‘8. Claim for wasted expenditure on [a vessel for repair work]

8.1. The claim arises as a result of a commitment entered into by the Claimant to hire [a vessel] for the repair work to [the pipeline]. As a result of the Respondent's refusal to allow access [to] the site the Claimant was forced to cancel the commitment and thereby incurred the wasted costs claimed. The Respondent contends that the [vessel] was never mobilized to the site during the time for which the Claimant is claiming Standby Time. Such mobilization is a requisite for recovering standby costs under the Agreement. The Respondent denies any right to payment, whether under the Agreement or otherwise.

8.2. While no proper reason for refusal of access to the site was given at the time by [Respondent], at the hearing [it was] suggested in evidence that the positioning of the PDP [production development platform] and LQP [living quarters platform] may have prevented the [vessel] from accessing the Works ... The Claimant contended that the positioning of the PDP and LQP would have taken little time and that the [vessel] could have been accommodated had the work been properly planned. [Respondent’s witness] subsequently agreed that there was nothing preventing the [vessel] from entering the Works ... and accepted further that the reason access for the [vessel] had been denied ... was because the Respondent wanted to wait for [a tender from another company] which was to include the repairs to the ... Pipeline ...

8.3. The Respondent had, significantly, sent a notice of default to the Claimant ... 24 hours after receiving [the] tender. The Claimant contended that this was also consistent with the Respondent not wanting to allow the Claimant to carry out the repair works until the tender ... had been received, despite having earlier urged the Claimant to progress the work. ... The Claimant submitted that, in pressurizing the Claimant to carry out repairs to the ... Pipeline and then ... insisting on postponing access to the Works for no reason other than its intention to place the work with other contractors, the Respondent was acting in bad faith.

8.4. The Respondent denied any liability to compensate the Claimant for wasted expenditure or Standby Time under the Agreement. There had been an accepted protocol whereby the Claimant had to seek approval from the Respondent prior to the mobilization of a vessel, which had been accepted by [Claimant’s witness] in his evidence. It was denied that the Claimant was put under pressure by the Respondent to secure the [vessel] for the repair works. The contention that access was denied because the Respondent had been negotiating with [another company] to take over the Claimant's remaining Scope of Works was a "red herring". The Respondent had no such malicious intent.

8.5. The Respondent submitted that, pursuant to Article 25 of the Conditions of Agreement, the vessel had to be mobilized at the worksite for standby time to be payable. The [vessel] was not mobilized ... and there was therefore no right to payment. The Respondent had never agreed to the terms of the charter party for the [the vessel] and could not be held responsible for its signing. The Claimant had entered into the charter party of its own accord and at its own risk, quite likely to press matters with Respondent and to forestall the advancement of any pending negotiations with [the other company]. The Claimant was therefore liable for the consequences, included the wasted expenditure incurred.

8.6. The Respondent asserted that it had the right, pursuant to Article 5.17 of the Agreement, to cancel any vessel arrangements made by the Claimant up to seven days before mobilization. The Claimant denied that the Article gave the right arbitrarily to deny or delay access to the Worksite, when the Respondent had already agreed to or acquiesced in the mobilization of a vessel.

Tribunal's conclusion

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8.11. It is clear that the crucial step which led to the loss now claimed was [Claimant]'s decision ... to sign the charter party, a step which [Respondent] had been requested to approve but had refrained from doing so. [Respondent] further refrained from commenting on the charter party [two days later] but by that date it would have made no difference whether they had remained silent or then told [Claimant] that access was to be denied. Significantly, while [Claimant] may be criticized for having signed the charter party without approval, all the correspondence from [Respondent] up to [the date of the signing of the charter party] was consistently requiring evidence of commitment from [Claimant] inter alia to carry out the pipeline repairs, while at the same time having no intention of allowing [Claimant] to continue with its work until a decision had been made as to whether [Claimant] was to be removed from the Project ... While it may be that [Claimant] had some degree of knowledge or at least suspicion as to [Respondent]'s intentions, they were, in the Tribunal's view, entitled to treat [Respondent]'s formal letters as indicative of their intentions, namely that they required [Claimant] to show commitment to the Project.

