Arbitration Involving Lng Terminal And Storage Tank Commissioning Delays
Arbitration Involving LNG Terminal and Storage Tank Commissioning Delays
1. Introduction
Liquefied Natural Gas (LNG) terminals and storage tanks are high-value, safety-critical energy infrastructure projects involving cryogenic technology, complex process systems, and strict regulatory oversight. Commissioning represents the most sensitive phase of such projects, covering pre-cooling, inerting, leak testing, initial LNG loading, boil-off gas handling, and performance testing.
These projects are usually executed under EPC or EPCM contracts, often based on international standard forms, and almost invariably contain arbitration clauses. Delays in commissioning frequently give rise to claims for extension of time (EOT), prolongation costs, and liquidated damages, making arbitration the principal dispute-resolution mechanism.
2. Common Causes of Commissioning Delays in LNG Projects
(a) Cryogenic Integrity and Leak-Tightness Failures
Failures during hydrostatic testing, pneumatic testing, or cold shock testing of LNG storage tanks can delay commissioning significantly.
(b) Instrumentation and Control System Issues
Malfunctioning sensors, emergency shutdown systems (ESD), or distributed control systems (DCS) often prevent safe commissioning.
(c) Regulatory and Safety Approval Delays
Delays in approvals from safety regulators, port authorities, or environmental agencies can halt LNG loading and commissioning.
(d) Interface and Integration Problems
Poor coordination between tank contractors, jetty works, regasification units, and utilities frequently causes commissioning delays.
(e) Employer-Driven Changes or Late Decisions
Late changes to operating parameters, capacity requirements, or safety philosophy often disrupt commissioning schedules.
3. Arbitrability and Legal Framework
Commissioning delay disputes in LNG projects are treated as commercial and technical construction disputes, fully arbitrable under national arbitration laws and international conventions. Arbitral tribunals typically examine:
Contractual completion and commissioning milestones,
EOT and delay-risk allocation clauses,
Liquidated damages provisions,
Critical path and commissioning schedules,
Expert technical and planning evidence.
4. Key Case Laws Relevant to LNG Commissioning Delay Arbitration
Case 1: McDermott International Inc v Burn Standard Co Ltd
Principle Established:
Arbitrators are the final judges of facts and technical evidence in complex engineering disputes.
Relevance to LNG Projects:
Tribunals may conclusively assess commissioning schedules, technical readiness, and causation of delay in LNG terminals.
Case 2: Hindustan Construction Co Ltd v State of Bihar
Principle Established:
Contractors are entitled to extensions of time where delays are attributable to the employer.
Relevance:
If commissioning delays result from employer-driven changes or late approvals, EOT and cost relief may be granted.
Case 3: AMEC Civil Engineering Ltd v Secretary of State for Transport
Principle Established:
Failure to meet contractual time obligations constitutes breach unless excused under the contract.
Relevance:
EPC contractors must meet LNG commissioning deadlines unless valid EOT grounds are established.
Case 4: Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd
Principle Established:
An employer cannot impose liquidated damages for delays it has itself caused.
Relevance:
Where owner-caused interference delays LNG commissioning, LDs may be unenforceable.
Case 5: Perini Corporation v Commonwealth of Australia
Principle Established:
Delays caused by employer variations entitle the contractor to time and cost compensation.
Relevance:
Late changes to LNG storage capacity, safety systems, or commissioning procedures justify EOT and prolongation claims.
Case 6: Lesotho Highlands Development Authority v Impregilo SpA
Principle Established:
Arbitrators have wide powers to decide complex delay, variation, and commissioning disputes.
Relevance:
LNG commissioning often involves concurrent delays, which tribunals are empowered to analyze and allocate.
Case 7: Balfour Beatty Construction Ltd v Docklands Light Railway Ltd
Principle Established:
Contractual mechanisms govern the assessment of delay and disruption claims.
Relevance:
Strict notice and documentation requirements in LNG EPC contracts are enforced in arbitration.
Case 8: Sutlej Construction Ltd v Union Territory of Chandigarh
Principle Established:
Arbitral tribunals may award prolongation costs in large infrastructure projects.
Relevance:
Extended site overheads and standby costs during delayed LNG commissioning may be recoverable.
5. Remedies Commonly Awarded in LNG Commissioning Delay Arbitrations
Arbitral tribunals may award:
Extension of time without liquidated damages,
Prolongation and standby costs,
Compensation for delay-related inefficiencies,
Reduction or nullification of liquidated damages,
Termination compensation in extreme delay scenarios.
6. Role of Expert Evidence
LNG commissioning arbitrations rely heavily on:
LNG process and cryogenic engineering experts,
Control and safety system specialists,
Planning and delay analysis experts,
Regulatory and safety compliance consultants.
Expert evidence assists tribunals in:
Determining commissioning readiness,
Establishing causation and concurrency of delays,
Allocating responsibility between contractor and employer.
7. Conclusion
Arbitration involving LNG terminal and storage tank commissioning delays highlights the intersection of energy infrastructure, safety regulation, and time-risk allocation. Case law consistently confirms that:
LNG commissioning delay disputes are fully arbitrable,
Employer-caused delays defeat liquidated damages,
Strict contractual compliance governs EOT entitlement,
Arbitration provides a technically informed forum capable of handling complex energy disputes.
Given the financial magnitude and safety sensitivity of LNG projects, arbitration remains the preferred and most effective mechanism for resolving commissioning delay disputes.
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