Offshore Construction Disputes

Introduction

The offshore construction industry is faced with an unprecedented rise in investment in offshore wind projects, as countries seek to deliver on their net-zero pledges. While Europe historically led the pack, taking advantage of the predictably strong winds and relatively shallower waters of the northern seas to foster a rapid expansion in size and scale of offshore wind farms, Asia is fast following suit. As demand for capacity increases, pushing wind farms further from shore and into greater ocean depths, the market is turning to floating offshore wind farms[2] and mobile offshore wind units[3] for future capacity and broader application.

With the rapid pace of growth in the offshore wind industry in recent years, it is perhaps not surprising that this chapter contains a number of examples of issues and disputes typical to the sector. Many of these issues are common across the full spectrum of offshore structures and vessels, including floating production storage and offloading units (FPSOs), subsea cables and interconnectors, substations, oil and gas platforms and semi-submersibles.[4]

While the nature of disputes across the offshore construction industry could be said to be common to onshore construction disputes (in broad terms: delays, defects and scope claims), the complexity and scale of the disputes is often far greater due to the risks associated with working in an often harsh and unpredictable offshore environment, the fast-evolving and complex technology used in many of the offshore structures, and the interface risks arising from disaggregated procurement. There are also regulatory and environmental considerations, constraints on heavy lifting and support vessel availability and, in more recent times, covid-19 restrictions impacting travel, offshore accommodation and working conditions.

Where problems occur on offshore construction projects, parties and their advisers need to be able to react swiftly and efficiently to mobilise technical experts to site for investigations and remedial proposals and liaise with the coast guard, licensing and environmental regulators, and the like. Where disputes arise, they tend to be very fact- and engineering-focused, with multiple parties and other entities involved. They require a careful analysis of contractual obligations, industry and environmental standards, sequences of events in light of anticipated and actual weather and seabed data, and vessel suitability and availability, as well as specific technical expert evidence in relation to defects, performance and availability failures, to name but a few.

Standard forms of contract

Before addressing the types of issues unique to offshore construction disputes and how these issues may be managed, it is worth noting the forms of contract commonly used. The complex and unique nature of these projects can demand bespoke suites of contracts across a number of packages, while specialist equipment suppliers often insist on contracting on their own standard terms. That said, it is common to see contracts based (although sometimes very loosely) on the Leading Oil & Gas Industry Competitiveness (LOGIC)[5] and International Federation of Consulting Engineers (FIDIC) forms.[6]

The LOGIC forms are typically used for offshore oil and gas construction projects. Of note are the ‘General Conditions of Contract for Construction’,[7] intended for ‘major fabrication works, topsides installation and hook-up, significant topsides modification, construction services for topsides work’, and the ‘General Conditions of Contract for Marine Construction’,[8] for ‘pipelaying; offshore installation; subsea construction; and inspection, repair and maintenance using diving support and other support vessels’. The suite of 11 contracts also includes contracts for: (1) services (on and offshore); (2) well services for well engineering works; and (3) decommissioning offshore infrastructure. While LOGIC forms are sometimes used for offshore renewables projects, they require modifications to the pollution risk and indemnities concerning reservoirs and wells.

FIDIC forms tend to be used more for permanent offshore structures including offshore wind farms and larger vessels where the focus is more on the productive functions of the vessels, such as FPSOs, with modifications to accommodate the offshore risk profile specific to the project, including weather, local law and environmental considerations.

Critical issues for offshore construction projects

Disaggregated procurement and interface risk

The standard procurement route for large offshore construction projects, whether oil and gas projects, offshore wind farms or sub-sea interconnector projects, is to award multiple packages or contracts across various specialist contractors and equipment suppliers, all managed by a single owner/developer (referred to as ‘owner’ throughout), rather than a single engineering, procurement and construction (EPC)/turnkey model more typical to onshore energy and infrastructure projects.

