Contents
Introduction. 5
An outline of the project and background to the dispute. 5
Some vital
statistics. 8
The
conduct of the trial 9
The key
contractual terms. 9
The
principal characters. 11
On Fluor’s
side. 11
On ZPMC’s
side. 12
The
experts. 14
The
welding carried out at Changxing. 14
The
relevant processes. 14
The
specifications and codes that were relevant to the welding on this project 16
The
Welding Procedure Specifications. 22
The draft
WPS dated 12 January 2009. 26
The
quality of the welding and the factors which affected it 31
Some
general comments. 31
The joint
statement of the experts. 33
The
individual experts in the disciplines of welding and metallurgy. 34
Matters
agreed by the experts in the course of the evidence. 34
The effect
of the hydrogen content of the consumable. 35
The effect
of titanium and boron in the consumable. 35
The
overmatch between the consumable and the strength of the base metal 36
Pre-heating. 36
Methods of
preheating. 40
Steps that
were taken in relation to the use of preheat and post heat at Changxing. 45
The
location of the cracking. 49
The repair
procedure adopted at Vlissingen. 51
The
evidence from the witnesses and the contemporaneous correspondence. 51
The
evidence of Mr Teale about the preheat temperature adopted at Vlissingen. 53
ZPMC’s
August 2015 tests. 55
My
conclusions as to the causes of the transverse cracking. 56
Non
Destructive Testing (“NDT”) 57
What is
NDT?. 57
The UT
procedure and the relevant codes. 60
The
meaning of the words “cracks are not acceptable regardless of size or
amplitude”. 63
RFI 34. 64
Increasing
the extent of NDT where there are frequent repairs. 65
Did ZPMC
know that transverse cracks could be detected by D scanning?. 68
The
incident of 20 January 2009. 75
The
allegation that ZPMC should have informed Fluor about the cracking. 79
The
provisions relied on by Fluor 79
Knowledge
giving rise to an obligation under section 8 of the Purchase Order 80
The issue
of NCRs 006, 008 and 009. 83
The events
of April and May 2009. 83
The issue
of NCR 006 on 3 June and the parties’ reaction to it 88
The events
leading up to the issue of NCR 008. 89
The events
leading up to the issue of NCR 009. 94
The
meetings in the latter part of 2009. 95
The
meetings of 31 August and 1 September 2009. 95
The
meetings of 30 September and 1-2 October 2009. 96
Events
from early October 2009. 104
A meeting
in Shanghai in November or December 2009. 107
The events
in early 2010. 108
The
meeting of 20 April 2010 and the waiver and warranty letters. 110
The waiver
letter - some observations. 116
Fluor’s
submissions on the construction of the waiver letter 119
ZPMC’s
submissions on the construction of the waiver letter 122
The law.. 124
Fitness
for purpose. 124
The
approach to construction. 126
My
conclusion on the meaning of the waiver letter 133
Summary:
did the enhanced testing and remediation result from the NCRs?. 134
NCR 006. 134
NCR 008. 134
NCR 009. 135
Estoppel 135
Estoppel
by convention – the law.. 135
Estoppel
by convention – the facts. 136
Estoppel
by representation– the law.. 138
Estoppel
by representation– the facts. 138
Conclusions. 138
Disposal 139
Introduction
1.
This is a very substantial dispute about the quality of the fabrication
of steel monopiles and transition pieces for an offshore wind farm in the North Sea. The Claimant (“Fluor”) is an engineering, procurement, construction, maintenance
and project management company registered in England (and is a subsidiary of
Fluor Inc, the US multinational construction company). The Defendant (“ZPMC”)
is a well-known steel fabricator, based in Shanghai with a major manufacturing
base at Changxing Island. ZPMC has an international reputation as a heavy duty
equipment manufacturer, in particular ship to shore container cranes.
2.
This is a judgment following a trial of liability only. Since one of
the main issues in the case is whether or not Fluor’s claims in this action
were settled by an agreement made in June 2010, it has been agreed that all
questions of quantum, if they arise, should be tried in May 2017. The claim is
for about US$400 million.
3.
At the trial Fluor was represented by Mr Sean Brannigan QC, instructed
by Roberta Downey of Hogan Lovells, and ZPMC was represented by Mr Andrew White
QC, Mr Sean O’Sullivan QC, Mr Mark Chennells and Mr Iain Munro, instructed by
Mr Adam Harris of Pinsent Masons. I am very grateful to them all, and their
teams, for their detailed and careful submissions and for ensuring that this
difficult and complex trial ran so smoothly.
4.
By the terms of a contract made between Fluor and Greater Gabbard
Offshore Winds Limited (“GGOWL”), known as the BOP Contract, Fluor agreed to
engineer, procure and construct the foundations and infrastructure to support
140 wind turbine generators (“WTGs”) which were to be installed in the North
Sea approximately 26 km off the coast of Suffolk.
5.
Each foundation consisted of a monopile (sometimes abbreviated to “MP”),
which was a massive steel structure composed of individual “cans” of rolled
steel plates which were then welded together to form a cylindrical column,
typically 65 m in length, 5-6 m in diameter and weighing between 550 and 700
metric tonnes. Each of these MPs was to be driven approximately 32 m into the
seabed. At the top of each MP sat the transition piece (sometimes abbreviated
to “TP”), each one of which was approximately 23 m in length and 5 m in
diameter. The TP provided the connection between the monopile and the structure
above it.
6.
Fluor’s plan was to fabricate the MPs and TPs in Shanghai and then ship
them to Vlissingen in the Netherlands. Fluor was to establish a staging port
at Vlissingen, where it would receive the MPs and the TPs after fabrication,
install the requisite electrical equipment in the TPs and then load the MPs and
TPs on to special purpose vessels for transportation to the site and subsequent
installation.
7.
In order to ensure the quality of the welds in the MPs and the TPs the
BOP Contract provided for non-destructive testing (“NDT”), one form of which
was ultrasonic testing (“UT”). UT can involve several different techniques
known as scanning patterns. I will say more about these later in this judgment,
but in outline this involved placing a probe on the surface of the steel which
transmitted an ultrasonic pulse through the weld metal being tested. Imperfections
in the weld (of a certain type and/or size) would be revealed by an alteration
in the signal seen on the operator’s screen. For this testing to work properly
there has to be good contact between the probe and the surface of the metal
being tested. A longitudinal or circumferential seam weld has a curved
profile, known as the cap. If the cap is unground, the probe usually has to be
placed on the flat surface of the metal either side of the weld. The pulse is
transmitted through the weld metal at an angle to the line of the weld seam and
also at an angle to the horizontal. This method of scanning - known as
scanning pattern E, or E scanning - is efficient at picking up some types of
imperfection but others, such as cracks that are transverse to the line of the
weld, are more readily picked up by scanning pattern D. For some welds in critical
areas, such as the mud line, the specification required the weld cap to be
ground flush with the surface of the base metal, and so it was possible to scan
these welds by placing the probe on the surface of the weld itself - this is
known as scanning pattern D, or D scanning. D scanning is much more efficient
at picking up transverse cracks, as the facts of this case have demonstrated
with startling clarity.
8.
