Appeal overturn of original Glendoe collapse ruling 19 Apr 2018

Power utility Scottish and Southern Electricity (SSE) has won an appeal against the Hochtief-led JV to recover repair costs associated with the Glendoe power tunnel collapse in Scotland in 2009. Hochtief had previously defended itself successfully at the Court of Session in Scotland but on appeal, at the same court, SSE has won its case with a 2 to 1 majority of judges in favour of allowing its claim for £107.6 million of recovery repair costs and £1 million for business losses.

The turnkey contractor is looking to options that could see the dispute reach the highest court in the UK, the Supreme Court in London.

The headrace tunnel collapse at about two-thirds the way along the 6.2km long x 5m diameter tunnel occurred in a fault zone and a few months after the project was commissioned. With SSE and the design-build contractor in dispute over the cause of the collapse and liability for the costs, the utility called a separate contractor to complete repairs, which involved a bypass tunnel and installation of extra support works. The plant was brought back online in 2012.

After its victory on the appeal to recover repair costs, Wholesale Director Martin Pibworth, said that SSE “welcomes the positive decision” by the court. He added: “The hydro scheme had to be shut down for nearly three years while rectification works, resulting from a defect which existed prior to take over of the scheme by SSE, were carried out.”

Responding to the appeal court ruling, Hochtief said it is studying the next steps to take in its defence. Head of media relations for Hochtief, Martin Bommersheim, told TunnelTalk it may appeal against the judgment, taking its case to the highest court in the UK. “Hochtief will review the decision in more detail and assess the available options.”

The Hochtief-led JV performed the tunnelling contract for the 100MW hydro plant during 2006-8 using a TBM for the unlined headrace. The plant was commissioned in 2009 and operated for some months before being closed down due to the rock failure in the headrace. SSE has wanted to reclaim the repair costs, principally, and brought the case to the Court of Session where it failed in it claim and has subsequently won on appeal last week.

The ongoing dispute over liability has focused on the physical conditions that did or did not exist prior to handover of the tunnel by the contractor to the client, and therefore the start of the 2-year defects period. There has been significant effort into contract arrangements and definitions, especially what constitutes a ‘defect’, contractually, under the design and build procurement.

The Hochtief-led JV performed the original design-build contract for the 100MW Glendoe hydropower plant during 2006-8 using a TBM for the majority of the 6.2km long unlined headrace. SSE has wanted to reclaim the costs of remediation and repair of the collapsed zone.

First court ruling

Dispute hearings over liability for repair costs of about £137 million were taken in the first instance in the Outer House section of the Court of Session of Scotland and lasted a few years with 73,000 documents lodged. That court process was, in effect, a commercial contract hearing, the judge being referred to subsequently as the commercial judge.

Some eight years after the tunnel collapse, the long-awaited judgment was given in December 2016 with the commercial judge, Lord Woolman, ruling against SSE in its case for compensation against the turnkey contractor. He concluded, from extensive evidence gathered, that:

• the collapse “was not due to a defect that existed at take over” by SSE;
• all parties to the contract had technical staff inspect the rock throughout the completed tunnel, including the geological feature called the Conagleann Fault Zone (CFZ) which was found to be the collapse area, and found no reason for systematic or additional reinforcing support of the TBM tunnel excavation;
• the contractor had therefore used reasonable skill and care in implementing its design; and,
• the resulting risk should to be placed with SSE as Employer’s Risk under the contract.

Drawing upon expert evidence, Lord Woolman further considered the cause of the collapse was impossible to determine. Therefore, he said, the contractor was not liable for the collapse or repair costs. He did, though, and with agreement of the parties, look to award the capped sum of £1 million to SSE for business losses suffered when the 180GWh/year Glendoe power plant was out of action.

SSE appealed the ruling.

Appeal court ruling

At the Inner House appeal court of the Court of Session, SSE argued there was a contractually defined ‘defect’ that placed the tunnel collapse as the Contractor’s Risk, and that therefore - and since the tunnel had been handed over before the collapse - the contractor should meet the repair costs.

Hochtief defended that the works were completed in accordance with the needs of the client accepted Contractor’s Design and that therefore, SSE assumed risk upon take over of the infrastructure.

The three judges appeal court ruled 2-to-1 in favour of SSE with much of the focus on the legal arguments and opinions looking at execution of the Contractor’s Design, and therefore how a ‘defect’ is classified and what design life means under the contract used on the project.

On the physical aspect of defects, the opinion of the judges covered the visibility or not of obvious hydraulically erodible rock during construction, and what that meant for selecting the best support under the Design, allowing for engineering judgment at the face. They also covered the contract having had technical staff on both sides of the contract discussing the rock and support, and therefore implementing the accepted Contractor’s Design as tunnelling advanced.

The one dissenting judge of the appeal heading, Lord President Lord Carloway holding the chair notes in his opinion that the commercial judge was correct to find that “no-one had identified a fault that presented a threat” to the tunnel’s stability; that while some erodible rock may had have been shotcreted, “it does not follow that the erodibility of the rock was visible or detectable by the geologists onsite.” Therefore, it should not be assumed that whatever rock had become erodible, leading to the failure, had not been shotcreted. Further, he adds, the power company failed to prove that shotcrete support was sufficiently lacking at the failure area. In conclusion, Lord Carloway refused the SSE claim to recover costs.

The other two appeal court judges, Lord Glennie and Lord Menzies, conclude in their opinions that there was manifestly a fault in the tunnel at handover because - after no extra alterations after hand over - the tunnel failed.

Lord Menzies added that the Contractor’s Design was to apply shotcrete to identified erodible rock where no steel ribs were used.

However, on the question of identified erodible rock in the fault area, Lords Glennie and Carloway differ in their opinions. While Lord Carloway said that in his view, the erodibility of the rock may not have been visible or detectable, Lord Glennie said his opinion was to assume erodible rock "existed and was detectable".

Lord Glennie and Lord Menzies conclude, therefore, the contractor was at fault. They note the contract called for a design life of 75 years for the civil works and said it needed to be possible to achieve, even if not guaranteed in the contract. How it was to be judged as possible would be up to the owner, checking all was in order during the two-year defects period. But the tunnel failed during that period, meaning the design life did not have the possibility of being achieved, they say.

In their conclusions, Lords Glennie and Menzies accepted the SSE claim to recover costs.