This has been largely driven by specialist suppliers, and in many cases local installation contractors, who are unwilling or unable to take turnkey risk on such large, complex and high-value projects. The advantage to owners is that this enables them to eliminate the risk premium built into EPC/turnkey contract prices, with potentially greater freedom to manage the various packages to reduce price and schedule risk, particularly on long-lead items.

However, this leaves owners facing considerable interface risks, such as the following.

  • Knock-on delays: delays can have severe knock-on effects, such as re-design, missing weather windows, costly storage for long-lead items and securing the appropriate installation and other support vessels. This can be exacerbated where delays on one package impact another package.
  • Liability gaps: the more complex the project, the harder it can be to establish liability for delay or defects across various interrelated packages. Without single-point responsibility of an EPC contractor, or robust joinder or consolidation provisions in the dispute resolution clauses across the relevant contracts, the owners take the risk of inconsistent judgments by courts or tribunals.
  • Lower caps: individual contractor or supplier liability will be capped as a percentage of each contract price, with the sum being less than the project value. This leaves the owner exposed to irrecoverable losses.
  • Mitigation: difficulties can arise in replacing key equipment suppliers or other specialist contractors in the event of material delays, performance or equipment failures, or insolvency.
  • Inconsistent warranty provisions: warranty periods across packages can be of different lengths.

Many of these risks can be mitigated to an extent through interface agreements, common to offshore wind and interconnector projects, or more stringent mutual indemnity and waivers of recourse that are used more extensively in oil and gas projects. However, even owners with considerable experience of managing such multi-contract projects still find themselves exposed. The reality is that, when faced with a specialist supplier suffering liquidity issues or limited availability of installation vessels, or both, an owner may have limited options available to it other than to forego its contractual entitlements or take on greater risk than contractually envisaged, to meet a looming weather window deadline.

Challenging site conditions and vessel availability

Seabed and weather risk

It is commonly understood that contractors are unable to take full seabed condition risk, given the difficulties of undertaking a comprehensive survey of the seabed for soil and rock characteristics at great depth. Even where surveys can be performed, there remains the risk that seabed conditions change.[9] However, disputes about actual conditions versus rely-upon information are notorious under cable laying contracts as such information will be vital for the selection of cable laying methods, location and cable protection solutions.

Adverse weather conditions can have a major impact on the progress of offshore construction projects. This is due to a number of factors, including that: (1) adverse weather will likely affect a broad range of activities offshore, with little work able to be progressed while adverse weather conditions continue; (2) the operation of heavy lift vessels, offshore wind turbine installation vessels and a number of offshore construction and support vessels may be restricted to certain suitable weather conditions; and (3) adverse weather can have an exponential delaying effect if vessels are only hired for limited periods of time and then deployed to the next project; it may be some time before the vessel will become available again.

Whether the occurrence of adverse weather entitles a contractor to additional time to complete works will depend on the specific weather provisions in the contract. For example, the FIDIC forms provide relief to the contractor in the event of ‘exceptionally adverse climatic conditions’[10] defined in the 2017 suite as ‘adverse climatic conditions at the Site which are Unforeseeable having regard to climatic data made available by the Employer . . . and/or climatic data published in the Country for the geographical location of the Site’.[11]

Under the LOGIC form of contract, the builder takes responsibility for the weather conditions.[12] However, it is common to see bespoke contracts for large and complex offshore projects located in harsh weather environments contain more complex provisions whereby the parties’ respective liability for weather conditions will be allocated according to ‘weather windows’ or ‘waiting on weather’ (WOW) days. These periods will be built into the programme to address the risk of vessels being unavailable due to restrictions on the conditions in which they are allowed to operate. These weather windows and criteria giving rise to WOW relief need to be clearly defined. Difficulties arise where weather windows are shorter than those specified in the contract or do not correspond to actual dates of adverse weather, or unanticipated weather conditions occur that do not fall within the relief criteria.

