ICC Awards

The facts causing the incident

42. Even if the ORGALIME S2000 standard clauses are incorporated and apply for Contract, the question is then whether the damages and costs caused by the incident is excluded by virtue of the Standard Clauses and if so to what extent the costs claimed are excluded.

43. The Parties do not agree as to the crucial facts causing the incident. Was the incident caused by negligence of the engineer (being a representative of the Respondent) as submitted by the Claimants and as stated in the Report¹ or was it caused by a default in the [product] itself as submitted by the Respondent?²

44. The starting point under [law of Respondent’s country] is that the burden of proof is on the injured party (i.e. the Claimants), both with respect to legal basis, the actual facts, as well as causation and quantum.³ The documents (the Report) submitted show the most likely cause being as described therein, and hence the Claimants have indeed fulfilled their burden to show the most likely factual cause of the incident. Thus the burden of proof has shifted to the Respondent which then will be to point to any other possible and more likely cause or causes. The Respondent has not offered any evidence for his submission of an "undetermined" technical failure. Even if the Respondent was not invited to attend the inspection as performed and described in the Report, he had full knowledge of the incident and could himself secured evidence/documentation as to any other possible cause then the alleged, and in the Sole Arbitrator's view documented, mistake or fault of the engineer. The Sole Arbitrator therefore finds that the cause of and facts relevant for the incident was as described in detail in the Report.⁴

45. The Sole Arbitrator further finds that the acts of the engineer as described in the Report were indeed negligent. He was sent by the Respondent to perform the commissioning as presumably a professional and skilled worker, to whom special tasks and responsibilities had been granted and authorized by the Respondent, and the test of whether he was acting negligent must be considered in light of the applicable professional standard. Under [the law of Respondent’s country] such negligence test should be not just that of a "bonus pater familias", but rather take into account the degree of professional care which should be expected by the person performing the acts or omissions in question. This level of professional conduct required will vary depending on the agreement and the task in question. … A diligent and professional engineer should in the Sole Arbitrator's view not have "taken a chance" as it seems the engineer did by activating the … valve, which caused the locking pin to withdraw, allowing the [product] to swing downwards.

46. The Respondent should further be identified with the engineer, since the engineer acted for and on behalf of the Respondent in performing the relevant parts the obligations undertaken by the Respondent in the Contract, i.e. the commissioning/testing of the [product] installed ... The Respondent is thus responsible for the acts and omissions of the engineer, as the employee or agent of the Respondent. ⁵ The negligence found is clearly a breach of the obligations undertaken, and the Sole Arbitrator agrees with the Claimants that such obligations shall as a matter of [the law of Respondent’s country] be performed ''properly, competently and without causing damage".⁶ Such breach of obligations is a breach of contract, and the Respondent is responsible for the losses caused to the other party (the Claimants) thereby.

The provisions of ORGALIME S2000

47. However, even if there was a breach of contract as the incident was so caused by negligence on part of the Respondent (or somebody acting on his behalf, i.e. the engineer), the Respondent has in the Contract by virtue of the incorporation of ORGALIME S2000 excluded or limited his liability for damages arising from such negligence. This follows from ORGALIME S2000 Clause 22, specifying the general principle that the liability of the Respondent is to "remedy any defect or non-conformity resulting from faulty design, material or workmanship". Further Clause 37 specifies that "save as stipulated in Clauses 22-36, the Supplier [Respondent] shall not be liable for defects". All other remedies and/or liability for consequences of defects are consequently excluded. This is both a normal and accepted manner in which the liability is regulated contractually, and is often referred to as the "industrial guarantee".⁷

48. The negligence of the engineer is such a case of lack of or faulty ''workmanship" in performing the Respondent's obligations under the Contract; the commissioning/testing. In the Sole Arbitrator's view the negligence such bad or faulty workmanship falls under the term of "defect of non-conformity", when being compared to what could be expected by Claimant No 1; performance of the commissioning/testing properly, competently and without causing damage".

49. This limitation of liability provision contained in the reference to ORGALIME S2000 can in the Sole Arbitrator's view not just be referring to the [product] or any physical ancillary item described and delivered, but should be read and understood to apply to all of the obligations undertaken by the Respondent. The Contract should be read as a whole and the words should be given their natural meaning. There is no mentioning in the Contract that the limitation of liability provisions shall only apply to specific parts of the Contract.

50. Contracts should under [the law of Respondent’s country] be interpreted objectively,⁸ and a further test under [law of Respondent’s country] would be how the recipient of the actual statement (i.e. Claimant No 1) should understand same always acting reasonably.⁹ In the Sole Arbitrator's view there is no reason to assume that a person would understand such a limitation provision to apply only to parts of the Contract, also particularly when the reference to ORGALIME S2000 does not include any expression to that effect. To the contrary, the context in which the "Terms and Conditions" part is included (on the last page of the Order Confirmation), strongly indicates the opposite; these should be understood to be general terms and conditions for the contract as such.

51. Thus it is held that it was clearly the intention of the Respondent to limit its liability relating to all obligations under the Contract (to the extent so allowed by law), and Claimant No 1 should have read and understood the provision in the same manner acting reasonably. If Claimant No 1 was of the opinion that the "Terms and Conditions") and thereby limitation of liability provisions should be confined to defects in the [Product], he should have stated so when he sent his order.¹⁰ He did not and must therefore be deemed to have accepted what seems clearly the intention and what follows from a "reasonable" reading and understanding of the wording.

52. The remedies for breach of contract available to the Claimants are therefore validly limited to and shall only be those set out in ORGALIME S2000 Clauses 22-3 7 inclusive, which in casu leads to Clauses 28 and 30 (the latter as amended by the Order Confirmation), being valid provisions agreed for the exclusion of further liability. When reading these Clauses, the term "Product" in the relevant clause should be read and understood to imply the delivery as such, i.e. both the [the physical product] and the additional obligations (the commission/testing) undertaken and contained in the Contract.¹¹

53. Clause 28 is concerned with dismantling and reassembly of equipment other than the Product "necessary to remedy the defect", and stipulates that these costs shall be home by the [Claimant]. Clause 30 is firstly providing that the Claimant shall "bear any additional costs which the [Respondent] incurs for repair, dismantling, installation and transport as a result of the Product being located in a place other than the destination in the contract or- if no destination is stated- the place of delivery". Secondly the amendment of Clause in the Order Confirmation states (as an addition to the standard wording in Clause 30 just quoted) that "Other costs incurred when rectifying deficiencies, such as but not restricted to docking, rigging and so forth, will be borne in their entirety by the [Claimant]".

54. These exclusion provisions concerns cases of "ordinary" negligence and breach of contract, and are as such perfectly valid and accepted limitation or exclusion of liability provisions under [the law of Respondent’s country]. There is no allegation that the engineer acted grossly negligent or with wilful misconduct, and the question arise would only be relevant to discuss if the breach in question had been alleged and after analysing same been deemed to be grossly negligent or amounted to wilful misconduct. Had however that been the case, and the breach had been committed by the Respondent at management level, the limitation of liability provisions could have been set aside under [law of Respondent’s country] as it may be deemed by the courts to be "unreasonable or contrary to proper business practice" to rely on such clauses.¹² This is however not the case here and hence the exclusions or limitation of liability provisions are valid and should be upheld.

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