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Court Wades Through Deep Water To Cancel Out Wind Farm Contractor’s Liability

Court Wades Through Deep Water To Cancel Out Wind Farm Contractor’s Liability

With one huge judicial blow the English Court of Appeal last week reduced a sub-sea engineering contractor’s liability from €26.25 million to just £10, showing that if you want to impose a ‘fitness for purpose’ liability in your contract you must be upfront and crystal clear in your wording.

The court case examined a highly technical dispute between windfarm developer E.ON Climate & Renewables Robin Rigg and its Danish based contractor MT Højgaard A/S.  The dispute concerned the design and construction of foundation bases for the Robin Rigg Windfarm in the Solway Firth which failed within a year or two of installation. The cost of the remedial works was agreed at €26.25 million.

Interwoven between the technical issues was a clear legal one - whether the contract provisions required the contractor simply to design the bases with a design life of 20 years or whether the contractor should have ensured (effectively guaranteed) that the bases would last 20 years.

The Court of Appeal eventually found for the contractor and awarded £10 nominal damages for other technical breaches in place of the €26.25million awarded by the lower court. The Court in reaching its decision enunciated the following points of principle which could well apply to similar contracts:

  • The contract documents were of “multiple authorship” and contained “much loose wording”. 
  • Some construction contracts impose on the contractor obligations not only (i) to comply with particular specifications and standards but also (ii) to achieve a particular result. For the second obligation to be upheld wording must be clear and should not be “tucked away” in the technical requirements.
  • In this case the technical requirement which required the foundation design to ‘ensure a lifetime of 20 years’ was ‘too slender a thread’ upon which to hang a finding of a 20 year warranty.
  • By contrast, the actual contract conditions (which took precedence) imposed a duty to design and install the bases with due care and diligence and so that using good industry practice each item of the works as a whole should be fit for its purpose in accordance with the specification.
  • This duty had not been breached bearing in mind the level of knowledge and the industry standards pertaining at the time.
  • Construing the meaning of the contract terms was an iterative process which involved checking each of the rival meanings against the other contractual provisions and investigating its commercial consequences. The court should not be ‘led astray’ by ambiguities and inconsistencies.

Whilst not technically binding in Scotland, what can we learn from this decision?

  • Ideally a commercial contract should derive from the pen of one “author”.  If this is not practicable then there should be an overall review by one individual to iron out any ambiguities or inconsistencies.
  • Use the same terminology in different parts of the contract, not similar and potentially confusing ones such as ‘requirements’ and ‘specification’.
  • If you may have conflicting contract provisions make sure there is a clear order of precedence.
  • If you want to impose a duty of care or standard which is higher than that which would normally apply, clear and prominent wording is required.
  • Beware of using the phrase “fit for purpose” on its own without reference to particular technical requirements.  It is hard to define and unless it is more specific it may not be enforceable or insurable.

It remains to be seen whether this decision will be appealed to the Supreme Court. In the meantime, whilst it appears to represent a victory for common sense and comfort to contractors generally, it serves as yet another warning that if you don’t draft your contracts clearly you are exposing yourself to the risk of disputes and what could be costly litigation.

Chris Arnold
Partner

LChalmers