential to guarantee an efficient transition to more sustainable energy sources for general consumption. In this case, the main legal aspects are related to Contract Law, but it also provides a legal reference for specifications to design, build and operate wind turbines in a proper way by examining key legal aspects such as:
(1) Contractual interpretation: this refers to defining the meaning and scope of the terms within the contract, which is crucial to solve any dispute that may arise over the terms of the agreement, and it becomes a task for the court to ascertain presumed intentions of the parties [7]. In this case, it’s pointed out that the contract had inconsistencies, and that MTH could use to it affirm that their main task was achieved by following the design requirements according to the specifications, whereas E. ON stated that Works needed to be fit for purpose, and that there were enough clauses to prove it MT Højgaard v E. ON Ltd. [2017][8]. The Court recognized the ambiguities of the contract, but despite this, it was clear that MTH had the duty to guarantee best practice and a design with a lifetime of 20 years, MT Højgaard v E. ON Ltd. [2017] [9].
(2) Implied terms: should provide a comprehensive understanding of parties’ obligations, this enhances fairness, effectiveness, and coherence, which also makes a contract to work as intended by the parties [10]. The Court considered that the enforceability of the Contract according to its terms was “too slender a thread”, meaning a fragile connection among paragraphs, and called the attention about poor writing, remarking the importance of a good quality draft. Even so, it was considered that E. On intentions were clear when providing specification that MTH should have accomplished, MT Højgaard v E. ON Ltd. [2017] [11].
(3) Contractual warranties: are the assurances stated regarding the quality and performance of the wind turbines in this case, and more specifically on a repeated emphasis of a “20-year lifetime design” that both parties agreed, and that it is also considered a warranty and an effective term in the contract; this also followed the reasoning of the Court that goes back to the acceptance of the clause by MTH, accompanied by the provision “Fit for Purpose” that resulted in an obligation to construct in accordance with J101, and to guarantee the right functioning over time, MT Højgaard v E. ON Ltd. [2017] [12].
(4) Good Industry Practice: this provision in the contract is referred to “those standards, practices, methods and procedures performed with the level of skill, diligence and care usually practiced by other contractors under similar circumstances, in a manner consistent with recognized international standards” MT Højgaard v E. ON Ltd. [2017][13]. In consequence, MTH should have fulfilled to satisfy the design and performance specifications, and not only the design phase as explained above. By accepting this clause, MTH also agreed to be responsible at all stages of the project and for other subcontractors that did not have a direct contractual relationship with E. ON, but that administered some specific part of the works.
(5) Remedial works: are the activities meant to compensate for the harm suffered due to a breach in the contract [14]. In Robin Rigg wind farms, remedial works were needed to correct failures from miscalculations at the designing phase that later impacted the functioning of the structures. MTH’s sub-contractors identified the errors and sent an alert, however damages progressed. MTH rectified, and along with E. ON found practical solutions that were implemented to fix the mistakes, and to keep the wind farms operating, but the responsibility for costs became a major point of discord. MT Højgaard v E. ON Ltd. [2017] [15].
Conclusions
MT Højgaard v. E. ON Climate is a useful case to analyze the importance of the right use of words and terms. Many ambiguities that MTH used in their favor were the result of what the Court described as a “poorly written contract”. Also, clear definitions and consistent clauses facilitate a clearer understanding of the obligations and responsibilities of the parties, and prevent potential legal consequences and disputes related to failures during the implementation of projects. Subsequently, the inclusion of the term Fit-for-Purpose as a clause in the contract was relevant to the Court’s decisions since both parties agreed on it as part of Good Industry Practice. This obligation took precedence over other specifications, obligations or described activities within the contract, and it defined that MTH was liable for the deficiencies in the structures, even if they complied with other contractual points such as the design and the use of the J101 standard.
Relevance of the Case for Portugal:
Portugal is committed to reduce its dependence on fossil fuels and expand its renewable energy sources to ensure an equitable transition. As part of this, the Portuguese government announced the plan to increase wind capacity to 10GW by 2030. Three sites are pre-selected to allocate floating offshore wind platforms. The specifications for building these infrastructures are part of the technical and investment models required during this process. The next step is the design of the auction including these considerations [16].
Portugal can seize the opportunity to learn from recent offshore wind tenders, and the experience of cases like MT Højgaard v. E. ON Climate offer valuable lessons regarding technical aspects of the design, construction, use of the J101 Standard, operation, and maintenance of infrastructure. And more importantly, about the significance of clear contracts.
Peer-Reviewed by:
- Professor Lucila de Almeida, NOVA Green Lab Coordinator, Abreu Chair in ESG Impact.
- Beatriz Gomes, Project Manager at NOVA Green Lab, Master’s student in Public Regulatory Law.
[1] MT Højgaard v E. ON [2017] UKSC 59, para. 15
[2] J101 refers to “The standard, Design of Offshore Wind Turbine Structures DNV-OS-J101”, and it outlines principles, technical requirements, and guidance for the design, construction, and in-service inspection of offshore wind turbine structures. Since its launch in 2004, it has been widely adopted in the offshore wind industry. Source: https://www.windpowerengineering.com/updated-standard-for-offshore-wind-turbine-structures/ accessed 30 June 2024.
[3] MT Højgaard v E. ON [2017] UKSC 59, para. 8, 11
[4] MT Højgaard v E. ON [2017] UKSC 59, para. 16
[5] Thorn v. The Mayor and Commonalty of London (1876), The Hydraulic Engineering Co Ltd v Spencer and Sons (1886), The Steel Company of Canada Ltd v Willand Management Ltd (1966), Greater Vancouver Water District v North American Pipe & Steel Ltd (2012) in MT Højgaard v E. ON Ltd. [2017] UKSC 59, para. 38, 39, 41, 42.
[6] MT Højgaard v E. ON [2017] UKSC 59, para. 54
[7] McLauchlan, D. Contract Interpretation: What is it about? 2012. Legal Research Papers Volume 2, Issue 1. Victoria University of Wellington, New Zealand. P.11
[8] MT Højgaard v E. ON [2017] UKSC 59, para. 31,34
[9] MT Højgaard v E. ON [2017] UKSC 59, para. 48, 49, 50.
[10] Ibid.,7
[11] MT Højgaard v E. ON [2017] UKSC 59, para. 47, 50
[12] MT Højgaard v E. ON [2017] UKSC 59, para. 30, 31, 36, 50
[13] MT Højgaard v E. ON [2017] UKSC 59, para. 15, 17.
[14] Remedial works definitions <https://www.lawinsider.com/dictionary/remedial-works> Accessed 19 December 2023.
[15] MT Højgaard v E. ON [2017] UKSC 59, para. 22, 23, 24,53
[16] João Lupi, “Energy Law and the Ocean” (presentation, Nova School of Law, November 30, 2023).