8.12. Thus, there were two causes of the loss in question: first [Claimant]’s decision to sign the charter party without express authorization; but secondly, [Respondent]'s conduct in appearing to encourage [Claimant] to get on with the work while in fact having no intention of permitting them to do so during the time they considered the option of removing them from the work. That [Respondent]'s conduct was causative of the loss, at least in part, is clearly shown by the fact that [Respondent] was expressly informed ... of the availability of [the vessel] and the proposal that it should arrive on site on [date] and therefore must have known that [Claimant] would have to sign the charter party in order to secure the vessel. They therefore had the opportunity to warn [Claimant] that they should not commit themselves to the vessel but elected to keep silent.

8.13. In these circumstances, the Tribunal concludes that [Respondent] cannot escape responsibility for its lack of candour and good faith in its dealings with [Claimant], which the Tribunal considers to be the cause, in part, of the costs subsequently incurred by [Claimant] in cancelling the charter party. Taking all the above circumstances into account, the Tribunal is of the opinion that [Respondent] should be held liable for part of [Claimant]'s wasted expenditure...

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10. Claim for reimbursement of liquidated damages ...

10.1. The Respondent deducted the sum of ... as liquidated damages on the basis that critical delays to the project were caused by acts or omissions of the Claimant. The Claimant, conversely contends that the whole of the delay to the EPC 2 work was the responsibility of the Respondent, being caused by acts or omissions of the Respondent or its fabrication contractor, and therefore reclaims the sum deducted.

10.2. Liquidated damages are provided for by Article 3.4 of the Agreement which stipulates damages at the rate of ... for each day of delay, up to a maximum of 5% of the Agreement Price. The final Agreement Price was ... and the capped damages therefore amounted to ... which equates approximately to 43 days delay. The total delay to the EPC 2 contract amounts to over 200 days.

I0.3. In section 9 above, the Tribunal has determined that the Claimant is entitled to extensions of time amounting to 93 days. On the basis that the actual delay to completion of the EPC 2 contract was in excess of 200 days, there is a net liability for delay of at least 107 days, which exceeds the period needed to achieve the capped amount of liquidated damages. The conclusion is that the Claimant is prima facie liable for the full amount of liquidated damages as claimed by the Respondent.

10.4. The Claimant, while disputing its liability for delay, contends that if there is a prima facie liability for delay damages, the Respondent did not suffer any loss as a result of delay by the Claimant in completion of its scope of work. The Claimant argued that the Claimant's Scope of Works was completed before First Oil or before completion of the Project or before the Respondent had beneficial use of the Project, the Respondent could not have suffered any loss as a result of the Claimant's actions. Thus the Respondent suffered no loss as a result of the Claimant's delay and has no entitlement to recover delay damages from the Claimant.

10.5. Further, the Claimant contends that, under [State A] law, the level of liquidated damages should be reduced to the amount of damages actually suffered, which again was nil. It was agreed by both Parties' Experts on law issues that under [State A] law (and also under [State B] law), a claim for liquidated damages will be set aside if the employer has sustained no loss. In this regard, the Claimant contended that the Respondent had provided no evidence of loss in respect of delays to the Claimant's Scope of Works. If the Respondent did suffer some loss as a result of delay to completion of the Claimant's Scope of Works, the effect of ... the [State A] Civil Code is that the Tribunal has the discretion to reduce the level of liquidated damages down to the amount actually lost ...

10.6. Evidence of the Respondent's losses arising from delay to the Project was given by ... Chief Accountant of the Respondent. [He] presented a schedule showing the actual damages said to be incurred by the Respondent, excluding loss of oil revenues, amounting to ... arising from the cost of maintaining the Respondent's oil production team and paying the Respondent's internal project managers and engineers plus other general and administrative expenses over the eight-month delay period, computed from [Respondent]'s finance and accounting records. The sums making up the alleged losses include the salaries and bonuses for domestic ... staff and local employees, both hired and contract staff, office and residential costs and hotel accommodation and maintenance costs of premises and vehicles together with overheads and general running costs.

Tribunal's conclusion

10.7. While the Tribunal has no grounds to doubt the costs enumerated in the Schedule produced by [Respondent’s chief accountant] were incurred as alleged, the Respondent has not attempted to demonstrate any particular item of such costs that would not have been incurred had the EPC 2 Contract been completed by [date]. The items claimed for consist simply of the Respondent's continued running costs from [date] onwards ... The Respondent's true loss was the loss of all revenue from oil production, but no such loss has been quantified. In any event, as the Claimant contends, even if the Claimant's work had been completed earlier, the Respondent would not have received any oil revenue until completion of the work under the EPC 1 Contract and the achievement of first oil.

