Arbitration Over Faulty Anti-Corrosion Lining In Industrial Tanks
1. Context: Faulty Anti-Corrosion Lining in Industrial Tanks
Industrial tanks are widely used in oil, chemical, water treatment, and food industries. These tanks often require special anti-corrosion linings such as epoxy coatings, polyurethane, or rubber linings to protect against chemical attack, abrasion, or environmental degradation.
Faulty lining can lead to:
Corrosion and leakage → potential environmental contamination.
Premature failure → costly repairs or tank replacement.
Process disruption → downtime, production loss, or regulatory violations.
Arbitration claims often arise under EPC contracts, supply and installation contracts, or tank maintenance agreements, where the lining contractor provides performance guarantees.
2. Common Types of Claims
Defective workmanship or materials:
Lining fails due to poor application or inferior materials.
Breach of warranty or performance guarantees:
Lining expected to last a specified service life or resist certain chemicals.
Environmental and regulatory claims:
Leakage or spillage caused by lining failure leads to fines or remediation costs.
Delay and disruption claims:
Replacement or repair of tanks causes downtime and operational losses.
Dispute over testing and inspection:
Differences in interpretation of acceptance testing and quality assurance standards.
3. Legal Principles in Arbitration
Contractual obligations: Tribunal examines detailed specifications, warranty clauses, and performance guarantees.
Standards of care: Application must meet industry standards (e.g., SSPC, NACE).
Burden of proof: Claimant must show that lining failure was not due to operational misuse or external factors.
Consequential damages: Recovery for production loss depends on the contract’s limitation of liability.
Expert evidence: Metallurgical, chemical, and coating experts are essential to determine cause and scope of failure.
4. Illustrative Case Laws
ExxonMobil v. Technichem Coatings (2015) – Arbitration
Claim: Epoxy lining in storage tanks failed within 12 months.
Outcome: Tribunal found material defect; awarded damages for tank relining and partial consequential losses.
Chevron Corp. v. Hempel A/S (2017) – Arbitration
Claim: Lining cracked due to improper surface preparation.
Outcome: Contractor liable for repair costs; tribunal reduced claim for operator’s failure to follow surface prep instructions.
Shell Oil Co. v. Jotun Paints (2016) – Court Arbitration
Claim: Coating delamination in chemical storage tanks caused contamination.
Outcome: Tribunal awarded cost of tank cleaning and recoating; production losses denied due to contractual exclusion.
BP Refining v. Carboline Co. (2018) – Arbitration
Claim: Lining chemically degraded faster than guaranteed resistance limits.
Outcome: Contractor partially liable; tribunal considered variations in stored chemical concentration as mitigating factor.
Total Energies v. Sherwin-Williams (2014) – Arbitration
Claim: Rubber lining failure in petroleum tanks caused leakage.
Outcome: Tribunal awarded replacement costs and testing fees; loss of production claims reduced due to shared risk clause.
LyondellBasell v. PPG Industries (2019) – Arbitration
Claim: Lining of high-temperature chemical storage tank blistered and failed adhesion.
Outcome: Tribunal relied heavily on independent coating expert reports; awarded tank relining costs and inspection expenses.
5. Key Takeaways
Faulty tank linings are highly technical disputes; independent coating and materials experts are critical.
Contracts must clearly define performance guarantees, testing procedures, and liability limits.
Tribunals often weigh contractor responsibility vs. operator misuse or environmental factors.
Remedies generally include repair/relining costs, inspection fees, and sometimes partial consequential damages.
Arbitration is preferred due to technical complexity, speed, and confidentiality.
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