Contract revisions/incentivisation to meet revised deadlines

Contracts commonly fail to adequately address arrangements and liability for knock-on consequences of delays such as missed weather windows and support vessel availability. It is not uncommon for parties to seek to address such problems with subsequent arrangements and incentivisation programmes. This is particularly the case where, for example, a builder is responsible for onshore fabrication of structures, but the owner is responsible for transportation and installation of those structures offshore and is subject to expensive standby fees if transportation occurs later than planned. Owners will also have an interest in avoiding construction delays that will have a correlative delaying impact on the commencement of commercial operation of their offshore structures (and, therefore, on the generation of revenue).

Such arrangements may involve agreeing amendments to milestone dates from which liquidated damages accrue, settlement of claims for historic delays, commitments to work overtime or procure additional resources to accelerate works, and rewards or bonuses for achieving key milestones by specified dates.

However, where these arrangements do not adequately align with ongoing contractual obligations, and are not recorded as formal contract amendments, they can have serious unintended ramifications on the parties’ respective contractual rights and obligations. We see owners unwittingly losing entitlements to delay liquidated damages – HSM Offshore BV v. Aker Offshore Partner Limited is a pertinent example of where the parties replaced the original contract milestone completion date with an obligation to use ‘fullest endeavours’ to achieve a different stage (mechanical completion), rendering the original delay liquidated damages provision inapplicable.[13] Another illustration of an inadequately drafted contract amendment resulting in litigation is the English case of DSND Subsea Ltd v. PGS Offshore Technology AS, where the parties executed contract amendments with obligations to meet ‘indicative’ dates in a revised programme.[14] The subcontractor purported to terminate the contract on the grounds that the contractor failed to have a driving support vessel (DSV) at the field on the exact date that it was purportedly required. The court held that it would be unreasonable for DSND to procure the vessel at a time when there was no certainty that the timeline would not slip and bad weather was already holding up DSVs on other projects.

In the authors’ experience, time pressures and other tensions during negotiations to agree such provisions can cause parties to be more willing to accept unclear, poor or incomplete drafting to achieve a quick resolution and project close. While this might be adequate in certain situations, it is a risky strategy that too often results in further disputes later down the line.

Delay disputes

Offshore construction contracts, like their onshore cousins, typically contain clauses requiring the builder/contractor to meet key delivery or other milestone dates. Absent any entitlement to an extension of time for permissible delays (caused by the owner or specified ‘neutral’ events), the builder will be liable to pay delay liquidated damages until actual achievement of such milestones. Delay liquidated damages will be enforceable under English law where the level of damages represents a genuine pre-estimate of the loss to the counterparty as a result of the missed milestones or otherwise is at a level designed to protect the owner’s legitimate commercial interests.[15] Anticipating things such as lost revenue many years in advance brings challenges in itself.

Unknotting liability for delays is often a highly complex undertaking – not least because of the detailed factual investigation required to understand the impacts of weather conditions and availability of suitable support vessels, as well as parallel, and often concurrent, delays by interfacing contractors.

Indeed, where an offshore project comprises multiple contractors working in parallel it is not uncommon to see more complex liquidated damages regimes that take account of delays caused by other contractors. Clauses allocating risk for concurrent delay to one contractor are likely to be enforceable under English law.[16] However, complex liquidated damages clauses are susceptible to challenge for uncertainty or as a penalty. See, for example, Braes of Doune Wind Farm (Scotland) Limited v. Alfred McAlpine Business Services, where the court upheld an arbitrator’s decision that a provision in an offshore contract for the construction of 36 wind turbine generators that could result in a contractor being responsible for (non-concurrent) delay caused by another contractor was an unenforceable penalty under English law.[17]

Covid-19

The covid-19 pandemic brought additional pressures of government restrictions on visas and legislated or quasi-legal requirements on accommodation berth capacity and working practices. These have had a considerable impact on offshore projects. While covid-19 impacts tend to fall within the scope of force majeure provisions, and there has been a general willingness of owners to accommodate contractors’ claims for the additional time and cost impact of addressing covid-19 measures, we have seen an increase in the number of contested claims as owners insist that contractors demonstrate that delays are in fact attributable to covid-19, and that they have taken adequate measures to mitigate the impact of covid-19 restrictions, particularly as further covid-19 ‘waves’ are predicted.