One well-known, albeit fairly uncommon, problem that can occur when
welding thick steel plates is hydrogen cracking, sometimes referred to as cold
cracking. This happens when atomic hydrogen created by the welding process
remains in the weld metal after it has cooled. Being the element with the
smallest atoms, at high temperatures hydrogen can diffuse through and out of
the lattice of the weld metal relatively easily, but for this to happen the
weld metal must be prevented from cooling too rapidly. Hydrogen cracking is
fairly rare and when it does happen it is usually the result of some systemic
shortcoming in the welding procedure, rather than the result of isolated acts
of poor workmanship. Hydrogen cracking typically occurs in a plane transverse
to the line of the weld.
9.
The NDT procedures in the BOP Contract provided that scanning pattern D
was to be used when welds were ground flush and that scanning pattern E was to
be used when the welds had not been ground flush. It was Fluor’s case in the
arbitration that it subsequently brought against GGOWL that these provisions
were mandatory and that to carry out a D scan on an unground weld would be a
deviation from the terms of the contract.
10.
Similar provisions were included in the contract between Fluor and ZPMC,
but ZPMC requested and was granted a concession to the effect that it need not
perform a D scan on a ground weld if that weld had been previously inspected by
E scanning prior to grinding. It was assumed, correctly so far as I can tell,
that the process of grinding of the weld cap would not have any effect on the
presence or absence of cracks in the welds.
11.
However, what was not appreciated was that D scanning was very much more
effective at identifying transverse indications - in other words, a signal
pattern on the screen that might indicate a transverse crack - than E
scanning. So much so that many circumferential welds were passed as
satisfactory by E scanning when in fact they contained many imperfections that
could be seen on a D scan. As a result of the concession in relation to D
scanning on ground welds, relatively few circumferential welds at Changxing
were subjected to inspection by D scanning during the early months of
manufacture. However, it was discovered by one fabrication shop in ZPMC early
in 2009 that scanning by “riding on the weld” - in other words a form of D
scanning - found imperfections that were not seen by E scanning. I will have
to discuss later in this judgment the extent to which this fact was more widely
known within ZPMC.
12.
Thus it was an unfortunate consequence of the UT techniques adopted at
Changxing that many MPs contained transverse cracks that had not been detected
by the E scanning carried out by ZPMC. However, at the end of March 2009, a Mr
Roberts, of RWE, discovered transverse
cracking in one MP (IGI 04) of Shipment No 1. Unfortunately, the report of this
did not reach Fluor until 15 April 2009, by which time Shipment No 1 was
already at sea and on its way to Vlissingen. Fluor made arrangements for a
testing company called Sonovation to carry out tests on this MP when the
shipment arrived at Vlissingen.
13.
Shipment No 1 arrived in Vlissingen on 20 May 2009. About a week later
some MPs of the shipment were tested by RTD Applus, a testing company engaged
by GGOWL, which found transverse cracking on another MP, IGH 06. The upshot of
this was that on 3 June 2009 GGOWL issued a non-conformance report (NCR 006)
which required Fluor to retest the entirety of the MPs in Shipment No 1 and
repair any cracks that were found. It was sent to Fluor by e-mail the
following day. The retesting was to be carried out using D scans wherever
possible, even if the welds had not been ground. The size of the welds on the
MPs was such that the weld caps were relatively flat so that it proved possible
in most cases to carry out an effective D scan even though the weld had not been
ground flush with the base metal.
14.
In due course, similar NCRs, NCR 008 and NCR 009, were issued in
relation to the entirety of the MPs in Shipments Nos 2 and 3, respectively,
with the result that Fluor, with the assistance of ZPMC, had to embark on a massive
operation of retesting the MPs at Vlissingen and repairing any cracks that were
found. In order to do this, extensive temporary facilities had to be set up at
Vlissingen and the installation of the MPs at sea was delayed. However, both
Fluor and ZPMC began to take the view that the extensive retesting required by
GGOWL was not only more extensive than their respective contractual obligations
but also was unnecessary in terms of the structural integrity of the MPs. By
the end of September 2009 Fluor had decided, having taken expert advice, that
the further testing and repair should cease and that the MPs of Shipment Nos
1-3 should be installed without further delay, irrespective of whether or not
they had been repaired.
15.
From then on there was a series of high-level meetings between
representatives of Fluor and ZPMC which eventually resulted in an agreement by
which ZPMC would assign its claims for the costs of the additional testing and
repairs at Vlissingen to Fluor, who would pursue them together with its own
claims against GGOWL, and by which Fluor would waive its claims against ZPMC in
respect of the additional costs it had incurred as a result of the issue of
NCRs 006, 008 and 009. In addition, ZPMC gave a warranty that the unrepaired
MPs in Shipment Nos 1-3 would perform satisfactorily in service for 25 years.
This agreement was recorded in two letters which were signed by ZPMC in June
2010.
16.
It is on the basis of these two letters that ZPMC contends that the
claims made by Fluor in this action were settled. The true construction of
these letters, and whether or not Fluor is now estopped from advancing some or
all of its contentions in this action, is a major ground of dispute between the
parties.
17.
At the risk of some significant oversimplification, the principal issues
of liability to which this claim gives rise can be summarised as follows:
(1)
Whether the MPs and/or TPs were fit for their purpose on arrival at Vlissingen.
(2)
If not, whether that was caused by a breach or breaches of contract by
ZPMC.
(3)
If ZPMC was in breach of contract, whether (and, if so, to what
extent) Fluor’s claims have been settled by the agreement made in June 2010 as
a matter of the true construction of the letters, or whether Fluor is now
prevented from advancing some or all of its claims in this action as a result
of an estoppel.
In the context of issue (1), Fluor did not advance a claim
at the trial that any of the MPs are liable to fail during their 25-year
service life.
18.
With this introduction, it may be helpful at this point to give a few
statistics which provide some indication of the scale of the project.
19.
ZPMC employs 28,000 people at Changxing. The island has a 5 km deep
water coastline, and includes a heavy duty dock of 3.7 km. In 2015 ZPMC was
the largest heavy duty equipment manufacturer in the world and owned 26
transportation ships capable of delivering its products all over the world.
20.
At the time of peak production on this project ZPMC had 1,000 welders
working at any one time. Their work was being checked by about 100 people
engaged or employed by Fluor. The work was carried out 24 hours a day, 7 days
a week.
21.
The fabrication of the 140 MPs and TPs involved 119 km of finished
welds. To achieve this the welders made 2,378 km of passes along the various
seams.
22.
ZPMC’s operation at Changxing Island was split between three “branch
companies”. During the first three shipments, with which this trial has been
principally concerned, branch company 1 had approximately 500 welders working
on the project, branch company 2 about 900 welders and branch company 3 about
400 welders.
23.
70% of the world’s container port craneage is manufactured by ZPMC.
24.
In the light of these figures, Mr White reminded me, very properly, that
one needs to have the scale of the operation constantly in mind in order to put
the contemporaneous documents before the court in their proper context. I am
very conscious that the selection of documents put before the court, extensive
though it is, represents no more than the tip of a very large iceberg.
25.
The principal part of the trial lasted for 18 days during February and
March 2016, but a further day, 19 April 2016, was taken in order to hear the
evidence of two further witnesses. Closing submissions were made on 9 and 10
June 2016. The written closing submissions of the parties, excluding
appendices, ran to over 800 pages.
