Construction – Contract – Warranty – Contract for design and build of foundations for offshore wind turbines – Contract requiring compliance with published international standard J101 – Equation set out in J101 containing error – Foundations built in accordance with J101 proving inadequate and failing – Whether contract containing warranty that works to have a lifetime of 20 years – Whether appellant in breach of other contractual terms – Judge finding for respondent employer on former issue and appellant on latter – Appeal allowed and cross-appeal allowed
The respondents employed the appellant as a contractor, under a written contract dated December 2006, to design and install the foundation structures for an offshore wind farm. The appellant’s design for connecting the wind turbines to the monopoles on which they stood involved the use of a steel cylinder, known as a transition piece, which projected above the monopole so that the tower which supported the electricity generator could be fitted onto it. The gap between the transition piece and the monopole was to be filled with grout.
The appellant’s contractual obligations included compliance with J101, an international standard (J101) for the design of offshore wind turbines published by Det Norske Veritas (DNV), an independent classification and certification agency in Norway. J101 contained a parametric equation for calculating the axial capacity of a grouted connection such as the appellant was using, to assist in assessing the pros and cons of using “shear keys”, small horizontal projections into the grout from the outside surface of the pile and the inside surface of the transition piece. The appellant did not incorporate shear keys into its design. DNV, which was the “certifying authority” under the terms of the contract, evaluated and approved the appellant’s foundation designs and the works were completed by February 2009.
Shortly thereafter, it emerged that there was a significant error in the calculations contained in J101. In 2010, the grouted connections of the wind turbines began to fail and the respondents put in place a scheme of remedial works. The appellant applied to the court for a declaration that it was not liable for the €26.25 m cost of the works and the respondents counterclaimed for a declaration that the appellant was so liable. They alleged various breaches of contract, including breach of a warranty, said to derive from a statement in the technical requirements section of the contract, that “the design of the foundations shall ensure a lifetime of 20 years”. They also relied on the conditions in clause 8 of the contract, setting out the general obligations of the contractor including a requirement that every element of the works and the works as a whole would be “fit for its purpose as determined in accordance with the Specification using Good Industry Practice”.
In the court below, the judge found that the appellant had given the warranty as alleged but that there had been no other breaches of contract. Both parties appealed.
Held: The appeal was allowed; the cross-appeal was also allowed.
The court’s task was to decide which party should pay the bill for repairing foundation defects in a situation where, on the judge’s findings, there had been no negligence or want of professional skill on either side; instead, the problem arose because the appellant was required to comply with J101, which contained a significant error. That error led to the failure of the grouted connections, with the result that the foundations could not fulfil their intended purpose for a period of 20 years, as envisaged by a number of contractual provisions.
A construction contract might require the contractor both to comply with particular specifications and standards and also to achieve a particular result. Such a contract, if worded with sufficient clarity, might impose a double obligation on the contractor. The contractor would have to comply with the relevant specifications and standards, as a minimum, but would also be obliged to take such further steps as were necessary to ensure that it achieved the specified result. In other words, the contractor had to ensure that the finished structure conformed with what the contractor had warranted: The Steel Company of Canada Ltd v Willand Management Ltd [1966] SCR 746 and Greater Vancouver Water District v North American Pipe & Steel Ltd 2012 BCCA 337 applied.
However, the agreement negotiated between the respondents and the appellant was not a contract of that character. Clause 8 of the contract conditions, in conjunction with the technical requirements section, did not require the appellant to achieve a result of foundations with a service life of 20 years, in addition to compliance with J101. Although the statement relied on by the respondents said that the foundation design “shall ensure a lifetime of 20 years”, all the other provisions of the technical requirements were directed towards a “design life”. Where a structure had a design life of 20 years, that did not mean that it would inevitably function for 20 years, just that it probably would. Although the technical requirements contained repeated use of the word “minimum”, that simply meant that any departure from the specification should improve on rather than detract from the contractual requirements; it could not convert the requirement for a design life into a requirement for a guaranteed operational life.
If there were an absolute warranty of a 20-year lifetime, one would expect to find it in the contract conditions in clause 8, not tucked away in the technical requirements. Clause 8 did not contain any warranty that the foundations would have a 20-year life. The obligations that it imposed were the opposite of requiring an absolute warranty of quality; instead, they required due care, professional skill, adherence to good industry practice, compliance with the employer’s requirements and with international recognised standards, including J101 which was a detailed standard intended to lead to offshore structures with a design life of 20 years. The requirement for the completed works to be compliant with the provisions of the contract and the employer’s requirements did not contain or require any freestanding warranty or guarantee. The requirement that the works as a whole be “fit for purpose” was qualified by the phrase “as determined in accordance with the Specification using Good Industry Practice”. The definition of good industry practice required the exercise of reasonable skill and care, as well as compliance with J101, and did not require or impose any form of warranty as to the length of operational life. The phrase “fit for purpose” was defined as fitness for purpose in accordance with the employer’s requirements and therefore led back to the technical requirements and J101.
A reasonable person in the position of the parties 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. Adopting an iterative approach to the construction of the technical requirements, by checking each of the rival meanings against the other contractual provisions and investigating its commercial consequences, it did not make sense to regard the provisions relied on by the respondents as overriding all other provisions of the contract and converting it to one with a guarantee of 20 years’ life. There was an inconsistency between the statements in the technical requirements on which the respondents relied, on the one hand, and all the other contractual provisions on the other hand. The court should not be led astray by that inconsistency. The statements were too slender a thread on which to hang a finding that the appellant gave a warranty of 20 years’ life for the foundations. It followed that the appellant was not in breach of any warranty as to the life of the foundation structures.
(2) The appellant was however, in breach of other provisions of the contract. One of these required that, if the contractor decided to omit shear keys, it had to demonstrate “with test data” that the grouted connection had sufficient axial capacity. It was insufficient to say that the contractor’s calculation in accordance with the relevant parametric equation in J101 proved that there would be sufficient axial capacity. The contractor had to do more than a desk exercise. The appellant had not carried out any test as envisaged by the technical requirements. It made no difference that both the engineer and DNV, as the certifying authority, were satisfied with the design of the grouted connections on paper. Under the contract, the duty to take the initiative lay on the contractor. The contract required the appellant to carry out appropriate tests and submit the resulting data to the engineer and the certifying authority, who were authorised to evaluate that data when produced but had no authority to relieve the contractor of the obligations to carry out the tests and submit the resultant data.
However, on the balance of probabilities, such tests would not have revealed the potential weakness of the connection or the problem with the calculations. Even if the appellant had complied with its obligation to carry out tests, that would not have led to any change in design. The grouted connections would still have been constructed without shear keys and failure would still have occurred in 2010. It followed that the breach of contract had not caused any loss. Nominal damages of £10 were awarded accordingly.
David Streatfeild-James QC and Mark Chennells (instructed by Fenwick Elliott LLP) appeared for the appellant; John Marrin QC and Paul Buckingham (instructed by Wragge Lawrence Graham & Co) appeared for the respondents.
Sally Dobson, barrister
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