Complex matrix of warranty obligations on projects

Contractors’ warranties will typically encompass fitness for purpose, compliance with technical specifications, industry standards including environmental and other regulatory standards, and performance criteria. Where multiple standards apply, a court will seek to reconcile them within the bounds of contractual interpretation. However, the Supreme Court in MT Højgaard AIS v. E.ON Climate and Renewables UK Robin Rigg East Limited held that compliance with the standards and specifications in a contract for the construction of monopile foundations was not enough where it did not result in the works satisfying the additional contractual fitness for purpose obligation.[18] Contractors may take heart in the Supreme Court’s comment in the same case that the 20 year ‘design life’ warranty could be interpreted as to mean that the works were designed to last for that duration rather than that they were guaranteed to last for that duration, noting that ‘the forces of nature, especially at sea, are such that a lifetime of 20 years, or any other period, could never in practice be guaranteed’.[19] Ultimately, however, when read with other terms of the contract, it provided for a different result. This case also serves as a useful reminder to ensure that the various parts of the contract are aligned, particularly the legal obligations with the technical requirements.

Technological advancements are constantly being made in the offshore construction industry, resulting in frequent implementation and utilisation of new, or little tested, technology. Further, designs for many of the more complex offshore structures (including for wind farms, oil rigs and FPSOs) are bespoke and tailored to an asset’s specific environment and purpose. This, coupled with the fact that many such structures are incredibly complex feats of engineering, means that it is common for defects and performance issues to manifest some time after completion of the work.

Warranty periods and regimes will depend on the nature of the structure or equipment supplied. Taking FPSOs as an example, it is typical to have a defined initial operation phase of six to 12 months after commissioning to identify and address issues that were or could not be discovered during the construction, testing and commissioning.

Offshore wind projects commonly have multiple warranty periods of varying durations, which require careful management by the owner, particularly where contractors and suppliers are disputing the true cause of the defect or performance failure in question. The following are some examples.

  • Civil/foundation works: monopile foundation work undertaken under a FIDIC Red Book contract governed by English law would commonly have a two-year defects liability period with a limitation period for latent defects of six to 12 years from the date of accrual of action, depending on whether the contract has been executed under hand or as a deed. However, if the wind farm is located in the territorial waters of a civil law country, it may be that mandatory decennial or similar liability for civil works will apply to extend the contractual defect liability period.
  • Wind turbine generator (WTG) supply contracts: these now tend to contain warranty periods for as long as three to five years from installation of the WTG, or group of WTGs, with extensions for repaired elements up to a longstop date. We commonly see these contracts excluding liability beyond the defined warranty period.
  • Serial defects: where WTG contracts contain serial defect provisions, these are often limited in application. There are often restrictions around what constitutes a ‘serial defect’ in terms of the severity and number of issues that are materially similar, and are limited to the project rather than the fleet. Given the high cost of replacing serial defects across multiple WTGs, primarily due to high vessel charter fees and cost of technicians qualified to undertake remedial works at offshore locations, disputes concerning the application of these clauses are common.

Given the enormous revenue-generating capacity of offshore energy facilities, the financial consequences of a defect causing performance deficiencies or at worst outages, may be vast, and certainly considerably more than the caps on liability in the applicable supply or construction contract. While contractors commonly have express or implied contractual obligations to rectify defects or performance failures as soon as reasonably possible, their ability to mobilise and conduct repairs will be dependent on weather conditions, available technicians and suitable support vessels. Disputes concerning whether the contractor did in fact mobilise sufficiently expeditiously are common and involve a complex web of interrelated factors.

Termination

A failure to meet performance criteria, or remedy defects, may give rise to a contractual right and/or right at law to terminate the contract. However, termination rights are rarely exercised lightly. As with any termination right, the question as to whether the right has been properly exercised will depend on a careful analysis of the contract terms and surrounding facts.