26.
Between them, the parties called just over 20 witnesses, and 6 experts.
Several of the witnesses called by ZPMC gave evidence through an interpreter
and, as a result, I did not find it easy to form any reliable impression about
the quality of their evidence, a difficulty aggravated by the fact that nearly
all the evidence concerned events that occurred six or more years before the trial.
27.
The expert evidence was concluded in three days, which was achieved by
adopting a hybrid process of joint examination by the court of the experts of
each discipline together with limited cross examination. This worked well and
certainly shortened the time that would otherwise have been taken by the expert
evidence.
28.
There were about 150 ring binders of documents, excluding documents that
were in electronic form only. Many of these were translations of documents
originally written in Chinese, and in some cases there was more than one
translation of the same document.
29.
I thought that all the witnesses gave evidence honestly, save in one or
two cases which I will mention in the course of the judgment. However, there
was a tendency on both sides for witnesses to allow loyalty to their company to
influence the evidence that they gave, but this is perhaps unsurprising when
the events under inquiry took place so long ago.
30.
A difficulty that confronted many of the witnesses called by Fluor was
that the case that was being advanced on its behalf at this trial conflicted
very substantially with the case that Fluor had advanced in the arbitration
against GGOWL in 2011 and 2012. Some of them were subjected to close and no
doubt uncomfortable cross examination about the evidence that they had given in
the arbitration.
31.
It is common ground that the relationship between the parties was
governed by Purchase Order No 66577000-2-0001 dated 11 April 2008 (“the PO”). The price for ZPMC’s works was agreed at €234,097,500.
32.
Paragraph 8.0 of the PO, which was headed “SCHEDULE & REPORTS”
provided:
“Progress Reporting
Within 30 days after Purchase Order award Seller shall
submit a legible reproducible copy of the Design, Manufacture and Delivery
Schedule for all items detailed in the Bill of Materials of this Purchase
Order. As a minimum the schedule shall include the following:
1. Material procurement schedule including Seller’s
suborder dates, sub-supplier’s name and expected material delivery dates.
2. Manufacturing and delivery schedule containing:
a. Start of fabrication dates.
b. Starting and completion dates of all major steps
during fabrication.
c. Shipping date(s)
Seller
shall submit every 2 weeks thereafter . . . updated progress reports showing
actual progress against planned progress dates and shall detail specific or
potential problems of which Buyer should be made aware.”
33.
Paragraph 9.0 of the PO, which was headed “DOCUMENTATION” provided:
“Any
review or approval of data or documentation submitted by Seller to Buyer shall
not relieve Seller of the responsibility for the accuracy of documentation or
data, or compliance with all requirements of the Purchase Order. Buyer confirms
that documents will not be subject to repetitive revue [sic] due to subjective
reviewer comments.”
34.
Paragraph 21 of the PO listed other documents forming part of
the contract:
"1. This
Purchase Order document
2. Attachment
A
3. Attachment
B
4. All
other Commercial Attachments
5. Attachment
C
6. All other
documents listed in Attachment C in accordance with the order of precedence
listed therein."
35.
Attachment B to the PO, “Terms and Conditions of Purchase”, provided:
"6. WARRANTY: Seller
warrants to Buyer and Owner that all goods and services covered by this
Purchase Order will conform with the specifications, drawings and other
descriptions supplied or advised by Buyer and will be new, of good quality, fit
and sufficient for the purposes for which they are intended as evidenced in
this Purchase Order . . . of good materials, design and workmanship, free from
defects, and will fulfil satisfactorily the operating conditions specified
herein.
. . .
8. [As substituted by
paragraph 4 of the PO]
8.1 . . . Seller shall be
liable for and shall defend, indemnify, and hold [Buyer] harmless from and
against any and all claims, costs, expenses (including attorney's fees),
damages, or other liability, howsoever arising, whether in contract, tort
(including without limitation negligence or strict liability of the indemnified
Party), or otherwise, out of performance of this Purchase Order in respect of:
8.1.1 Failure by
Seller to comply with . . . this Purchase Order.
. . .
8.3 Indirect
and/or consequential damages, whatever the cause may be shall be explicitly
excluded from this Purchase Order.
31. SELLER’S
DOCUMENTS:
.
. .
For
each part of the Works, and except to the extent that the Parties otherwise
agree that if the Seller wishes to modify any design or document which has
previously been submitted for review, the Seller shall immediately give notice
to the Buyer. Thereafter, the Seller shall submit revised documents to the
Buyer in accordance with the above procedure.
Any such agreement (under
the preceding paragraph) or any review (under this sub- clause or otherwise)
shall not relieve the Seller for any obligation or responsibility.”
36.
Attachment C to the PO provided, by paragraph 3:
"The
Mono-Piles and Transition Pieces shall comply with the requirements of this PR,
its attachments and the documents listed in the following Engineering Document
List. The requirements of all the referenced documents within the listed
documents shall be applied where applicable. . . .
“Fabrication
of Offshore Structures” 760 297 97015
"Structural
Steel for Offshore Structures” 760 297 97005
"Structural Welding of
Offshore Structures” 760 297 97020
And
9.11 Inspections by COMPANY
shall not relieve SUPPLIER of complying with all expressed or implied
specifications nor of SUPPLIER guarantee that the materials shall perform
satisfactorily under conditions specified in the purchase order. No charge
arising out of inspection shall be made on this order until such change has
been agreed by COMPANY.”
37.
I will deal with the particular specifications and codes that applied to
this project in the next section of this judgment.
38.
This is not intended to be an exhaustive list of those who gave
evidence: indeed, I will mention some individuals who were not called as
witnesses at the trial.
39.
Mr Stephen Dobbs. He was the most senior representative of Fluor
who was involved with the project. He did not give evidence.
40.
Mr Hans Dekker. He was a senior employee of Fluor who became
Project Director on 1 July 2009. He is clearly a very able executive and, in
general, I am sure that he is an honest man. However, his evidence before me
was tainted by the fact that much of it was directly contrary to the evidence
that he gave to the arbitrators in 2012. In relation to his written evidence
to the arbitral tribunal, he explained that his witness statements have been
drafted for him by US lawyers and that he had been provided with a limited set
of documents, by reference to which the statements have been prepared. He said
that he had conversations by telephone with the US lawyers and that he rather
naïvely relied on them to get the facts right. He said that the preparation of
his witness statements in the current proceedings, by contrast, had been much
more thorough, and that he had seen many more contemporaneous documents, with
the result that his present evidence was much more reliable and complete than
that which he gave in the arbitration. In these circumstances, I consider that
his evidence, both to the arbitrators and to this court, must be treated with a
considerable degree of caution.
41.
Mr Bruce Hovermale. He was the Project Director until the end of
June 2009. He was replaced by Mr Dekker after the problems emerged with the
transverse cracking. I discuss his evidence in cross examination in some
detail later in this judgment.
42.
Mr Douglas Fuller. He was Vice President of Operations,
responsible for infrastructure operations in Asia. I thought that he was a
careful witness who gave his evidence fairly and honestly. He said that he
thought that Mr Guan and Mr Cao were good men and that he had a lot of respect
for both of them, and I am sure that he meant it. A particularly revealing
aspect of his evidence was when he was being questioned about a passage in his
witness statement in the arbitration in which he said that the project was
paralysed by the issue of the NCRs. When asked whether he still stood by that
statement, he said that he did. That answer was revealing because it was not
one that it was in Fluor’s interests for him to give.
