Warranty obligations

Where a contractor undertakes full design and construction obligations under a construction or engineering contract, the owner will require to be careful in issuing any variation instructions to avoid dilution of the contractor's design and warranty obligations.

Such an issue was raised in the recent case of Amoco (UK) Exploration Co -v- Telephone Cables Ltd. Amoco was the operator of two North Sea oil production platforms, known as Lomond and North Everest. A telecommunications link was required between the two platforms and Amoco entered into contract with Telephone Cables for the design, construction, installation and commissioning of a fibre optic cable system between the two which lay some 65km apart.

By the terms of the agreement, Telephone Cables warranted and guaranteed that the work it carried out would be free from defects and suitable for its purpose. Telephone Cables also agreed to repair any defects, at its own cost, which became apparent within 24 months from the completion certificate.

The design of the cable incorporated a 'weak link', which comprised a splice box at the point where the sub-sea cable entered the platform. Once the splice box was 'armed', this would enable the cable to part at a force lower than would damage the equipment on the platform in the event that the sub-sea cable was snagged and pulled.

In the event, the weak link at the Lomond platform parted in a storm on 1 January 1995, less than 12 months following the certificate of completion for the works. Repairs in excess of £1m were carried out by Amoco, which subsequently sought to recover these from Telephone Cables on the basis that the failure occurred during the 24 month warranty period, or alternatively that the system was itself defective and that Telephone Cables should be liable for these costs.

The matter proceeded to the Queens Bench division of the Commercial Court in London, where the court was given background information concerning the hazards surrounding the laying of sub-sea cables. The court was told that there was a number of ways in which cables could be protected and a number of hazards from which they may need to be protected. The hazards include hydro-dynamic forces which can operate on the sea bed of the North Sea and can make a cable unstable and cause it to move.

Fishing nets and trawls which travel along the sea bed may snag the cable, as may anchors and anchor wires. In the vicinity of about 100m around oil production platforms, dropped objects, such as scaffold poles, will also present a hazard.

The type of protection that may be employed includes laying the cable in a trench, or covering the cable by rock dumping or concrete mattresses, which are described as hexagonal concrete blocks linked together by flexible couplings. At places where the cable rises off the sea bed, it will be supported underneath with grout bags and then covered.

In all of these matters, it was clear that Telephone Cables had undertaken contract responsibilities for the effective design of the protection to the cable.

Discussions and concerns

There had been, however, considerable discussion as to the protection that should be carried out adjacent to the platforms. Of particular concern was the fact that construction activity was being carried out on both platforms and during this construction work, floating hotels (known as "flotels") were anchored adjacent to the platforms and connected by gang planks.

These flotels would potentially impede the cable laying. Since Amoco was concerned not to move the flotels, as this would involve disruption to the construction programme for the platforms with serious cost implications, an alternative solution had to be found.

In consequence, Amoco issued a contract variation instruction. This provided that instead of concrete mattresses being laid across the cable, at the approaches to the platforms a hard polyurethane cladding would instead be used. It was this solution which was adopted and installed and, in the event, failed.

In court, Telephone Cables placed particular emphasis upon the effect of this variation instruction. It argued that , by complying with this instruction, its own designed protection could not be implemented.

Telephone Cables argued that the effect of the instruction was to take the design out of its hands. Moreover, Telephone Cables argued that what it had been instructed to install could only be regarded as temporary. Amoco should have carried out further permanent works by rock dumping over the cables once the flotels had been moved. It was Amoco's failure to carry out that additional work which had led to the failure.

His Honour Mr Justice Langley did not agree with Telephone Cables. Its case was simply not borne out by the history and origin of the contract variation instruction. The contract had not been varied in any significant respect. The contract variation instruction referred simply to completing the platform approaches with the flotels in place. The obligations upon Telephone Cables were not referred to, let alone varied.

In his opinion, the variation instruction had been jointly arrived at by both parties as a solution to the problem such that all necessary work could be done with the flotels alongside the platforms. In consequence, Telephone Cables remained under obligation to provide a system free from defects and suitable for its purpose and to repair, at its own costs, any defects which became apparent within 24 months from completion. Amoco, therefore, became entitled to repayment of the entire costs of reinstatement of the damaged cable.