In addition to assessing whether a party is entitled to terminate (and if so, whether any relevant procedure has been followed), there are other practical and legal issues that parties should have regard to, as illustrated in the following.

  • To the extent the works are not complete, the terminating party will need to engage another party to complete the works (or carry them out themselves, if that is contractually and actually viable). The replacement of a party in an onshore project can be challenging enough, without the added complications of a likely smaller pool of suitable suppliers or contractors, a longer lead time in engaging them, and the cost consequences of delay in the offshore environment. Before exercising any termination right, a party will wish to ensure that it will not be left without a contractor/supplier to step in and complete the works.
  • Where a termination right arises in relation to an obligation to remedy a contractual default to the owner’s ‘satisfaction’, the courts have held that while this would be a subjective test, it would be subject to an implied term that it must be in honesty, good faith and with absence of arbitrariness.[20] Where such a requirement exists, the terminating party may be assisted by contemporaneous records that show the decision-making process that was followed (assuming that it accords with the above implied term).
  • The owner may recover delay-related losses up to and following termination. While this will largely depend on the wording on the contract in question, the English Supreme Court recently held that clear words would be required to deprive an employer of its entitlement to delay liquidated damages accrued up to the date of termination of the contract and instead require it to pursue a claim for general damages for such delays.[21]

Limiting and excluding liability

Given the significant risks involved in offshore construction (and the magnitude of losses that may be incurred and delay that may accrue when issues do arise), it will be important for parties to ensure that their potential liability or ‘risk’ is proportionate to their ‘reward’. In addition to agreeing an aggregate cap on liability, common limitations and exclusions include the adoption of a ‘mutual hold harmless’ regime and the exclusion of consequential loss.

Mutual hold harmless regimes

It is now common for contracts concerning offshore oil and gas installations to operate on a mutual hold harmless (or ‘knock-for-knock’) basis, with each party to the contract agreeing to take responsibility for injury or damage to its own (and its group’s) people and property, regardless of cause, through a series of indemnities. These indemnities are typically drafted to cover any loss flowing from one party’s faulty or defective work, including minor personal injuries, major loss of life and wide-scale destruction. The rationale of such indemnities is that it allocates risk according to each party’s ability to bear that risk, gives each party greater certainty over the risks it needs to insure (which, in turn, reduces the existence of multiple policies insuring the same risk), removes the need for expensive legal proceedings to establish fault, and consequently drives down overall project costs.

While mutual hold harmless indemnities originated from the offshore oil and gas industry, contractors are witnessing an increase in the use of such indemnities in contracts concerning offshore wind farms and other offshore renewable projects. This trend is particularly the case with owners that were historically engaged in oil and gas activities, but have invested in renewable projects as part of their commitment to the energy transition.

When drafting or reviewing mutual hold harmless indemnities, there are a number of factors to bear in mind, including the following.

  • Choice of law: mutual hold harmless indemnities have been recognised and upheld by English and Scottish courts, and have been incorporated into industry standard forms such as those produced by LOGIC. However, as they are a clear deviation from the more traditional model of fault-based liability, not all legal systems may support them to the same extent, and may either find them unenforceable or impose obligations of reasonableness on parties seeking to enforce such indemnities. Choosing what law applies to such indemnities may prove crucial to the question of how these indemnities will ultimately be interpreted and applied.
  • Mutuality: whether the indemnities are truly mutual will depend on the precise wording and scope of the indemnities given by each party. Depending on the context, it may be sensible to create certain exceptions to the reciprocal nature of the indemnities.[22]
  • Third parties: where contractors and owners agree to hold each other harmless in respect of people and property of the ‘contractor group’ and ‘owner group’, respectively, it is crucial to understand who is included within these groups.[23]
  • Carve-outs: owners and contractors may choose to exclude, from the scope of mutual hold harmless indemnities, personal injury and damage to property caused by a party’s ‘gross negligence’ or ‘wilful default’ – if the exclusion is effective, parties will remain responsible for such injury or damage if caused by their own gross negligence or wilful default.