43.
Mr Russell Ayres. He was the Deputy Project Director. I thought
that he was an impressive, truthful and careful witness.
44.
Mr Jason Estabrook. He was the Quality Assurance (“QA”) Manager
in China - in effect, Fluor’s NDT specialist. He is qualified to ASNT level
III, the highest level of NDT accreditation by the American Society of
Non-Destructive Testing. I thought that he was a careful and generally
reliable witness, but as with many others his evidence suffered from the severe
limitation that most of it was about matters that occurred 6 or 7 years ago.
He seemed to have a good relationship with those with whom he worked directly
at ZPMC.
45.
Mr David Dove. He is a welding engineer who clearly knows a
great deal about it and feels very strongly about the quality of the welding on
projects for which he has a responsibility. However, it was often quite
difficult to follow the reasons that he gave for some of his answers in cross
examination: but in the event not much turned on his evidence, but rather on
some of the contemporaneous reports that he wrote at the time.
46.
Mr Doug Hardie. He was Fluor’s European Regional Manager,
Expediting and Supplier Quality Surveillance from 2002 to 2011. I thought that
his evidence was not always consistent, but in the event not much turns on it.
47.
Again, I will only mention those witnesses to whom I have referred
during the course of this judgment. As I have already said, because many of
them gave evidence through an interpreter, it was not easy to form a view based
on the manner in which they gave their evidence. Some of them were, perhaps
unsurprisingly, concerned not to give any evidence that might be thought to
damage ZPMC’s case. For ease of reference, an organisation chart of the
management at Changxing is attached as Appendix A.
48.
Mr Guan Tongxian. He is the founder and former President of
ZPMC. He has clearly built up the company into a very successful enterprise
with a worldwide reputation. His regret that ZPMC had become involved in
litigation with Fluor was very evident, but he was nevertheless proud of the
project. He is now 84 and, although remarkably fit for his age, accepted that
his memory of the important meeting on 30 September 2009 was not good. I
thought that he was a man of integrity who believed strongly that ZPMC should go
to any lengths to deliver a good quality product.
49.
Mr Kang Zuezeng. Mr Kang succeeded Mr Guan as President on 7
December 2009. Although he signed the waiver and warranty letters in June
2010, his involvement in the crucial events of the project was fairly limited.
50.
Mr Cao Weizhong. He was Senior Vice President in charge of
production planning and manufacturing. I discuss his evidence in relation to
some of the important meetings later in this judgment.
51.
Mr Huang Qingfeng (Fred). At the relevant time he was the Vice
President responsible for Quality Control and Assurance. He is currently the
President of ZPMC and speaks English very well. His evidence was somewhat
contentious, but in the event I do not find that it is of crucial relevance to
any of the issues that have arisen in the case.
52.
Mr Gao Feng (Ryan). He was the Project Manager. He was an
English speaker and was the primary point of contact for correspondence between
Fluor and ZPMC. He reported to Mr Huang.
53.
Mr Chen Bin. He was the Quality Assurance General Manager.
54.
Mr Lu Hanzhong. He was the Deputy General Manager at Changxing.
55.
Mr Li Ruixiang. He was Mr Lu’s opposite number as the Quality
Assurance Vice General Manager.
56.
Mr Shen Daming. He was the Chief Engineer of the Testing Centre,
but he did not give evidence at the trial. He appears to have been highly
regarded within ZPMC for his technical expertise.
57.
Ms Ma Xiaomei. She was the Quality Control Manager for branch
company 2. She gave evidence in English and, for someone at a relatively junior
management level, she seems to have played a fairly prominent role in this
project. She was a careful witness and I discuss parts of her evidence later
in this judgment.
58.
Mr Liu Qizhong. He was in charge of marketing and sales for ZPMC
and so, as he put it, his involvement in a project usually came to an end when
the contract was signed. He gave evidence in English, which he spoke extremely
well. His involvement during the project came about through his role as a
translator for Mr Guan. I discuss his evidence later in this judgment,
particularly in relation to a meeting that he said took place in November or
December 2009.
59.
Mr John Lilley. Fluor’s principal NDT expert, who wrote a joint
report with Mr Tim Armitt and Mr Steve Traves.
60.
Dr Richard Dolby. He was Fluor’s principal metallurgy expert,
who wrote a joint report with his fellow metallurgy expert, Dr Ted Hamre, and
with Mr John Marlow and Dr David Howse, who were welding engineering experts.
61.
Mr John Marlow. He was Fluor’s welding engineering expert who
gave evidence.
62.
Dr Lewis Morgan. He was ZPMC’s NDT expert.
63.
Dr John Robert Gordon. He was ZPMC’s metallurgy and welding
materials expert.
64.
Mr Robert Teale. He was ZPMC’s welding engineering expert.
65.
At Changxing ZPMC used three welding processes in order to weld the
cans. These were:
(1)
Shielded Metal Arc Welding (“SMAW”);
(2)
Submerged Arc Welding (“SAW”);
(3)
Flux Cored Arc Welding (“FCAW”).
66.
Arc welding is one of several fusion processes for joining metals. The
intense heat required to melt the steel is generated between the welding wire,
acting as a positive electrode, and the pieces of steel to be joined - the base
metal - acting as the negative electrode. When the welding wire contacts or is
in very close proximity to the base metal it forms an electrical circuit
through an arc, which has a local temperature in excess of 3,000°C, which melts
both the wire and the base metal. The molten pool of weld metal fuses with the
base metal which, as it cools, creates the metallurgical bond or weld. During
this process it is important that the molten weld metal is protected from gases
such as oxygen, hydrogen and nitrogen which can have a detrimental effect on
the integrity of the weld. This is done, in part at least, by the use of a
flux.
67.
The principal welding processes were SAW and FCAW. SMAW was generally
used for the initial tack welds, whose function was to hold the steel pieces in
place prior to the primary structural welding. For the purposes of this
judgment, it is not necessary to say anything more about it.
68.
In SAW the positive electrode is a solid welding wire the tip of which
is passed under a layer of flux, which is in the form of a powder placed on the
surface of the base metal. Some of the flux is melted into “slag” which
solidifies on top of the weld metal as it cools. This has to be removed
mechanically after each welding pass, but this is not difficult. The procedure
is then repeated over and over again until the whole of the joint between the
steel plates has been filled by the weld metal. Thus very many passes are
required in order to achieve the complete weld.
69.
Some of the flux powder is not melted and that is then recovered and
placed in a hopper for reuse. A frequent criticism made by Fluor of ZPMC’s
practices when using SAW was that the surplus flux powder that had not been
used up in the welding was simply swept up and dumped in the hopper without any
attempt to separate it from other contaminants with which it had become mixed.
This may explain why there was a higher number of defects in the primary SAW
welds than there should have been, but for reasons which will become clear
later in this judgment I find that little of any ultimate significance turns on
this.
70.
