A fire occurred in an industrial device that had been designed and built by the respondent for Company X pursuant to a contract covering engineering, the provision of materials, construction, start-up services and training. The device was designed using a technique not previously employed by the respondent. The claimant, Company X's insurer, initiated arbitration proceedings as subrogee to Company X. It asserted contract and tort claims against the respondent in connection with the fire, alleging the respondent's failure to provide itself with adequate staff and communicate effectively, to comply with fire safety standards, to test materials and to warn of known risks. The respondent contended that Company X had waived subrogation with respect to property damage and that under New York State law and public policy it was not liable to the claimant for any consequential damages allegedly resulting from the fire.

'VII. Summary of Tribunal's Award

Having given full consideration to the contentions of the parties and to the record in this proceeding, the Tribunal has arrived unanimously at the following decisions-

A. New York State Law and Public Policy

The relevant provisions of the Contract are valid and enforceable under New York State law and public policy.

B. Subrogation

Article XV.1. of the Contract provides that upon delivery of [the device] to [Company X] . . ., [Company X] assumed the risk of "physical loss or damage" to [the device]. [Company X] waived any right to subrogation against [Respondent] for "loss or damage" to [the device] after delivery.

Pursuant to Article XII.2., [Company X] was to obtain builder's all risk insurance to cover "loss of property" incident to design, engineering, procurement, erection and start-up liaison services, and training with respect to [the device]. Both [Company X] and [Respondent] were to be named as insureds. Pursuant to both Article XII.2. and Appendix G, Paragraph B, [Company X] agreed to bear all loss or damage sustained by [Company X] and not covered due to retentions or deductibles. [Claimant] provided the insurance called for in Article XII. and Appendix G, and agreed to the subrogation waiver of Article XV.1.

In light of the express waiver of subrogation against [Respondent], [Claimant] has no standing here to recover the replacement value for damage to [the device] caused by the fire-absent a showing by [Claimant] of gross negligence on [Respondent]'s part.

C. Services Warranty

Article IX.1.(a) of the Contract provides for a "Services Warranty". In performing engineering, erection, and start-up liaison, [Respondent] was to exercise "that degree of care, skill and judgment that is normally exercised by professional engineering firms of international reputation in performing like services".

Article IX.1.(b) provides that [Company X]'s sole remedy for breach by [Respondent] of the Services Warranty is performance by [Respondent] at [Respondent]'s cost.

The replacement cost of the damaged property was . . . Such damage was covered by an all risks policy with respect to which subrogation has been waived against [Respondent]. Accordingly, [Claimant] has no standing, as [Company X]'s subrogee, to recover under a theory of breach of the Services Warranty the [amount] paid by [Claimant] to [Company X] with respect to property damage.

D. Other Warranties

Article IX.2.(a) of the Contract requires [Respondent] to use reasonable efforts to include specific warranties in its agreements for the supply of equipment. All such warranties are to extend directly to [Company X]. [Respondent] is to have no liability to [Company X] on account of "any defects in materials or workmanship, any deficiency in capacity or any failure to operate as provided above [in the specified warranties]". [Company X] agreed "to look solely" to [Respondent]'s manufacturers, suppliers and vendors for recourse arising from "any breach of an express or implied warranty".

[Claimant] asserts that [Respondent] breached implied warranties as to merchantability and fitness. According to Article IX.2.(a), however, [Company X] has no recourse against [Respondent] with regard to any alleged breach of an equipment warranty, whether "express or implied". Thus, [Claimant] has no recourse against [Respondent] with regard to any such breach.

Consistent with Article IX 2.(a), Article IX.4.(a) provides that the warranties set forth in the prior sections of Article IX. are "exclusive and in lieu of all other warranties and guaranties . . ., whether written or oral or implied . . ., and whether based on Statute, contract, tort (including negligence) or otherwise".

Given this clear, express disclaimer, [Company X] could not prevail on any claim based on an alleged breach by [Respondent] of an implied warranty. Accordingly, [Claimant] has no recourse against [Respondent] on any such claim.

E. Negligence

The standard [Respondent] was to meet with regard to ordinary negligence is the standard set out in Article IX.1.(a) with respect to the Services Warranty. For the same waiver-of-subrogation reason that [Claimant] has no standing to recover under the Services Warranty, [Claimant] cannot recover from [Respondent] on a theory of ordinary negligence.

Gross negligence is another matter. New York State law and public policy prohibit the Contract from exempting [Respondent] from the consequences of its own gross negligence.

Even if [Claimant]'s assertions as to [Respondent]'s conduct were not contested, this Tribunal cannot find [Respondent]'s conduct constituted gross negligence. [Claimant] has not established the applicable legal standard against which gross negligence in the circumstances here should be gauged. Moreover, the record before this Tribunal shows that [Respondent] acted in good faith, rather than with wilfulness or reckless disregard, in designing, delivering and starting [the device]. Thus, not having carried its burden of proof on this issue, [Claimant] cannot recover in this arbitration on a theory of gross negligence.

F. Limitations on Liability

Article XIX.2. provides that [Respondent] shall have "no liability whatsoever to [Company X] for any special, incidental, indirect or consequential loss, commercial injury or damages of any nature such as, but not limited to, loss of income, profit, business opportunity or production or loss by reason of plant shutdown . . . ". Notwithstanding the omission of "negligence" from the illustrative list of losses, this abundantly clear, express provision precludes recovery by [Company X], and thus by [Claimant], of any economic or business interruption loss sought here by [Claimant]. This ruling is consistent with New York State law and public policy.'