Australia: Supply Agreements at Sea – Submarine Telecommunications Cabling

Critical Path

The significance of high-speed, cost effective and efficient international telecommunications networks needs little thought given our routine reliance on the internet for global communication and our increasing expectation for faster global information transfer.

In constructing these networks, the installation of submarine cables remain (with the improvements in technology) the solution of the telecommunications industry in bridging any seas or avoiding any land based restrictions in difficult territories. This article highlights some of the legal issues that can arise for consideration in these submarine cable projects from a construction (design, supply and installation) perspective.

The context of such submarine cables is that almost all of Australia’s non-television related international capacity is in submarine cable networks and the industry sees that submarine fibre optic technology can provide this capacity both now and into the future. Those in the telecommunications industry are also aware that fibre optic cable can be upgraded from its original configuration at a lower capacity cost compared to the capacity cost of a new cable, which has the effect that the economic life of each cable is extended.

Needless to say, the logistics and potential difficulties of carrying out installation works at sea and the need to use specialised ships means that the construction of submarine cable systems is a specialised area and there are a relatively small number of contractors worldwide with both the capability and experience to design, supply and install these systems.

At a high level, the process involves planning and designing the system, achieving permitting requirements, carrying out a desktop study of the proposed cable route selection, carrying out the marine route survey and finalising the route selection, specifying appropriate cable for the route, manufacturing the cable, loading the cable onto the laying vessels, carrying out the installation both at sea and on land (such as the beach manholes and cable stations), final testing of the system and entering into maintenance agreements with cable repairers. The step in the process of coordinating the cable route selection to marine route survey is considered significant in reducing the cost of supply, installation and maintenance of the system.

Submarine cables are most often procured under design, supply and installation agreements. The drafting of conventional equipment design, supply and installation agreements generally raise similar issues across different industries and differing items of equipment. However, some issues are very particular to a supply arrangement and can include issues such as the supplier’s limitation or exclusion of liability, the application and extent of indemnities, supplier warranties, insurance requirements, supplier performance security regime, transfer of title/risk and the payment regime. While these issues would also arise for a submarine cable design, supply and installation agreement, the nature of these projects raises new issues peculiar to this industry.

Complying with permitting requirements is one of the most significant issues on any submarine cable project including during the planning, construction and operational phases. As background to considering the issue of permitting, it is important to note that the laws that govern the installation of submarine cables in Australian waters and seas are split across territorial jurisdictions and international jurisdiction.

Under the 1982 United Nations Convention on the Law of the Sea (“UNCLOS”), territorial seas and archipelagic waters come under the sovereignty of coastal nations while the high seas, exclusive economic zone and continental shelf fall outside the sovereignty of coastal States and are governed by the UNCLOS. Under the UNCLOS, all States (and by extension, their nationals) have the right to lay submarine cables on the continental shelf (Article 79), in the high seas (Article 87), on the bed of the high seas beyond the continental shelf (Article 112) and in the exclusive economic zone (the economic maritime zone between the territorial sea and the high sea) (Article 58). The number of jurisdictions that will be applicable to the passage of a submarine cable will obviously depend on the particular cable route, however the jurisdiction of at least two (often more) coastal States as well the UNCLOS will be invoked.

The permits and approvals that are required can be significant and range from facilities-based operator licences, system operating permits, protection-zone permits, work and building permits for land-based works, letters of no objection from owners and operators of other cables, pipelines and oil/gas concession block holders (of which the cable will cross), marine operating permits and many other operational and construction related permits. The allocation of responsibility for procuring and maintaining permitting between the purchaser and the supplier needs to be carefully dealt with in the design, supply and installation agreement. The laws of each coastal State that has its territorial seas or archipelagic waters traversed or where the cable lands, will usually be a significant jurisdictional source of these permitting requirements.

The application and duration of warranties (and reinstatement of warranties after repairs) as well as the design life of the system will naturally be a key issue that affects the commercial model. The concerns of the purchaser in the quality of the system and of the supplier in its exposure to liability will naturally also be affected by the agreed warranty regime.

With the significant operating costs associated with laying vessels working at sea, cable installation works are conducted 24 hours a day on a shift work basis. The exposure to harsh marine weather during that time can obviously affect the installation works and on that basis an unworkable weather concession for the supplier needs to be addressed in addition to more ‘ordinary’ force majeure events (these terms require careful and measurable definitions). Where cables are installed near areas of known piracy activity, the security of the crew of the marine survey vessels and laying vessels will also be an installation and safety concern to be addressed.

The issue of liability for any loss or damage (including consequential loss) suffered by third party owners and operators of cables and pipelines that have been cut or damaged as a result of crossing works carried out in installation of a new submarine cable also needs to be addressed. This is a key issue for the main design, supply and installation agreement as well as the crossing agreements between the cable owner and third party cable and pipeline owners and operators.

With every submarine cable project comes a completely different set of parameters and jurisdictions which would rarely be repeated in later projects. This is particularly so given that the upgradability of the technology means that the capacity of routes can be improved into the future and therefore repeated submarine cable routes are not as frequent as the construction of new cable routes to meet particular new demands. With this variability of parameters on submarine cable projects comes the need for robust due diligence and consideration of risk allocation between purchaser and supplier.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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