In FCAW the flux is contained within a tubular electrode wire and again
forms a solid deposit of slag on top of the weld material. At Changxing the
wire (or consumable) used at the time was called Supercored 71H, manufactured
by Hyundai. Additional protection against contamination by detrimental gases
was provided by an externally supplied shielding gas, CO2 (although
it could have been argon, or a combination of CO2 and argon). With
FCAW both the arc and the molten weld pool are not concealed by a layer of flux
and so they are clearly visible to the welder, which requires very strong
protection for the eyes of the operators.
71.
At Changxing Fluor was keen to encourage ZPMC to use SAW for the primary
structural welds and FCAW for repairs. When production first started ZPMC
sometimes used FCAW for the primary – mainly longitudinal - welds, but Fluor
objected to this and, by the end of 2008, nearly all the production welds were
carried out using SAW. Repairs were necessary if the subsequent NDT revealed a
defect in the weld. If the indications revealed by the probe were above the
relevant criteria, then the weld would have to be repaired. The weld material
in the relevant area was gouged out and then re-welded (by FCAW).
72.
Repair welding differs from the primary or production welding in two
important respects. First, because the base metal either side of the area being
repaired is joined by the existing weld, the base metal in the area being
repaired is effectively rigid so that there is a very high degree of restraint.
Second, the length of each weld pass is very short, with the result that one
pass follows quickly after the other and the weld metal remains at a much
higher temperature throughout the process, albeit for a shorter time overall.
73.
It is generally regarded as undesirable for there to be more than two
repairs in the same place, and so the third and subsequent repairs in the same
place are usually known as Critical Repairs and require a different procedure.
74.
In welding operations of the type that were involved in the fabrication
of the monopiles and the transition pieces at Changxing, it is good practice to
preheat the base metal in the vicinity of the joint before welding. There are
three reasons for this (which, for convenience, I take from the first report Mr
Teale). First, it lowers the cooling rate in the weld metal and the base
metal, producing a more ductile metallurgical structure with greater resistance
to cracking. Second, the slower the metal cools the greater the opportunity for
any hydrogen present in the weld metal to diffuse out and not cause cracks.
Third, it reduces shrinkage stresses in the weld and the adjacent base metal.
A number of factors affect the choice of preheat temperature, such as the
thickness of the joint, the type of steel being welded and the amount of
restraint imposed on the components forming the joint.
75.
At paragraph 2.9.4 of his first report Mr Teale said this:
“The application of preheat involves heating the base
metal, either in its entirety or just the region surrounding the joint to a
specific desired temperature called the preheat temperature. This is done prior
to welding. Heating may be continued during the welding process, but frequently
the heat input from the welding process is sufficient to maintain the desired
temperature without a continuation of the external heat source.
The interpass temperature, defined as the base metal
temperature between the first and last welding passes, cannot fall below the
preheat temperature. Interpass temperature will not be discussed further in
this report.
Fabricators
have successfully used gas heating for preheating for many decades. Electrical
resistance elements and induction heating equipment are also used for preheat,
especially when welding thicker sections. All these methods are acceptable and
effective but electrical resistance and induction heating equipment can be
easier to control and monitor in the field.”
76.
At paragraph 2.9.6 he discussed post heat, that is to say heat applied
to the area of the joint after welding has been completed. He said:
“Post heat refers to the maintenance of
preheat/interpass temperatures after the weld has been completed to allow
increased rates of hydrogen diffusion from the weld to occur. The post heat
temperature may be the same as, or greater than, the preheat temperature
specified.
Post heat is a technique closely related to hydrogen
bake-out. Post heat is a fabrication hydrogen diffusion process usually done
during repair on thick sections. In thick section repairs the weld repair will
cool rapidly and this is known as “heat sink”. Rapid cooling will cause high
restraint. The use of resistance heating mats or induction coils are more
effective compared to gas heating torches to help to offset heat sink. Post
heating can also be done when ambient temperatures are near 0°C and/or humidity
levels are high and HACC is a concern.
Post heat is different to PWHT.
Post heat temperatures are usually less than 480°C and PWHT is above 480°C and
more typically above 600°C.
Post
heat is not usually a mandatory requirement in codes and standards but can be
specified by clients or fabricators, especially on weld repairs with high
restraint.”
77.
None of this was controversial. I have quoted these extracts from Mr
Teale’s first report because they provide a convenient summary of the position.
78.
On 10 May 2008 Fluor issued Revision 1 of its Specification for
Structural Welding of Offshore Structures (Document No 760 297 97020). On 18
June 2008 Fluor issued Rev 0 of Document No A4AX-MSP-SPC-215-0004
“Specification for Structural Welding of Offshore Structures”. It is accepted
by ZPMC that this later specification incorporated agreed revisions to the
earlier specification (ZPMC’s closing submissions, at paragraph 646), but in
fact nearly all the provisions that are relevant to the issues in the case
remained unchanged between the two versions. The later document has been
generally referred to as “the Welding Specification”.
79.
Under the heading “General Welding Requirements” in the later document
there was a section headed “Temperature Control”, section 2.1.3, which said
this:
“Develop
temperature control methods and techniques for operations involving preheat,
interpass temperature, post-heat, or stress relief temperature control.”
This replaced an identical provision in the earlier
specification.
80.
However, the Welding Specification was revised and issued for
construction in March 2009, although dated 13 February 2009. The corresponding
section headed “Temperature Control” now said this:
“Develop temperature control
methods and techniques for operations involving preheat, interpass temperature,
post-heat, or stress relief temperature control. Maintenance and management of
preheat and interpass temperature shall be in accordance with ISO 13916.”
ISO 13916:1996 is a European standard which gives guidance
on the measurement of preheating temperature, interpass temperature and preheat
maintenance temperature. There is no room for any suggestion that this change
could have taken effect before the document was issued in March 2009 and,
indeed, as I understood the position taken by Fluor in its closing submissions,
it no longer relies on this revision.
81.
Section 2.1.11 of the Welding Specification, under the same heading, was
headed “Preheat and Interpass Temperatures”. Paragraph A said this:
“Preheat
temperature shall be in accordance with the applicable codes except that code
recommended minimum preheat temperatures shall be mandatory. Preheat
requirements shall apply to all welding, including tack welding and welding of
temporary attachments . . . Preheat shall be maintained a minimum of 100 mm on
either side of the joint.”
This was in identical terms to section 2.1 K of the earlier
specification. Revision 1 of the Welding Specification (issued in March 2009)
amended the first sentence of this paragraph so as to read: “Preheat
temperature shall be in accordance with the applicable qualified WPS".
82.
Paragraph E of the same section of the Welding Specification said that
if “Oxy-fuel torches” are used for preheating, the torch tip was to be
appropriate for the work, namely a “rosebud” tip and not a cutting or welding
tip. The former is what ZPMC used.
83.
In section 2.3.3, under the heading “Welding Procedures”, it said this:
“Before beginning work, [ZPMC] shall establish and
qualify detailed welding procedures for various materials and components used
in structures to be fabricated, in accordance with requirements of Sections 5
and 10 of AWS D1.1. Use of prequalified welding procedures as defined in
Section 3 of AWS D1.1 is not permitted.
Written welding procedures shall be prepared and
tested in accordance with Section 4 part B of AWS D1.1 and Section 2.3 B of the
Structural Welding of Offshore Structures. In the case of conflict the most
onerous requirements shall apply. The procedure qualification report (PQR),
including NDT and mechanical test results shall be submitted to [Fluor]
together with the welding procedure specification (WPS).
