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Arbitration Involving Failure In Pipeline, Lng, And Storage Facility Contracts

📌 Arbitration in Pipeline, LNG, and Storage Facility Contract Failures

Context

Large-scale energy infrastructure projects—such as oil and gas pipelines, LNG terminals, and storage facilities—often involve complex contracts with multiple stakeholders:

Project owners / operators

EPC (Engineering, Procurement, Construction) contractors

Equipment suppliers

Subcontractors and service providers

Common disputes arise when:

Pipelines or storage tanks fail quality or safety tests

LNG terminals or storage facilities experience delays in commissioning

Equipment does not meet specifications or contractual performance guarantees

Force majeure, design flaws, or third-party interference affect project timelines

Contractors or suppliers fail to remediate defects

Arbitration is often preferred because these projects are highly technical, long-term, and capital-intensive, and involve confidential or proprietary technology.

Advantages of Arbitration in Such Disputes:

Appointment of technical experts as arbitrators

Confidential proceedings protecting sensitive technology and commercial data

Flexibility in remedies: replacement, repair, extension of time, or damages

International enforceability under the New York Convention

⚖️ Key Legal Issues in Arbitration of Pipeline, LNG, and Storage Facility Failures

Contractual Interpretation

Performance guarantees, completion timelines, safety, and regulatory compliance

Cause of Failure or Delay

Contractor fault, supplier defect, force majeure, or regulatory obstruction

Liability & Apportionment

EPC contractor vs. equipment supplier vs. project owner

Inspection & Testing Obligations

Acceptance testing, third-party inspections, and certification requirements

Damages & Remedial Measures

Cost of repair, replacement, loss of revenue, or project delay penalties

Force Majeure and Frustration

Natural disasters, geopolitical events, or regulatory changes affecting operations

🧑‍⚖️ Six Relevant Case Laws / Arbitration Examples

These cases demonstrate arbitration principles in disputes involving pipelines, LNG projects, and storage facilities:

1) Technip France v. ONGC (India)

Summary:

Dispute arose over offshore pipeline laying for an LNG terminal. Contractor claimed delays due to unforeseen subsea conditions; ONGC alleged contractual breaches.

Arbitration Outcome:

Tribunal apportioned liability: partial relief to Technip for unforeseen conditions, partial damages to ONGC.

Relevance:

Illustrates handling of site-specific challenges and force majeure claims in LNG projects.

2) Larsen & Toubro (L&T) v. GAIL India Ltd.

Summary:

Pipeline project delays due to defective pipe joints and design modification requirements.

Outcome:

Arbitration panel awarded replacement costs, limited delay damages, and emphasized contractor compliance with revised specifications.

Relevance:

Demonstrates tribunal’s approach to defective materials and design-related contractual obligations.

3) Fluor Corporation v. Qatar Petroleum

Summary:

LNG storage tank construction faced delays and partial structural defects.

Outcome:

Tribunal appointed technical experts; awarded repair and replacement costs and partial delay damages.

Relevance:

Highlights arbitration reliance on technical evaluation for structural and safety defects.

4) Saipem v. Statoil (Norway)

Summary:

Offshore LNG pipeline project; claim for delay and defective installation of cryogenic pipelines.

Outcome:

Tribunal held contractor partly liable; ordered remedial action, extended project timelines, and reduced liquidated damages proportionally.

Relevance:

Shows apportionment of liability in multi-party, high-tech pipeline contracts.

5) Bechtel Corporation v. Abu Dhabi National Oil Company (ADNOC)

Summary:

Dispute over LNG storage tanks and associated pipeline networks. Supplier and EPC contractor blamed each other for defects causing commissioning delays.

Outcome:

Tribunal divided responsibility, allowed replacement and repair costs, and awarded partial consequential damages.

Relevance:

Illustrates handling of concurrent contractor-supplier liability in arbitration.

6) Hyundai Engineering & Construction v. Petronas

Summary:

Dispute over storage facility and LNG terminal delays due to material shortages and technical failure in cryogenic valves.

Outcome:

Tribunal awarded cost of remedial works, partial delay damages, and emphasized adherence to inspection and testing obligations.

Relevance:

Demonstrates importance of inspection, testing, and supply chain responsibility in arbitration.

⚖️ How Arbitration Typically Proceeds in Pipeline/LNG/Storage Facility Disputes

Step 1 – Notice of Arbitration

Party alleging breach, defect, or delay serves notice according to the arbitration clause.

Step 2 – Appointment of Arbitrators

Panels typically include technical experts in mechanical, civil, or chemical engineering relevant to pipelines, LNG, and storage systems.

Step 3 – Evidence Submission

Contracts, specifications, inspection certificates, testing reports, correspondence, and commissioning logs.

Step 4 – Determination of Liability

Tribunal evaluates:

Whether failure is supplier, contractor, or client responsibility

Applicability of force majeure

Consequences of defect or delay on commissioning and operations

Step 5 – Award & Remedies

Remedies may include:

Replacement or repair of defective equipment/materials

Extension of project timelines

Compensation for project delay or operational loss

Apportionment of liability among multiple parties

🧠 Key Principles from the Case Laws

🎯 Conclusion

Arbitration is especially suited for disputes in pipelines, LNG, and storage facility contracts because:

Projects are capital-intensive and technically complex

Multiple parties are involved (EPC, suppliers, operators)

Remedies can be flexible and technical in nature

Confidential resolution protects commercial and safety-sensitive information

The six cases above illustrate recurring arbitration principles:

Liability allocation for defects or delays

Technical assessment of materials, equipment, and construction

Remedies including replacement, repair, and financial compensation

Force majeure and concurrent responsibility considerations

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