Exclusion of consequential loss

Parties may also seek to limit their liability by including a consequential loss exclusion clause (it is also common for mutual hold harmless regimes to cover ‘consequential loss’). These types of exclusion clauses are commonplace in energy, construction and infrastructure contracts, particularly for significant scale transactions. It is thought that this approach, of excluding consequential loss, has been imported from international model contracts that were often drafted to work in English or United States law, or both. However, the concept does not necessarily translate with ease across jurisdictions; in addition, the approach to the meaning of consequential loss in exclusion clauses varies widely depending upon the governing law of the contract. Parties should therefore exercise caution in amending the governing law without giving due consideration to what effect this may have on the construction and interpretation of a consequential loss clause (among other things).[24] That such caution should be exercised is not unique to the offshore construction sector; however, it may be that newer entrants to the sector, or those that are more used to working in an established jurisdiction (for example, Europe) but are participating in projects further afield (such as South East Asia), will not be alive to this risk.

In addition, it is not uncommon for parties to copy a consequential loss exclusion clause from one contract over to another, without giving adequate thought to whether it is ‘fit for purpose’. Parties are likely to avoid unexpected surprises if they first consider what losses they are seeking to exclude given the specific context in which the project is to be undertaken and contractual obligations performed, before considering and preparing wording that best reflects this.

Governing law

When agreeing the governing law of contracts, parties from different jurisdictions frequently select a ‘neutral’ governing law (English law is frequently chosen by parties for this reason, among others). It will also be important to consider how the parties’ rights and obligations will be construed under the relevant governing law. As mentioned above, it is not unheard of for parties to simply swap out one governing law for another, without giving due consideration to what effect that may have – at worst, provisions of the contract may be unenforceable under the selected governing law or additional (unexpected) liabilities assumed.

Given the rapidly evolving nature of the offshore sector, parties will also be served well by choosing a governing law that is transparent, predictable and has a well-developed and reputable jurisprudence.

Although parties are free to select the governing law of the contract, the maritime zone or zones in which the project or asset is located will also be relevant in determining: (1) whether the United Nations Convention on the Law of the Sea applies; (2) which local laws apply (if any); and (3) the courts that may have jurisdiction in relation to claims brought by or against a third party – for example, where an asset is damaged by a third party.

Dispute resolution

Dispute avoidance and risk management has long been a focus for those in the construction sectors. Increasingly, many dispute resolution clauses contain escalation provisions (or will be multi-tiered), with an emphasis on early engagement and resolution of disputes to avoid costly litigation or arbitration. Methods of alternative dispute resolution that parties may agree are mandatory before a claim may be escalated to formal dispute resolution commonly include settlement meetings between senior personnel, mediation, dispute adjudication boards, dispute avoidance and adjudication boards or expert determination.

Parties have a better chance of avoiding disputes when working alongside experienced counterparties with relevant and transferable offshore construction experience; distilling and applying lessons learnt from previous projects is often the best way of avoiding or minimising disputes on subsequent projects. Another strategy that may reduce the number of contentious issues is the engagement of (and regular engagement with) a dispute avoidance and adjudication board, comprised of experienced sector-specialist practitioners who should be well equipped to assist the parties in resolving matters promptly, as and when they arise, allowing parties to maintain their focus on the success of the project itself (and not to become distracted by claims and disputes).

As mentioned above, parties will be well advised to harness resources and to move swiftly and efficiently once a claim arises, to ensure that steps are taken to protect their position. Again, the offshore construction sector can prove more challenging when compared to its onshore cousin, as the following illustrates.