10.8. For all the above reasons the Tribunal concludes that the Respondent has not suffered any claimable loss arising from the delay for which the Claimant has responsibility. Therefore, in accordance with the applicable law, the Respondent has no right to deduct or withhold liquidated damages. ...

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12. Damages for encashment of the performance bond

12.1. The Claimant contends the Respondent had no or no sufficient grounds for encashing the performance bond and that the bond was encashed when it was because the value of the bond was shortly due to be reduced by 50% upon the Claimant achieving Partial Completion. The Respondent denies the claim and asserts that it was entitled to cash the Performance Bond as a result of the numerous breaches of contract and excessive delays to completion.

12.2. In post-hearing submissions the Claimant submitted that the Tribunal, in assessing this issue, should take into account the following:

(a) whether there was an intention to cause damage to the Claimant;

(b) whether the Respondent's actions in pursuit of its own interests were likely to cause disproportionate harm to the Claimant;

(c) whether the Respondent's actions were beyond the limit of acceptable usage and custom.

12.3. The relevant facts, as asserted by the Claimant were as follows. The performance bond was called on [date] but was otherwise valid until at least [three months later]. In accordance with Article 18.2 of the Agreement, the expiry date of the performance bond could have been extended [a further two months]. The Claimant submitted that the bond was called ... because of the Respondent's concern that the PAC [Provisional Acceptance Certificate] would be issued on completion of the Claimant's Work. Under Article 18.4 of the Agreement, the value of the bond would then be cut by half ...

12.4. The Claimant submitted that the actions of the Respondent in this regard are a clear example of both bad faith and an intention on the Respondent's part to damage the Claimant. The Claimant also argued that the Respondent had failed to carry out any proper calculation, before calling the bond, of the amounts claimable by the Claimant. Had such a calculation been made, the Respondent would have had no ground to call the full value of the bond. Having nevertheless called the bond to its full value, the Respondent then continued to hold the over-claimed monies ...

12.5. Further, despite having agreed to return the excess value of the bond to the Claimant, the Respondent ... asserted that the value of the bond was to be increased and wrongly withheld from sums owing to the Claimant the further sum of ... 5% of the increased contract value.

12.6. The Respondent, in post-hearing submissions, asserted that it was entitled to encash the performance bond and that in doing so did not act wrongfully or in bad faith. The Respondent contended that the evidence showed that the Claimant was liable for the full amount of liquidated damages under the Agreement and that the Respondent became entitled to deduct the capped liquidated damages from the Claimant prior to the calling of the performance bond. The Respondent submitted that the Claimant owed the Respondent substantial sums in the form of back charges and other claims for payments which the Respondent had made on behalf of the Claimant. At the time of the encashment of the performance bond, the Respondent submitted that it reasonably and honestly believed that the Claimant owed the Respondent substantially more than the full value of the performance bond. While the Respondent had encashed the performance bond in the full amount of ..., it returned the excess to the Claimant when it was realized that this exceeded what was owed by the Claimant. The Respondent admitted that, in retrospect, it should have encashed the performance bond for the lesser amount of ...

12.7. The Respondent thus acknowledged that it over-claimed against the performance bond, but pointed out that it had rectified the error. The Respondent submitted that the decision to encash the performance bond was not taken in bad faith. The Respondent had the legal right to encash the bond and there was no mistake or error involved, other than in determining the correct amount to encash. The Respondent submitted that its actions did not amount to a breach of ... the [State A] Civil Code, as the Claimant had argued.

12.8. The Claimant submitted that the Respondent had failed to produce any evidence to demonstrate that it genuinely believed that the Claimant owed it such sums that would justify the calling of the full performance bond. Whilst the Respondent had conceded that it had over-claimed, it had never acknowledged that there were other sums that should have been taken into account at the time of the call ... The Claimant presented the following table of sums owing ... The Claimant acknowledged that certain of these sums were in dispute, but it was clear that the calling of the entire performance bond was unnecessary.

12.9. The Claimant rejected the Respondent's assertion that because the over-claimed amount was repaid, no harm was done to the Claimant and the Respondent did not abuse its rights. Firstly, the Claimant stated the over-claimed amount was not returned to the Claimant for seven months and secondly, by calling the entire performance bond, the Respondent had negatively affected the Claimant's relationship with its banks and its ability to obtain credit, which hurt it on future projects.