. . .
For repair
of a weld, either the original approved WPS, or one originally submitted and
approved as a designated repair WPS, shall be used.”
84.
Paragraph G of the same section was headed “Limitations on Variations”.
This provided for certain restrictions on changes in essential variables as
permitted by AWS D1.1, one of which was that there was to be no increase of
more than 50°C in specified preheat temperature, subject to maximum interpass
temperature limitations.
85.
Paragraph J of this section, which dealt with the repair of welds,
included this provision:
“A Procedure to be developed by [ZPMC] [and] shall be
submitted to [Fluor] for review prior to use. A repair procedure shall include
the following:
1.
The method of defining the type
and the extent of the defect.
2.
Excavation methods for removing
the defect and NDE methods to ensure that the defect has been completely
removed.
3.
Welding procedure employed and NDE
methods used to inspect the completed repair.”
These provisions were in virtually identical terms to the
corresponding provisions in the earlier specification.
86.
Section 3.4.2, under the heading Workmanship and Inspection”, provided
at paragraph 1:
“Each layer
of welding shall be smooth and [free smooth and] free of slag inclusions,
porosity, excessive undercut, cracks and lack of fusion prior to beginning the
next layer . . .”
This provision was relied on by Fluor, but when doing so it
usually cited it in part only and omitted the final six words of the extract
quoted above. It was pointed out by ZPMC, in my view correctly, that this
provision had little or no relevance in the context of hydrogen cracking
because that typically occurs during the 48 hours after the weld has been
completed and as it is cooling: it is unlikely to happen quickly enough to
occur between passes, particularly in the case
of repair welds where the temperature remains high throughout the entire region
of the repair weld.
87.
There was also a Specification for Structural Steel for Offshore
Structures and a Specification for Fabrication of Offshore Structures. However,
neither side relied on any provisions of these two specifications beyond those
provisions found in the Welding Specification.
88.
AWS D1.1/D1.1M: 2006 (“the code” or “AWS D1.1”) is entitled “Structural
Welding Code – Steel” and is produced by the American Welding Society and
approved by the American National Standards Institute. Mr Teale described it
as the “mainstay of the offshore platform industry for many decades”.
It was a code with which ZPMC was very familiar and to which it habitually
worked. Section 3.5, headed “Minimum Preheat and Interpass Temperature
Requirements" provided as follows:
“The
preheat and interpass temperature shall be sufficient to prevent cracking.
Table 3.2 shall be used to determine the minimum preheat and interpass temperatures
for steels listed in the code.”
The relevant part of Table 3.2, which is headed
“Prequalified Minimum Preheat and Interpass Temperature”, namely that
applicable to steel in Category B of the type used by ZPMC, provided that for
FCAW the minimum preheat and interpass temperature for steel where the
thickness of the thickest part of the steel at the point of welding was between
38 and 65 mm (inclusive) was 65°C. Where the thickest part of the steel was
over 65 mm, the minimum temperature was 110°C.
89.
This was the table from which ZPMC derived the temperature of 110°C,
which was the preheat temperature that was specified for circumferential welds
on the monopiles for plate that exceeded 65 mm in thickness (see the evidence
of Mr Marlow at Day 17/101). The minimum preheat and interpass temperature in
the relevant WPS was usually expressed as follows:
“10°C [35≤T≤ 38], 65°C [38 ≤
T≤ 65], 110°C [65<T]”
where T is the thickness of the plate.
90.
Annex I of the code is entitled “Guideline on Alternative Methods for
Determining Preheat", whose stated purpose was to provide some
optional alternative methods for determining welding conditions (principally
preheat) to avoid cold cracking. Amongst the factors taken into account in the
annex were the anticipated level of hydrogen in the consumable, the hardness of
the metal (by reference to the “Carbon Equivalent”) and the degree of restraint
at the point of welding.
91.
Annex I describes the three levels of restraint: low restraint, medium
restraint and high restraint. Medium restraint “includes groove welded joints
in which, because of members being already attached to structural work, a
reduced freedom of movement exists”. The high restraint condition applied to
welds in which there was almost no freedom of movement for the members joined,
“such as repair welds, especially in thick material”. Mr Teale accepted this:
see paragraph 2.7 of Appendix 2 to his first report (although he considered
that the longitudinal and most of the circumferential production welds were in
low restraint).
92.
Where the consumable was graded as H2 - as in this case - the applicable
Carbon Equivalent group was either C or D (Mr Marlow and Mr Teale differed as
to which). For plates of
thickness between 28 and 75 mm in these groups Table I.2 indicated a minimum
preheat and interpass temperature of 110°C and 130°C, respectively, for medium
restraint conditions, and 150°C (for both groups), for high restraint
conditions.
93.
The thickness of the steel plates used to make the cans for the
monopiles was between 55 and 85 mm. For the transition pieces it was between
60 and 75 mm. I understood it to be common ground that all these would
constitute thick material.
94.
Paragraph 5.4.6 of AWS D1.1 provided that welds having prohibited
discontinuities should be repaired using a qualified welding process unless the
entire weld was to be removed and replaced. The discontinuities that were
prohibited were described in Part C of the code, which dealt with acceptance
criteria. I shall discuss this in more detail under the section of this
judgment that deals with NDT, but in short if the prescribed form of NDT
produced indications in excess of the specified criteria, then a repair was
required.
95.
The code was accompanied by a Commentary, which was itself a substantial
document. In its Foreword it stated that the code was to provide “general
stipulations applicable to any situation and to leave sufficient latitude of
the exercise of engineering judgment” and that the commentary was “the
most suitable means to provide clarification as well as proper interpretation
of many of the code requirements".
96.
Paragraph C-3.5 of the Commentary, headed “Minimum Preheat and Interpass
Temperature Requirements” said this:
“The
principle of applying heat until a certain temperature is reached and then
maintaining that temperature as a minimum is used to control the cooling rate
of weld metal and adjacent base metal. The higher temperature allows more rapid
hydrogen diffusion and reduces the tendency for cold cracking. The entire part
or only the metal in the vicinity of the joint to be welded may be preheated
(see Table 3.2). For a given set of welding conditions, cooling rates will be
faster for a weld made without preheat than for a weld made with preheat. The
higher preheat temperatures result in slower cooling rates. When cooling is
sufficiently slow, it will effectively reduce hardening and cracking.
. . .
It
should be emphasised that temperatures in Table 3.2 are minimum temperatures,
and preheat and interpass temperatures shall be sufficiently high to ensure
sound welds.
. . .
Based on these factors, the
requirements of Table 3.2 should not be considered all-encompassing, and the
emphasis on preheat and interpass temperatures as being minimum temperatures
assumes added validity.”
97.
Mr Marlow’s evidence was that Table 3.2 provided minimum temperatures
which, in appropriate circumstances, could be increased by reference to Annex
I. That seems to me to be plainly correct. His preference was to use Annex I,
but he accepted that that was largely a judgement based on experience (Day
17/102-104).
98.
