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Offshore wind farm construction: Court of appeal reverses 20 year service life warranty decision following the Robin Rigg Grouting Failures

22.05.2015 | Energy

MT Højgaard A/S v E.ON Climate and Renewables UK RobinRigg East Ltd and another [2015] EWCA Civ 407.

The Court of Appeal has held that MT Højgaard is notresponsible for the cost of remedial work to the groutedconnections of the foundations at the Robin Rigg offshorewind farm, overturning last year’s first instance decision inthe Technology and Construction Court (TCC). In reaching its decision, the Court of Appeal has made a number of observations that will be of interest to contractors and developers.

The background facts and the contract

In 2006 MT Højgaard (MTH, the contractor) agreed to design, fabricate and install 60 wind turbine foundations at the Robin Rigg offshore wind farm for E.ON Climate and Renewables (E.ON, the employer).

In carrying out the design of the foundations, and the grouted connections in particular, MTH’s designer, Rambøll, relied on the international standard DNV-OS-J101 (J101). But J101 contained a fundamental error that resulted in a significant overestimation of the axial load capacity for wind turbines with grouted connections. Rambøll was unaware of this error when it carried out the design.

In 2009 it was discovered that movement was taking place in the grouted connections, following which the error in J101 came to light. All of the foundations required remedial work, at an agreed cost of €26.25 million.

The contract stated at clause 8.1 that, amongst other things, MTH “shall ... complete the Works”:

  1. with due care and diligence”;
  2. in a professional manner in accordance with ... Good Industry Practice”;
  3. so that the Works, when completed, comply with the requirements of this Agreement”; and
  4. 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”.
The Technical Requirements within E.ON’s tender documents (which became part of the contract) were contradictory. This was a key issue in both the TCC and the Court of Appeal decisions. Those Technical Requirements stated that the foundation design would “ensure a lifetime of 20 years in every respect without planned replacement”, which appeared to constitute a warranty that the foundations would function for 20 years. However, all of the other provisions in the Technical Requirements were directed towards a design life of 20 years. Furthermore, J101 (which was also incorporated into the contract) was itself confusing in this respect, as it referred to both a service life and a design life of 20 years.

The TCC decision

The Judge, Mr Justice Edwards-Stuart, held that:

  1. the Technical Requirements required MTH to provide foundations with a service life of 20 years, which was additional to, but not inconsistent with, MTH’s other less onerous obligations such as compliance with J101;
  2. MTH was in breach of contract as the foundations did not have a service life of 20 years;
  3. Rambøll was not negligent in its design of the grouted connections; and
  4. MTH was not in breach of a number of other specific contract terms upon which E.ON relied.
As a result, the Judge held that MTH was responsible for the cost of the remedial work.

The Court of Appeal decision

The Court of Appeal overturned the TCC decision. In reaching its decision, it held that:

  1. the Technical Requirements did at first sight contain a warranty that the foundations would function for 20 years;
  2. however, there were many other references in the Technical Requirements that were directed towards a 20 year design life;
  3. if a structure has a design life of 20 years, that does not mean that inevitably it will function for 20 years, although it probably will;
  4. J101 itself is intended to lead to offshore structures with a design life of 20 years;
  5. repeated use of the word “minimum” in the Technical Requirements did not convert the requirement for a design life into a requirement for a guaranteed operational life;
  6. the fitness for purpose warranty was to be read in accordance with, and was qualified by, the Technical Requirements and J101; and
  7. a reasonable person in the position of E.ON and MTH would know that the normal standard required in the construction of offshore wind farms was compliance with J101 and that such compliance was expected, but not absolutely guaranteed, to produce a life of 20 years.
In conclusion, therefore, the Court of Appeal held that there were only limited references in the Technical Requirements to a 20 year service life: those references were inconsistent with the remainder of the Technical Requirements and with J101, and were too slender a thread upon which to hang a finding that MTH gave a warranty of 20 years guaranteed operational life for the foundations.

However, there was a small sting in the tail for MTH. The Court of Appeal agreed with E.ON that: (i) MTH failed to justify, with test data, its decision to omit shear keys within the grouted connections, in breach of the Technical Requirements; and (ii) MTH failed to carry out experimental verification of the design of the grouted connections, in breach of J101. However, the Judge held that even if MTH had complied with those provisions, that would not have led to any change in design. E.ON was therefore only awarded nominal damages of £10 for the breach of the Technical Requirements, and the Court held that no loss flowed from MTH’s breach of J101.

Comment

A number of points emerge from the decision:

Although the previous finding concerning a 20 year service life warranty was reversed, in finding that there was a 20 year design life warranty the Court of Appeal still upheld the previous comments of the TCC that an express obligation to construct a work capable of carrying out a defined duty (e.g. a 20 year service life or fit for purpose) can, if the contract wording is sufficiently clear, override the obligation to comply with the plans and specifications. If this is the case as a matter of contractual interpretation, then the contractor will be liable for the failure of the work notwithstanding that it is carried out in accordance with the plans and specifications.

This case therefore still highlights our previous comments regarding the potential value to an employer of an absolute warranty by a contractor to achieve fitness for purpose or some other requirement, versus the considerable risk to which a contractor is exposed if it provides such a warranty. Absolute warranties are common in engineering and construction contracts, including those used in the offshore oil and gas and wind farm sectors. Many of the popular standard forms, such as the LOGIC standard contracts, include absolute fitness for purpose obligations. The risks to contractors of accepting these provisions has now been clarified and should not be
underestimated.

This judgment also reinforces the importance of clear contract drafting, the risk of contradictory language and terminology (in this case “design life”, “service life” and even “lifetime”), and the problems that can arise when various documents from different sources are incorporated into a contract at different levels within the order of precedence without ironing out inconsistencies. If E.ON had really wanted a binding 20 year service life warranty, it should have insisted on that provision featuring prominently within the conditions of contract, rather than being tucked away in the Technical Requirements.

Article authors:

Chris Kidd, Mark de la Haye