12.10. The Claimant submitted that the performance bond had been called as soon as possible to maximize the return for the Respondent. The Claimant asserted that this was indicative of the factors set out by the Respondent's Expert ... of "extraneous wrongdoing, mala fides, abuse [and] unconscionability, namely an 'unlawful' exercise of rights ...". The Claimant requested that when the Tribunal is considering whether or not there was extraneous wrongdoing etc., it should take into account the wide context of relations between the Parties at the time.

12.11. In respect of [State B] law, the Claimant submitted that there is evidence to show that the calling of the performance bond was "only intended to cause damage to others" or "the interest to be achieved [was] disproportionate with the damage inflicted on others", i.e. the calling of the performance bond was contrary to ... the new [State B] Civil Code.

12.12. The Respondent maintained its position that it was entitled to call in the performance bond and in doing so, did not act wrongfully or in bad faith. The Respondent submitted that there was no evidence that the Respondent intentionally over-claimed on the performance bond in order to damage the Claimant.

12.13. The Respondent referred to the exchange between Counsel for the Claimant and [Respondent’s witness] on Day 3 of the Hearing, ... calling the exchange disjointed and submitting that even if the testimony did indicate that the Respondent called in the performance bond prior to issuing the PAC in order to get the full amount, this did not prove any bad faith or an intention to harm the Claimant but rather demonstrated that the Respondent reasonably believed that the Claimant owed the Respondent the full amount of the performance bond or more.

12.14. The Respondent denied that the calling of the performance bond caused disproportionate harm to the Claimant. ... the Respondent argued that it had sustained actual losses of approximately ... as a result of the Claimant's delays to the Works and a farther substantial loss of oil revenue. Accordingly, the Respondent's assessment of its losses was relatively modest and not disproportionate.

12.15. The Respondent submitted that the excess claim against the bond ... was a bona fide error. The Respondent denied that this caused disproportionate harm to the Claimant.

Tribunal's conclusion

12.16. The Respondent has accepted that the full amount of the performance bond was in excess of its loss in terms of sums potentially owed by the Claimant to the Respondent. While in one sense this was an "error" it was not an excusable error in the Tribunal's view. The Respondent cannot have been unaware that the Claimant's bank would have in existence a counter-guarantee which would result directly in damage to the Claimant in being required to repay the full amount called, including the excess amount of approximately one third of the value of the bond. It was not an error which the Respondent could have made in good faith. The Respondent, through [its witness], further accepted, as the Tribunal interprets his evidence, that the bond was called because its value would be halved upon the issue of the PAC. The fact that the Respondent wrongly refused to issue the PAC for a further two and half years is not a point which presents the Claimant's position in any better light.

12.17. In addressing the matters which the Claimant suggested should be taken into account, the Tribunal notes other instances in which the Respondent acted in a manner which was commercially justifiable, yet which could be seen as causing disproportionate harm or prejudice to the Claimant while advancing the interests of the Respondent. One such was the Respondent's decision ... to refuse permission to the Claimant to continue its work ... while the Respondent sought to make arrangements for the Claimant to be removed from the Site, having previously pressed the Claimant to show evidence of commitment. Another example ... was the Respondent's persistent refusal, on no proper ground, to issue the PAC knowing that its absence would have commercial implications for the Claimant.

12.18. In these circumstances, the Tribunal has no doubt that the Respondent, while not intending to damage the Claimant, was generally indifferent as to whether actions taken in its own interest would have this effect. Considering the fragile financial situation of the Claimant, which the Respondent was well aware of, there can be little doubt that the Respondent's action in calling the bond [at a time] when its validity was not about to expire was likely to cause disproportionate harm to the Claimant. This is reinforced by the Respondent's action in calling the bond in a sum substantially in excess of amounts arguably owed to the Respondent. The Tribunal was not presented with any evidence as to what amounted to "acceptable usage and custom". However, the Tribunal takes note of its own experience of commercial practice and concludes that the calling of a bond without first ascertaining the maximum value of potential losses is not an acceptable commercial practice.

12.19. In the view of the Tribunal, the calling of the bond to the full amount without ascertaining that the Respondent's potential losses were substantially less than the value of the bond was an act of bad faith which did cause disproportionate harm to the Claimant. As a result the Tribunal finds the Respondent to be in breach of the general obligation of good faith imposed by the law of [State A] and liable to the Claimant in damages. The Tribunal received no direct evidence of harm or damage to the Claimant which would allow a detailed calculation of appropriate damages. The Tribunal therefore makes its own assessment. In the view of the Tribunal, an appropriate award, taking account the potential harm to the Claimant's reputation and all the above circumstances is the sum of ...’