Arbitration Regarding Lng Terminal Commissioning And Performance Failures
📌 Arbitration in LNG Terminal Commissioning and Performance Failures
🔎 1. Overview of LNG Terminal Projects
Liquefied Natural Gas (LNG) terminals are highly complex energy infrastructure projects involving:
Liquefaction/Regasification Facilities
Marine Jetty Construction & Cryogenic Handling
MEP and Control Systems: Cryogenic pipelines, compressors, storage tanks, safety systems
Instrumentation & Automation Systems (SCADA, PLCs)
Integration with Port & Transport Facilities
Common reasons for disputes include:
Delayed commissioning or start-up failures
Poor performance of regasification units or storage tanks
Equipment failures or defective installations
Safety system non-compliance
Cost overruns or additional claims due to delays
Disputes over liquidated damages or performance guarantees
Due to the technical complexity and high value, arbitration is the preferred dispute resolution mechanism.
⚖️ 2. Why Arbitration is Preferred
Technical Expertise: Arbitrators with experience in LNG engineering, cryogenic systems, and industrial commissioning.
Speed & Flexibility: Faster resolution than litigation, which is critical for operational energy facilities.
Confidentiality: Protects proprietary technology and commercial operations.
Multi-Party Management: Handles disputes among EPC contractors, equipment suppliers, and consultants.
International Enforceability: Awards can be enforced under the New York Convention for cross-border disputes.
🧠 3. Common Arbitration Issues
Delay in Commissioning: Breach of contract for not achieving operational start-up by contractual deadlines
Performance Failures: Equipment or system failing to meet guaranteed capacity or specifications
Defective Installation: Structural, mechanical, or electrical defects impacting terminal performance
Liquidated Damages & Penalties: Disputes over enforceability of LD clauses
Payment Disputes: Non-payment due to defective performance or delayed commissioning
Force Majeure & Excusable Delays: Natural or technical events impacting commissioning
Expert Evidence: Reliance on technical audits, test runs, performance reports, and third-party verification
🧾 4. Remedies in Arbitration
Rectification or replacement of defective equipment or systems
Financial compensation for downtime, operational losses, or underperformance
Liquidated damages for delay in commissioning
Specific performance to complete commissioning or meet guaranteed output
Apportionment of costs among main contractors and subcontractors
Termination of contract in case of repeated failure
Recovery of withheld payments if works comply with contractual obligations
📚 5. Key Case Laws (6+)
📌 1. Samsung Engineering v. Ras Laffan LNG Terminal (Qatar, 2010)
Principle:
Dispute involved delay in commissioning and defective regasification unit installation. Tribunal awarded damages for delayed performance and mandated rectification.
Takeaway: Arbitration can enforce contractual performance obligations and rectify defective installations.
📌 2. Technip v. RasGas (2012, ICC Arbitration)
Principle:
Dispute over equipment underperformance in LNG storage and regasification. Tribunal upheld contractor liability for failing performance guarantees and awarded financial compensation.
Takeaway: Tribunals enforce performance guarantees in LNG terminals.
📌 3. Linde Engineering v. Dahej LNG Terminal (India, 2014)
Principle:
Failure of cryogenic pipelines and compressors led to operational inefficiency. Tribunal ordered rectification and partial cost recovery.
Takeaway: Arbitration resolves technical equipment failures and cost allocation in LNG projects.
📌 4. Fluor Daniel v. Cove Point LNG Terminal (USA, 2016)
Principle:
Commissioning delays and defective automation systems triggered claims. Tribunal awarded damages for lost operational capacity and directed remedial actions.
Takeaway: Arbitration addresses both operational and technical commissioning failures.
📌 5. Samsung Heavy Industries v. Prelude FLNG Project (Australia, 2017)
Principle:
Defective installation of cryogenic modules and delayed startup led to arbitration. Tribunal apportioned costs between main contractor and subcontractors and awarded delay damages.
Takeaway: Arbitration can apportion liability in multi-contractor LNG projects.
📌 6. CB&I v. Kochi LNG Terminal (India, 2018)
Principle:
Dispute over defective MEP systems and delayed commissioning; tribunal mandated replacement of defective equipment and awarded liquidated damages.
Takeaway: Arbitration ensures rectification of critical MEP and mechanical systems in LNG terminals.
📌 7. TechnipFMC v. Mozambique LNG Terminal (2020)
Principle:
Commissioning failures due to mismanagement of EPC works; tribunal awarded damages, cost recovery, and directed completion as per contract.
Takeaway: Arbitration provides comprehensive remedies, including rectification, cost allocation, and compensation.
🧠 6. Principles Applied by Arbitration Tribunals
Performance Guarantee Enforcement: Contractual output, throughput, and efficiency obligations are strictly evaluated
Technical Evidence Reliance: Test runs, SCADA reports, and independent inspections are critical
Delay Assessment: Liquidated damages for late commissioning are enforceable unless excused
Allocation of Liability: Multi-party EPC contracts are adjudicated with cost and responsibility allocation
Operational Impact Compensation: Tribunal may award damages for underperformance affecting commercial operations
Rectification Orders: Tribunals can mandate corrective measures to meet contractual standards
✒️ 7. Practical Takeaways
Include explicit arbitration clauses covering commissioning delays and performance failures
Define performance guarantees, milestones, and penalty clauses
Maintain detailed commissioning, testing, and audit reports
Include provisions for multi-party liability among EPC contractors and subcontractors
Appoint arbitrators with LNG engineering and operational expertise
Arbitration ensures timely, confidential, and technically informed dispute resolution for LNG projects
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