SSE Generation Ltd (SSE) v Hochtief Solutions AG

Scottish & Southern Energy (SSE) has succeeded in an appeal for £130 million damages against Hochtief Solutions AG following the collapse of a tunnel at the Glendoe hydro-electric scheme in 2009. An Appellate Division of the Court of Session allowed a reclaiming motion by SSE against a decision of the Court of Session, which found that Hochtief was not liable for the collapse, although the commercial judge at that stage had awarded £1 million to SSE to reflect the period during which the electricity generation scheme was out of operation. The following is a summary of the court opinion:

The Glendoe scheme was the biggest to be built in Scotland for many years. It began operating in January 2009. Seven months later, however, it ceased to generate electricity. SSE discovered that rock material had fallen into the tunnel over several months, leading to a complete blockage. 

SSE lost substantial amounts of revenue while the scheme was out of commission. It asked Hochtief to carry out the remedial works, but the two parties were unable to reach agreement about who should pay. A dispute arose about whether the collapse was as a result of a defect in the design or in the construction.

In consequence, SSE instructed another engineering company, Royal BAM Group, to undertake the works. They took much longer to complete the work and it cost far more than expected. The scheme did not begin to generate electricity again until August 2012.

SSE sought to recover the £130m costs involved in the remedial works from Hochtief. SSE relied on various provisions in the contract to try to establish liability. In its defence Hochtief contended that it had completed the works in accordance with the contract, and that SSE had assumed the risk of the collapse at takeover. 

The collapse had occurred in a part of the tunnel that lay in a geological area known as the Conagleann Fault Zone (CFZ). The CFZ is a tear in the ground caused by an ancient earthquake and is an area in which rock conditions for tunnelling could be anticipated to be difficult.

The engineering geologists had been aware of the CFZ before construction began. They expected to find poor rock conditions there, but found none. As a result they saw no reason to reinforce the tunnel perimeter in that section. The collapse was caused by insufficient support.

Having heard the evidence of a number of experts in tunnelling construction, the commercial judge stated: “I am satisfied that Hochtief did exercise reasonable skill and care. SSE’s case depends on the accumulation and interpretation of all the data that has been obtained since the collapse. Put short, it is founded on hindsight.” He found that Hochtief was not liable. The commercial judge added that the parties had agreed £1m as the ceiling figure for the lost income incurred by SSE, and he awarded that sum.

On appeal, Lord Menzies and Lord Glennie, sitting with the Lord President Lord Carloway, found that they differed with the Lord President on the question of whether the collapse of the tunnel was due to a defect which existed at takeover.

In his Opinion, Lord Glennie wrote: “I consider that the collapse of the tunnel was indeed due to a defect existing at takeover. Further, I consider that that defect was not due to the contractor’s design of the works but rather to the implementation of that design. In those circumstances Option M is not engaged, and the defence of having used reasonable skill and care to ensure that the design complied with the Works Information is not available to the contractor. (Option M related to part of the standard New Engineering Contract  and Construction Contract which  provided that: ‘The contractor’s liability for defects due to his design that are not listed on the defects certificate is limited so far as he proves he used reasonable skill and care to ensure it complied with the works information’.)

Lord Glennie continued: “It follows from this, in my opinion, that the collapse of the tunnel was a contractor’s risk in terms of section 81.1 of the contract; and the defenders are liable to the pursuers for the costs of repairing the tunnel. On that basis I would allow the reclaiming motion.”

Lord Menzies stated that he found himself in complete agreement with Lord Glennie’s analysis and conclusion. He added: “I agree that the loss or damage to the works by virtue of the collapse of a portion of the HRT (part of the tunnel that collapsed called Head Race) was at the Contractor’s risk.” 

The Lord President had determined that the commercial judge’s interpretation of the facts had been correct.

The Lord President stated that it could not be said that the commercial judge was “plainly wrong” in concluding that the defenders had exercised reasonable care in relation to their design of the HRT and in determining, at the face, how it was to be implemented.   

He said that the commercial judge had provided a chronology of events, starting with the scheme and going on to describe the contract, the construction, its collapse and the recovery project. He had provided specific sections on why the tunnel collapsed, the witnesses and burden of proof, whether (in relation to the works information or the design) there was a defect at takeover and the exercise of reasonable skill and care.

He added: “In each of these sections the reasoning of the commercial judge is generally clear and concise. It leaves the reader in no doubt about what his reasons for reaching a particular view were. That is not to say that the reasoning is as clear as it might have been on all the points raised, or that it might have been more expansive in certain areas, but it meets the legal test.”

The full opinion can be accessed via the Scottish Courts and Tribunals Service here

 

Notes to editors 

This summary is provided to assist in understanding the court’s judgment. It does not form part of the reasons for the decision. The full opinion is the only authoritative document. 

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