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CAASA NEWSLETTER SEPTEMBER 2024

The motivation behind this monthly newsletter is to provide better and more frequent communication to CAASA members, and to solicit suggestions and responses to the contents. We need input from you to ensure that the content of this newsletter, our webinars and annual conference remain both topical and relevant.

Any comments, suggestions or proposals please forward to secretary@adjudicators.co.za

CONTENTS:
Design Obligations and the applicable Standards
CAASA Update
CAASA AGM

SAVE THE DATE
CAASA ANNUAL CONFERENCE
15 NOVEMBER 2024
Constructing Clarity: Effective Adjudication from Start to Finish

DESIGN OBLIGATIONS AND THE APPLICABLE STANDARDS

Too often contractors enter into design and construct contracts without understanding whether they are responsible for ensuring an outcome, or merely required to comply with industry norms.

A good but expensive example of this is the case of MT Højgaard A/S v E.On Climate & Renewables UK Robin Rigg East Limited. This went from the UK Technology and Construction Court (“TCC”), to the Court of Appeal, and finally to the Supreme Court.

The details are as follows.

The employer (E.On) engaged the contractor (Højgaard) to design and build the foundations for the wind turbines for an off shore wind farm. Højgaard was particularly responsible for designing the connection between the monopile foundation and the towers for the wind turbines, an 8m x 120 tonne steel collar - the transition piece.

The foundations were to be designed in accordance with an international industry standard (J101) published by Det Norske Veritas – DNV, a leading classification and certification agency. However, after the foundations were built, it was discovered that J101 contained a flaw. A key factor was inaccurate by a factor of ten. The connection began to fail soon after the foundations were built, and the transition pieces began to slip down the piles.

The TCC was tasked with deciding which party was liable for the costs of the remedial work, which was around €26.25 million.

The contract was a bespoke agreement. The key terms in relation to the design were:

"[Højgaard] must design, manufacture, test, deliver and install and complete the Works… so that each item of Plant and the Works as a whole shall be free from defective workmanship and materials and fit for its purpose as determined in accordance with the Specification using Good Industry Practice."

“Fit for Purpose” was defined by reference to the Employer’s Requirements:

(i) 3.2.2.2(1): "The detailed design of the foundation structures shall be according to the method of design by direct simulation of the combined load effect of simultaneous load processes (ref: DNV-OS-J101) [the British Standard]"
(ii) 3.2.2.2(2): "The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement"
(iii) 3.2.6: “All parts of the Works, except wear parts and consumables shall be designed for a minimum service life of 20 years.”
"Unless otherwise specified in the Contract, the following hierarchy of standards shall apply (1 highest and 8 lowest):..

2. DNV-OS-J101:2004.
...
7. Other standards….
Where conflict arises between standards, the standard with the highest priority as indicated above shall take precedence."

The question the Court had to consider was whether the contractor had to comply with J101, or whether he was obliged to ensure that the foundations had a design life of 20 years.

The Technology and Construction Court – contractor is liable
Højgaard sought a declaration from the Court that it had complied with its contractual obligations. The Court disagreed and found that the contract contained a fitness for purpose obligation and required the turbine bases to have a service life of 20 years. Højgaard was in breach of that obligation and was liable for the remedial costs.

The Court of Appeal – employer is liable
Højgaard appealed to the Court of Appeal – which was upheld. The Court of Appeal said that the contract required only that the foundations should have a "design life" of 20 years, meaning that they would probably, but not necessarily, function for 20 years. In other words, Højgaard had to try to ensure the turbines had a service life of 20 years – but they were not guaranteeing it. This was not a fitness for purpose obligation, and so the employer was liable for the remedial costs. In addition, the Court of Appeal said that paragraph 3.2.2.2(2) which said that "The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement" was "too slender a thread upon which to hang a finding that [Højgaard] gave a warranty of 20 years life for the foundations".

E.On appealed to the Supreme Court.

The Supreme Court…
Agreed with the Technology and Construction Court – Højgaard was liable for the cost of remedial work.

The Supreme Court reached this conclusion for three reasons:

As a matter of law, if a contractor agrees to both work to a specific design (J101) and to achieve a specified result (20 year life), if the design does not achieve the result the contractor will be in breach.
The Technical Requirements specified that the standards it set out were "MINIMUM requirements" and that it was Højgaard's responsibility to identify any additional or more rigorous requirements.
The Court of Appeal's conclusion that the wording of the Technical Requirements was "too slender a thread" was wrong. There were clear words in the contract that indicated that Højgaard was to achieve a 20 year design life.

Lessons learned
This is a good example of how it is often not a simple job to determine what a contractor has in fact agreed to, especially in complex projects with bespoke contracts and numerous technical documents which inevitably will contain conflicting provisions. Clear drafting will always help avoid disputes. No-one can rely on confusion to override a clearly stated obligation.

As well as determining liability between parties, the contract wording is very important in deciding whether a contractor has cover under its professional indemnity policy – PI policies often exclude cover for fitness for purpose obligations.

CAASA UPDATE

Training & Mentoring
Our annual “Case Law Update” presented by Vaughan Hattingh is scheduled for 4 October 2024. Vaughan will review and discuss recent court cases related to adjudication. This informative session is not to be missed.

The need for experienced members to act as mentors was highlighted at the AGM. We are currently compiling a mentorship programme and will be calling on members, particularly those on our panel, to put their names forward.

CAASA AGM

I thank those members who attended our AGM on Thursday 29th August 2024.
The amendments to our Constitution, mostly cosmetic, were approved at the AGM. The amended Constitution will be available on our web site.

The Executive Committee for the 2024/25 financial year is as follows:
Chairman                    Norman Milne
Vice Chairman            Reg Reynolds
Treasurer                     Vaughan Hattingh
Secretary                     Tiffany Widlake
Ordinary members      Michelle Kerr
Damian James
Uwe Pulitz
Mike Rivarola
Don Ruhukwa
Lucky Nemakonde
Tawanda Makwarimba

A big thanks to these members for volunteering to serve for the next year.