Another standard to which reference was made was Offshore Standard
DNV-OS-C401 “Fabrication and Testing of Offshore Structures, April 2004”. This
is produced by the well-known Norwegian classification agency Det Norske
Veritas (“DNV”). This was the standard favoured by Fluor. Section F was headed
“Assembly, Welding, Treatment and Repairs", of which paragraphs 305 and
307 were in the following terms:
“305 Repair welding in the
same area may be carried out twice. Further repairs shall be evaluated in each
individual case.
307 Repair welding shall be
performed using welding consumables satisfying the hydrogen test requirement
given in 118. The preheating and working temperature shall when making shallow
and local repairs in special and primary structural elements be raised 50°C
above the level specified for production welding and be at least 100°C unless
otherwise agreed. The working temperature shall be maintained until the repair
has been completed. To ensure sound repair welds, the single repair length
shall not be shorter than 50 mm.”
99.
Mr Marlow had to confess that he was unable to explain the reference to
“shallow and local repairs” in paragraph 307 and that he had taken this
to apply to all repairs, because increasing the preheat temperature by 50°C for
repairs was a practice that he said was "mirrored by virtually every
other application specification that I have ever seen" (Day 17/114).
The point that was put to him by Mr O’Sullivan was that he was putting together
figures from two standards that had been arrived at in different ways and then
adding them together.
100.
However, whilst it looked as if there might be some force in this point,
it is not one that I need to resolve because in his closing submissions Mr
Brannigan disclaimed any need on Fluor’s part to rely on its original
allegation that the welding was to comply with the DNV standard. Fluor is now
content to rely on AWS D1.1. This was a sensible and realistic concession.
101.
Mr Marlow said that the first passes in a longitudinal weld would be
under conditions of low restraint, but the subsequent passes on the other side
of the plate would be under conditions of medium restraint. He said that the
classification of the degree of restraint was essentially a matter of
engineering judgement but, he said, as one gains experience that judgement
becomes “pretty precise” (Day 17/108). He said that a typical
circumferential seam weld would be classed as medium restraint, because
although the adjacent plates are held in position by tack welds and the weight
of the structures the whole arrangement is not completely rigid. However, as I
have already indicated, to some extent Mr Teale disagreed with this since he
said that the longitudinal and most of the circumferential production welds
would be under conditions of low restraint. But it is common ground,
as the code indicates, that repair welds in thick plate are in high restraint.
102.
Table 3.2 is stated as providing minimum values dependent on the type of
steel being welded and the thickness of that steel: it is silent about
conditions of constraint. If, therefore, the minimum preheat temperature stated
in Table 3.2 would be appropriate for a circumferential production weld under
medium restraint, one might expect that a higher preheat temperature would be
appropriate for a repair being carried out to that weld where the conditions
would be of high restraint. Of course, it may be that the welding engineer
could take the view that the prescribed minimum temperature for the ordinary
production weld was in fact generous for conditions of medium restraint and so
might still be appropriate for a repair weld carried out under conditions of
high restraint. But, other things being equal, I consider that a steel fabricator
would have to give careful consideration to the question of whether or not the
preheat temperature stated in Table 3.2 should be increased for a repair weld
in steel of the same thickness.
103.
A further consideration, to which I refer in more detail below, is the
guidance given by Hyundai, the manufacturers of the consumable, Supercored 71H,
who recommended a preheat temperature of between 50°C and 150°C. Dr Dolby said
that for high restraint conditions a starting point for the choice of preheat
temperature would be at the top end of this range, and Dr Gordon, ZPMC’s expert
on welding materials and metallurgy, agreed (Day 18/101-4). In my view this
was a further factor which supported the choice of a preheat temperature of
150°C where the welding involved repairs in thick plates.
104.
But, irrespective of these considerations, it was, I find, the shared
view of Mr Marlow, Dr Dolby and Mr Teale that 150°C would have been the
appropriate preheat temperature for weld repairs in thick plate (see Day 17/73).
However, Mr Teale’s comment on this was that since, as he understood it, the
use of a preheat temperature of 150°C did not prevent cracking in ZPMC’s August
2015 experiments or when repairs were carried out at Vlissingen, some other
factor must have been at work. That is a point that must be addressed: I will
do that a little later in this judgment.
105.
As the Specification for Structural Welding of Offshore Structures
provides, welding was to be carried out in accordance with Welding Procedure
Specifications (“WPS”). These were prepared initially by the Testing Centre at
Changxing. Initially a draft WPS would be submitted by the Testing Centre to
the technical office at Changxing for review, after which it would be passed to
ZPMC’s QA department, where it would be recorded in the Project Quality Control
Plan (“PQCP”) before being submitted to Fluor for approval. Fluor would either
approve the WPS or make comments, in which case the WPS with Fluor’s comments
would be returned to the Testing Centre for further consideration and
resubmittal.
106.
Before a WPS was prepared ZPMC’s welding engineers in the Testing Centre
would carry out mechanical tests to verify and support the proposed procedure.
They would then produce a Procedure Qualification Report (“PQR”). ZPMC said
that sometimes these tests were witnessed by representatives from Fluor.
107.
In his witness statement, Mr Lu Hanzhong, who was the Deputy General
Manager at Changxing at the relevant time, said that ZPMC was not experienced
in the work of this type having not manufactured monopiles or transition pieces
before. He said that Fluor was aware of this and knew that ZPMC was relying on
Fluor’s experience to help it manufacture a product that complied with the
contract. In the light of this he said, at paragraph 3.7 of his witness
statement:
“As a consequence in most
circumstances when Fluor raised comments on any submission we incorporated
their comments without questioning them. I recall that when we argued with
Fluor about their comments it was when they sought to impose requirements that
were not in accordance with AWS D1.1 or requirements which were not in
accordance with ZPMC’s common practice.”
108.
However, as Mr Teale pointed out, prior to October 2008 neither Fluor
nor ZPMC had ever been involved in the manufacture of similar structures, so
that both sides were on a learning curve. A crucial factor was that the
timetable for fabrication required by the contract was extremely tight.
109.
In evidence Mr Lu said this (Day 13/22):
“. . . although I was, you
know, Shen Daming’s boss, but in relation to welding work [and] I was very
dependent on his team and I trusted Mr Shen Daming’s team.”
Mr Shen Daming was in charge of the Testing Centre. He
appears to have been held in high regard, but he was not called as a witness.
Mr Lu went on to say that at the time engineers from Fluor and ZPMC’s engineers
would have discussions together (Day 13/23).
110.
Mr Lu said (Day 13/18):
“. . . We
are aware that there are cracks in welding then we would apply procedures such
as pre-heat, interpass heating, post weld heating, all these kind of ways,
basically it using heat to prevent cracks.”
When I then asked him whether in the type of welding that
was being done on this project ZPMC would expect to use pre-heat, he said:
“pre-heat
should be used.”
In addition, he agreed that if the code required that the
pre-heat temperature should be sufficiently high to ensure sound welds, then
the procedures must ensure that this happens (Day 13/18). This evidence seems
to me to be almost self-evident, and I accept it.
111.
In saying this I do not wish to be misunderstood. The fact that a weld
may have a crack in it does not mean that there has been a breach of the
requirement to achieve an appropriate preheat temperature. It is only if
cracking persists in circumstances where the workmanship is good and no
abnormal factors are present, that an inadequate preheat temperature is likely
to be the culprit. It was for ZPMC to choose a preheat temperature for each
welding process so as to ensure, absent some unanticipated and abnormal factor,
that there is no cracking if the specified procedures are followed and the
workmanship is satisfactory. To that extent, therefore, it is not an
obligation that can be discharged simply by the exercise of reasonable skill
and care.
