When is a defect not a defect?

On 10 April 2018, the Inner House issued a lengthy decision following a reclaiming motion in the case of SSE Generation Limited v Hochtief Solutions AG & Another.

The case relates to a hydro-electric scheme tunnel constructed at Glendoe, Fort Augustus between 2006 and 2008. In April 2009, shortly after completion and handover there was a major collapse in the tunnel. SSE sought the repair costs from the contractor, Hochtief. Following a proof the Lord Ordinary found in favour of the contractor. The Inner House has overturned the decision of the Lord Ordinary and determined that the contractor, Hochtief, is liable for the costs of repairing the collapse which amount to circa £107million.

At first instance the Lord Ordinary concluded that no defect existed in the tunnel as that term was defined in the building contract. This was partly on the basis that he concluded that the contractor had used reasonable skill and care when designing the works.

In the Inner House, the Lord President agreed with the Lord Ordinary's analysis. In contrast however, Lords Glennie and Menzies concluded that the collapse of the tunnel was indeed due to a defect as defined under the building contract. Lord Glennie in particular concluded that the collapse was due not to the design of the works (and therefore the reasonable skill and care defence was not applicable) but rather was due to the implementation of the design by the contractor.
Given the sums in dispute in this case and the complexity of the arguments, it is anticipated that Hochtief will seek to appeal the decision to the Supreme Court.

Within the construction industry the line between design obligations and workmanship obligations can often become blurred. It is submitted that the characterisation in this case of the cause of the collapse, as a failure in implementing the design, will add further complexity and debate to an already uncertain area. This in turn has important consequences to consider with regard to the terms of professional design appointments and professional indemnity insurance.