The Court of Appeal1 has held that a contractor which performed a contract in accordance with industry standards, as required by that contract, was not liable under a 20 year warranty for the design of wind farm turbines where there was an error in the applicable industry standard, resulting in hefty remedial costs being incurred.
Højgaard contracted with E.ON that Højgaard would design, fabricate and install the foundations for turbines for a wind farm to be built in the Solway Firth at Robin Rigg. The contract included a requirement that Højgaard’s design must accord with national and international rules and, in particular, an international standard for the design of offshore wind turbines published by classification society DNV and known as DNV-OS-J101 (J101). In addition, elsewhere in the contract, Højgaard warranted that the design would endure a lifetime of 20 years.
During 2009, while the wind farm was under construction, DNV realised that there was an error in an equation on which J101 was based, as a result of which the load-bearing capacity for turbine piles whose design complied with J101 was over-estimated by a factor of 10. As a result of this error, damage began to manifest itself in wind turbines built in compliance with J101, including wind turbines on the Robin Rigg wind farm. The cost of the remedial works at Robin Rigg was €26.25 million. E.ON and Højgaard agreed to proceed with those remedial works, but applied to the court to resolve the issue of which party was liable to pay for them.
The court had to consider how to interpret the 20 year design warranty in combination with the requirement to comply with J101 in circumstances where compliance with J101 would not yield a 20 year design life. In the High Court, the judge decided that the 20 year warranty was additional to, but not inconsistent with, the other obligations on Højgaard under the contract, including the obligation to comply with J101. Højgaard was therefore held liable for the remedial costs. Højgaard appealed the decision.
Applying general principles of contractual interpretation, the Court of Appeal considered what a reasonable person in the position of E.ON and Højgaard would have understood the two requirements to mean. It concluded that such a person 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. Therefore, as Højgaard had complied with J101, they were not liable for the cost of the remedial works.
Although the facts of this case were unusual, the judgment highlights the need for clear contractual drafting so that, in the event something goes wrong, the allocation of liabilities is clear, reducing the risk of disputes. This is all the more important as, while the principles used by the English Courts to interpret contracts are well established, it is not always easy to predict the outcome when those principles are applied to a complicated factual scenario. For complex and innovative projects, clear contractual provisions are of vital importance.