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Lawyers, other representatives, expert(s), tribunal’s secretary

    Dissent Opinion of Paul F. Saba

    GE agreed to design, manufacture, and supply to IEC two small scale modular LNG production plants ("Trains"). The parties signed the Equipment Contract on September 13, 2014. It called for delivery of the Trains in 9 and 12 months. As of December, 2019, both Trains stood on-site in Nigeria, inoperable and unsafe to operate.1
    On the Tribunal's own findings:

    • delivery of the Trains' modules was delayed until March 28, 2016,

    • there followed three years of protracted rectification of defects while shipments of minor items and replacement items continued until February 2019, and

    • as of late summer 2019, there existed three issues concerning pipe stresses and pipe supports, electrical cables, and a failed "soft starter" for the MR system, all of which prevented operation of the Trains.2

    The Tribunal recognizes GEOG's responsibility for this state of affairs.3 But it declines to conclude that GE's performance was grossly negligent.
    I think it should have concluded otherwise.
    Inadequate pipe supports and overstressed pipes created the risk of catastrophic accident.4 The electrical cables were undersized and posed risks of overheating, melting, and fire.5 And the MR compressors were essential for the core LNG production process. I note with the Tribunal that in March 2016, GE had declared to IEC in upper case letters that the soft starter for the compressor motors "WILL work".6 In late 2018, a consultant to IEC determined that in fact it was unworkable.7 In February 2019, GE finally acknowledged this defect.8
    I don't understand this situation to be the outcome of ordinary, "garden variety" performance failures.
    In January 2018, an internal GE report indicated that a piping stress analysis for one of the Trains' systems had "probably" never even been performed. The lines involved contained toxic chemicals. The analysis then performed for that system showed "pipe supporting is not appropriate, wrong type and wrong location". As of summer 2019, GE had not remedied these defects.9
    Between December 2018 and August 2019, GE performed and furnished IEC three further stress analyses. They were materially different and inconsistent with one another.10 The Tribunal has found that GE was not transparent with IEC as to what stress tests GE had or had not been performing. It has also recognized that IEC prudently withheld acceptance of these tests until lEC's external consultants could review and confirm them.11
    Dr Caligiuri, lEC's expert, extensively reviewed GE's stress testing documentation. He concluded that, at various times over the course of the project up to and including August, 2019, GE's stress engineering was incomplete, unreliable, non-compliant with applicable Code requirements, inconsistent with the standard of care for a project like lEC's, and entirely unacceptable. He made a point of noting that Code non-conformities "represent potential life safety hazards."12
    The Tribunal itself has found that "pipe support defects are not minor items but they materially affected the operation and safety of the Trains".13 I would go further and find that GE's failure to perform reliable stress tests as late as August 2019, with the severe safety risks that failure created, was grossly negligent. It was "so extreme a departure from the standards of ordinary care" that "the danger was either known to the defendant or so obvious that the defendant must have been aware of it". CL-5 (Bayerische Landesbank New York Branch v. Aladdin Capital Management (emphasis added)14. See also CL-218, Corwin v. New York Bike Share, LLC, et al (sound engineering practices unjustifiably ignored and creating foreseeable risks to safety are sufficiently reckless to constitute gross negligence)(emphasis added).15
    GE was an experienced and sophisticated contractor. Nothing on the record of this case indicates that it was unaware or could not have known of the risks created by deficient pipe stress engineering. It had to know.
    I believe the undersized electrical cables should be seen in the same light in view of the safety risks they also created. And I find it difficult to characterize as mere negligence GE's failure to provide a workable starter for the MR compressors after insisting for almost 3 years that it would work. Start-up of the MR compressors, like properly sized and safe electrical cables and safe pipe supports, was essential to operation of the Trains.16
    Singly or together these defective items prevented the Trains' start-up more than 5 years after execution of the Contract. In addition, they came after late delivery and atop a long list of other defects involving missing and major equipment items which themselves required years of protracted rectification.
    The Tribunal has expressly determined that that GE breached the Equipment Contract in that:

    It failed to deliver the Trains by their respective Delay Limit Date,

    It delivered Trains with, among others,

    • multiple defects (incomplete and piecemeal delivery of the modules),

    • a defective soft-starter solution,

    • defective pipe supports,

    • defective MRC motor cables, and

    it failed to remedy those defects within a reasonable time.17

    In my view these performance failures were too many, too serious, and too prolonged for GE to escape major liability. "A repeated course of (even) ordinary negligence with a foreseeably severe cumulative effect may constitute gross negligence under some circumstances". See CL-220 New York State Workers Compensation Bd. v. Program Risk Management, Inc, et al18
    I think the record in this case amply supports a finding of gross negligence and a very different outcome.
    IEC had identified and was creating a market for LNG for customers unserved or underserved by the Nigerian gas pipeline network, and for sale elsewhere in West Africa. It was planning first sales in late 2015 or early 2016.19 Its core damages claim was for profits and earnings missed during the delay to startup of the Trains.
    Mr. LaPuerta, lEC's expert, presented detailed and well supported calculations of these expected earnings for Trains 1 and 2. They run to as high as $288 million dollars.20
    EC claimed these amounts as either direct or indirect, consequential damages. I concur with the Tribunal's finding that lost profits and revenues were excluded by the Contract's exculpatory clause.21 But a finding of gross negligence would have overcome this exclusion and allowed consideration of lEC's damages claims for profits.
    The Tribunal has limited itself to a determination only of the parties' claims for direct damages. That determination includes an award to GE of $9.5 million for "mechanical completion" of the Trains. Yet the Tribunal has expressly found that IEC alone, not GE, has remedied the serious defects necessary to achieve mechanical completion.22 In the event, by awarding GE this $9.5 million and by simple arithmetic offset, the outcome of this case is an award which awards damages to GE and awards nothing to IEC.
    For the reasons expressed, I'm compelled to dissent from this outcome, as well as from the Tribunal's order that IEC pay the costs of the proceedings, as set out in Section XV. ¶¶ (x) and (xi).
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