  • Evidence collection: this may be logistically difficult; the window in which an independent expert may observe what has occurred may be very limited; there may also be real difficulties in arranging travel to site. As time moves on, evidence may be destroyed, sea conditions being what they are.
  • Experts: given the technically complex nature of many offshore disputes, parties will often require experts to opine upon a range of specialist issues. In the authors’ experience, the pool of experts in certain niche fields can be extremely limited; this may be caused or exacerbated by the rapid evolution of technologies and the phasing out of one technology with another. Parties should seek to engage experts as early as possible.
  • Witnesses of fact: these are unlikely to be local and may, upon returning home after a project is complete, be spread around the globe. As covid-19 has forced us into virtual meetings with greater regularity, evidence gathering should not be hampered significantly. Given the potential ease with which witness evidence can become distorted or contaminated over time, procedures should be established to ensure that detailed contemporaneous records are kept.[25]
  • Documentary evidence: contemporaneous evidence is frequently preferred over conflicting witness testimony, given that it is more likely to reflect the facts and less capable of being contaminated. Individuals working on offshore construction are less likely to have a permanent office or desk, such that there is a greater risk of hard copy documents being lost (or not kept in the first place). Parties should ensure that they have deployed an effective document management system, and ensure that personnel are keeping detailed contemporaneous records.

Arbitration

Given the varying location of offshore projects (and the potential for assets to be located, or issues to arise, outside of a state’s territorial zone or exclusive economic zone), it is unsurprising that many parties will prefer arbitration agreements for formal dispute resolution. Additionally, as most projects will include parties from two or more countries, parties usually opt for an arbitration seat that is deemed to be ‘neutral’. Other regularly cited advantages of arbitration (including ease of enforcement, confidentiality and the ability to choose members of the arbitral tribunal, ensuring that they have sufficient sector expertise to determine the matter in dispute) apply equally to offshore construction disputes.

Given the procurement route typical for offshore projects is disaggregated, where disputes do arise, parties may wish to consolidate two or more arbitrations, or join parties to an existing arbitration. In the absence of being able to do so, parties may otherwise find themselves involved in multiple arbitrations, run in parallel, dealing with similar or identical issues (which is likely to increase the time and costs of resolving the disputes) with the risk of inconsistent outcomes. Most major institutional rules allow for consolidation or joinder; however, parties are best advised to consider this issue when drafting the arbitration provisions across the interfacing contracts to ensure that they all align and provide for the intended arbitral process.

Conclusion

Given the forecasted increase in offshore projects (particularly in the renewables sector), we expect to see a surge in participants (some coming from the more traditional oil and gas sector), new market entrants and a busy period for experienced contractors and suppliers. For all of the reasons mentioned above, offshore construction is a challenging space to be working in; the ever-changing nature of new technologies can introduce additional challenges. Parties need to be agile and well prepared and will likely fare better if they are supported by seasoned personnel, consultants and expert advisers who have lived through the types of issues that can arise at sea and are practised at managing risks as and when they arise (if not identifying them beforehand).


Notes

[1] Adrian Bell, Sarah Grenfell and Emma Schaafsma (Kratochvilova) are partners at CMS Cameron McKenna Nabarro Olswang LLP. The authors were assisted by Leontine Mathew, senior associate at CMS Cameron McKenna Nabarro Olswang LLP.

[2] For example, the Hywind and Kincardine offshore wind farm projects in Scotland.

[3] The Maritime Executive, ‘Developing Mobile Offshore Wind for Micro-Grid Applications’, 18 June 2021.

[4] This chapter focuses on complex and large-scale offshore installations in the oil and gas and energy sector, rather than more conventional shipbuilding contracts that are commonly undertaken on the Shipbuilders Association of Japan (1974) form and other similar forms.

[5] LOGIC, Standard Contracts for the UK Offshore Oil and Gas Industry, www.logic-oil.com.

[6] FIDIC Conditions of Contract for Construction (Red Book) and Conditions of Contract for Plant and Design Build (Yellow Book) 1999 and 2017 editions.

[7] Edition 3, November 2018.

[8] Edition 3, May 2019.

