SSE Generation (SSE) employed Hochtief as an engineer to carry out works under an NEC2 ECC contract to design and build a hydro-electric scheme in Scotland. Within a year one of the major tunnels collapsed, and SSE and Hochtief began to argue over who was liable. Although the collapse was within the defects correction period, the parties were unable to come to an arrangement as to Hochtief returning and carrying out remedial work.
SSE instead hired another contractor to do the remedial works at a cost of £114 million before claiming against Hochtief for breach of contract. Hochtief counterclaimed for £10million for the profit they would have received if it had carried out the remedial works plus the costs of investigating the collapse.
Lord Woolman held that Hochtief did have to exercise reasonable skill and care in carrying out the works and it did so. Option M had been added to the clause, providing that the contractor “is not liable for Defects in the Works due to his design so far as he proves that he used reasonable skill and care to ensure that it complied with the Works Information”. Lord Woolman called this clause and “important break on liability” because if he held that there was a fitness for purpose obligation it would render option M pointless. As it stood, Hochtief has made its design based on the information it had on the time, albeit flawed information.
In addition, the court held that it was SSE who bore the risk of the tunnel collapse because the contract made provision for the employer to take on the risk if the defect did not exist at the time of the take over of the works. The defect did not exist at takeover and therefore it was SSE’s risk.
However Hochtief was pulled up by Loord Woolman in relation to the remedial works on the basis of the clause in the contract stating that Hochtief were to repair damage to the works until the Defects Certificate had been issued. Although the employer was liable for the risk, this was a separate obligation with Hochtief having to repair works during the Defects Period. By not returning to complete the works, Hochtief were in breach of contract and therefore their counterclaim failed.
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