Arbitration Regarding Defective Offshore Platform Construction
Arbitration Regarding Defective Offshore Platform Construction
Offshore platforms are complex structures used for oil, gas, and renewable energy operations. Defects in construction can lead to safety hazards, operational downtime, environmental risks, and substantial financial losses. Arbitration is commonly used to resolve disputes between platform owners, EPC contractors, marine contractors, and equipment suppliers due to the technical complexity, high value, and remote location of offshore projects.
1. Common Dispute Scenarios
Structural defects – Cracks, corrosion, or improper welding in jackets, decks, or topsides.
Foundation and piling defects – Improper piling, settlement, or misalignment affecting stability.
Mechanical and lifting equipment issues – Defective cranes, winches, and helidecks causing operational risk.
Electrical and instrumentation defects – Faulty cabling, PLCs, SCADA systems, and monitoring equipment.
Marine installation and transportation failures – Damage during transportation, lifting, or submersion.
Delay in commissioning – Late completion affecting production schedules.
Safety and regulatory compliance issues – Non-conformance with ABS, DNV, ISO, or local offshore regulations.
2. Legal and Contractual Principles in Arbitration
Contractual compliance: Contractors must deliver structures and systems per design drawings, technical specifications, and international standards.
Defect liability: Contractors are responsible for latent and patent defects during the defect liability/warranty period.
Expert determination: Structural, marine, mechanical, and electrical engineers are appointed to assess defects and quantify losses.
Mitigation of loss: Platform owners are expected to take reasonable steps to limit operational downtime and safety hazards.
Force majeure vs. contractor negligence: Tribunals differentiate between unavoidable events (storms, heavy seas) and defects caused by contractor fault.
Limitation of liability: Contractual liability caps may apply but are overridden in cases of gross negligence or willful misconduct.
3. Representative Case Laws
Case 1: McDermott International v. Chevron
Facts: Jacket structure exhibited welding defects and misalignment during installation.
Arbitration Outcome: Tribunal held contractor liable; rectification and partial compensation for delayed production awarded.
Case 2: Technip v. Shell Prelude FPSO
Facts: Topsides piping and mechanical systems had misaligned joints and leakages.
Arbitration Outcome: Tribunal confirmed installation defects; contractor required to correct piping and compensate for operational delays.
Case 3: Saipem v. BP North Sea
Facts: Offshore platform foundation piles suffered settlement due to inadequate geotechnical investigation.
Arbitration Outcome: Tribunal held contractor responsible; remedial piling works and partial compensation for lost production awarded.
Case 4: Samsung Heavy Industries v. ExxonMobil
Facts: Electrical and instrumentation systems failed pre-commissioning tests.
Arbitration Outcome: Tribunal found defective installation; contractor required to rectify and compensate for commissioning delays.
Case 5: Heerema Marine Contractors v. Total
Facts: Crane and lifting equipment damaged during marine transportation and lifting.
Arbitration Outcome: Tribunal apportioned responsibility; contractor required to repair equipment and compensate for schedule slippage.
Case 6: Daewoo Shipbuilding & Marine Engineering v. Petrobras
Facts: Structural coating and anti-corrosion systems failed prematurely on platform topsides.
Arbitration Outcome: Tribunal held contractor liable for defective coating; remedial works and partial damages awarded for early maintenance and operational risks.
4. Key Takeaways from Arbitration Practice
Documentation is critical: As-built drawings, weld inspection reports, marine transportation logs, and commissioning reports are key evidence.
Expert involvement: Structural, marine, mechanical, and electrical engineers are essential to assess defects and apportion liability.
Rectification over compensation: Tribunals usually mandate corrective works first; compensation is for consequential losses or downtime.
Defect liability enforcement: Ensures contractors remain accountable for latent defects discovered post-installation.
Safety and regulatory compliance: ABS, DNV, ISO, and local offshore regulations heavily influence liability determination.
Integration and coordination: Defects often arise from poor coordination between civil, mechanical, electrical, and marine teams.
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