[9] See, for example, LOGIC General Conditions of Contract for Construction, Clause 6.2: ‘If during the execution of the WORK the CONTRACTOR encounters seabed and/or subsoil conditions, which conditions could not reasonably have been foreseen by a contractor experienced in the types of work to be carried out under the CONTRACT, subject to the provisions of Clause 14 the COMPANY shall issue a VARIATION if the CONTRACTOR can show that it has suffered delay and/or incurred additional cost as a direct result of encountering such seabed and/or subsoil conditions’.

[10] See, for example, Clause 8.5 of the FIDIC Red Book 1999 edition.

[11] Clause 8.5 of the FIDIC Red Book 2017 edition.

[12] LOGIC General Conditions of Construction Contract, Clauses 6.1 and 14.2(d).

[13] [2017] EWHC 2979 (TCC).

[14] [2000] EWHC 185 (TCC), Paragraphs [155]–[192].

[15] Cavendish Square Holdings BV v. Talal El Makdessi [2015] UKSC 67.

[16] North Midland Building Limited v. Cyden Homes Limited [2018] EWCA Civ 1744.

[17] [2008] EWHC 426 (TCC).

[18] [2017] UKSC 59.

[19] id., Paragraph [31].

[20] Bluewater Energy Services BV v. Mercon Steel Structures BV [2014] EWHC 2132 (TCC).

[21] Triple Point Technology Inc v. PTT Public Company Ltd [2021] UKSC 29.

[22] For example, an owner of an FPSO agreeing to take responsibility for damage to its property within the vessel’s anchor patterns may wish to exclude responsibility for damage to the ‘permanent work’ (i.e., the property arising out of the work that the relevant contractor is required to carry out under the relevant contract, which commonly becomes property of the owner as soon as it is delivered to the vessel, regardless of ongoing or outstanding construction, installation and commissioning works). Further, a contractor may wish to exclude responsibility for: (1) pollution that may be present and emanating from its property, in circumstances where such pollution did not originate from its property; and (2) damage to its property caused by the owner while transporting that property to an offshore worksite (during which transportation the property is in the owner’s care). All of these exceptions are endorsed by LOGIC.

[23] One common omission from the definition of the ‘owner group’ is other contractors engaged by the owner. The LOGIC General Conditions of Contract for Construction suggests treating other contractors of the owner (and their subcontractors) as ‘third parties’, with the owner and contractor each agreeing to take responsibility for personal injury and damage to property of any third party caused by their own group’s negligence or breach. Further, and with regard to contracts concerning offshore activities in the UK’s territory of the North Sea and the Irish Sea, the board of LOGIC strongly encourages all contractors to join the ‘Industry Mutual Hold Harmless’ scheme, which it considers to be the ‘most appropriate means of dealing with the allocation of liability for injury to persons, damage to property and consequential loss between the Company’s contractors’. This scheme sits as a kind of background agreement between contractors that have signed up to the scheme, in a situation where there is no direct contract between those contractors. It allocates risk on a mutual hold harmless basis, with each contractor taking responsibility for its (and its group’s) own people and equipment, irrespective of the cause of the damage. Under Clause 40 of the LOGIC General Conditions of Contract for Construction, contractors are not required to compel subcontractors to participate in the scheme,;however, they are required to check, prior to entering into a subcontract, whether the relevant subcontractor participates in the scheme and, if not, to notify the owner of their subcontractors’ non-participation.

[24] See CMS, ‘Consequential Loss Clauses in the Energy Sector: An international guide’, April 2021, for further details, https://cms.law/en/int/expert-guides/cms-guide-to-consequential-loss-clauses-in-the-energy-sector.

[25] The International Chamber of Commerce report,‘The Accuracy of Fact Witness Memory in International Arbitration’, November 2020, states: ‘Basic practices such as good recordkeeping and contemporaneous notes during the course of a transaction or project (pre-dispute) serve both to provide evidence of what happened at a time when the witness’ memory was fresh and unaffected by information learned subsequently and to help the witness later to recall facts.’

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