112.
In my view it follows from this, and from the provisions of the Welding
Specification that I have cited, that the onus was on ZPMC to select a preheat
temperature that was appropriate to the conditions in which a particular type
of weld was to be carried out. The conditions that ZPMC would have to take
into account would include the type of consumable being used, the type of steel
being welded, the likely degree of restraint (for example, whether or not the
weld was a primary production weld or a repair weld) and the likely ambient
temperatures of the workplace (which might be particularly important if the
welding was being done outside).
113.
As I have said, the preheat temperature prescribed by ZPMC for the
primary longitudinal and circumferential seam welds was 110°C for plate
thicknesses of 65 mm and above. It was common ground that it was open to ZPMC
to increase this pre-heat temperature of 110°C by up to 50°C on the thickest
plates without requiring any authorisation (see Mr Lu at Day 13/24; Mr Teale at
Day 17/66; Dr Dolby at Day 18/110, and Dr Dolby and Dr Gordon at Day 18/120 -
where both those experts agreed that a similar post-heat temperature could be
applied without requiring requalification).
114.
Since the degree of restraint of the components being welded may differ,
production welding and repair welding may require different WPS.
As I have already mentioned, section 2.3.3 of the Welding Specification
(revised 18 June 2008) provided that "For repair of a weld, either the
original approved WPS, or one originally submitted and approved as a designated
repair WPS, shall be used". It seems to me that where a particular
type of repair will necessarily be carried out under conditions different from
the production weld - for example, a different degree of restraint - good
practice would require the preparation and approval of a designated WPS for
that type of repair. This also reflects ZPMC’s obligation and to comply with
the requirements of the code in relation to preheating and to develop
temperature control methods.
115.
I was shown an example of a Weld Repair Procedure that was approved in
October 2008, which contains a fair
amount of detail about the removal of the defective weld and the preparation of
the repair site, but gives no details of the welding process for the repair.
Indeed, paragraph (8) of the document said simply that: “The WPS used for
the welding repair need to be qualified for both the position being welded, the
joint configuration being repaired".
116.
The relevant WPS for FCAW welding was approved by Fluor on 15 October
2008. There were in fact several of them because there was a different WPS for
each welding position and joint detail. However, so far as maximum and minimum
preheat temperatures were concerned, they all contain the same information.
The minimum preheat temperature varied with the thickness of the plate and the
same figures were set out that I have already given. The maximum preheat and
interpass temperature was stated to be 230°C. Against PWHT was inserted
“N/A”. Nothing was said about the method of preheating or measuring the
temperature. The WPS stated that it was “conformable with the current
edition of AWS D1.1 (2006)”.
117.
Although the relevant WPS stated that they were for FCAW, it must be
remembered that in October 2008 ZPMC was carrying out some of the production
welding of the can seams using FCAW so these WPS were probably intended for
ordinary production butt welds (as the depicted joint detail suggests).
However, that does not mean that they could not also have been used for repairs
if otherwise appropriate (this was permissible, as I have already explained).
118.
These WPS were revised and approved by Fluor on 8 December 2008. The
only material difference that I have noticed between the revised and original
versions concerned matters such as the welding travel speed, which was reduced
in the resubmitted versions. Relevantly for present purposes, there was no
requirement for post heat and no change to the maximum and minimum preheat
temperatures and the revised WPS were also silent about the method of applying
heat or measuring the preheat temperature.
119.
In an e-mail to Mr Fuller dated 30 May 2009, Mr Estabrook accepted that
preheating with a gas torch was an approved method. In evidence he explained
that this was because the WPS allowed the operatives to heat the metal in any
way that they wanted provided that they brought it up to the right temperature.
120.
However, in a draft e-mail that Mr Estabrook prepared on the same day on
the subject of repair cracking, he wrote this:
“It appears
that it may be the pre-heating with a torch that might be the problem. The
reason for this is because during FCAW only welding on the long seams we rarely
have a problem with the welds. However, when repairs are done they are almost
always done with the preheat bands off (except small Changxing workshop). The
material is so thick that it may be pulling the heat away too fast - making
adequate preheat impossible even if it appears that the preheat is okay. I
discussed this with Ms Ma and she said ZPMC has reached a similar conclusion
and has made it mandatory for all preheat to be done with the electric bands.
Somebody could ask why we did not change our repair procedure if it was found
to be inadequate. This is probably something we need to change.”
Mr Estabrook explained that by “FCAW only welding” he meant
some welds on the long seams which were carried out entirely by FCAW, although
this happened on only about five or six cans that were included in the first
shipment. Mr Estabrook said that it was now his belief that allowing the
temperature to fall below the minimum temperature specified was probably the
main cause of the cracks in the repairs carried out by FCAW (Day 4/93).
121.
I have already mentioned that ZPMC’s own welding repair procedures and
AWS D1.1 required repairs to cracks to be carried out in accordance with a
qualified welding process. I find, therefore, that it was ZPMC’s duty to
prepare an appropriate WPS, which would be required to specify preheat and
interpass temperatures that were appropriate for repair welds in thick plates.
These temperatures would have to be specified taking into account that repair
welds would be carried out under conditions of high restraint and, where the
plates being welded were thick (in excess of 65 mm), and this would usually
require a separate WPS.
122.
Having regard to what I consider to have been the shared view of the
experts that an appropriate preheat temperature for repair welds using
Supercored 71H in plates that were 65 mm thick or greater was 150°C, it follows
that ZPMC should have prepared a WPS for repair welds that specified this
temperature. There is no evidence that it did so: if it ever happened and a
suitable WPS for weld repairs was prepared, then it is an inescapable finding
on the material available that it was never widely implemented at Changxing.
Either way, ZPMC was in breach of its obligations in respect of workmanship
under the PO.
123.
It seems also that when the WPS were being first prepared no one within
ZPMC gave any thought to the other point raised by Mr Estabrook, namely the
adequacy of applying the preheat with a torch to the same side as that from
which the welding was being carried out. Ms Ma had clearly taken it on board,
but probably not until well into 2009. However, as I mention below, this point
was picked up in December 2008, although the evidence is sparse as to what, if
any, action was taken in the light of it.
124.
An issue in the case on which much attention was focused prior to the
trial concerns a draft WPS that was submitted to Fluor in relation to a
critical repair procedure dated 12 January 2009. Mr Lu said in his witness
statement that in late 2008 it was clear that ZPMC was having difficulty in
undertaking successful repair welds. He said that ZPMC knew from experience
that adding post weld heating had improved the repair success rate on other
jobs involving thick plate. Accordingly, he says that he agreed that a
critical repair procedure should be submitted to Fluor for approval in which
the inclusion of post weld heating would be justified by reference to AWS D1.5
- a code which related to bridges. If that was the case, there is no reference
to it in the draft WPS.
125.
The draft WPS stated clearly at the outset that it was a procedure that
was only to be used when carrying out a repair in the same area more than two
times. Importantly, it contained this provision:
“(7) After
welding, welds and adjacent base metal shall be heated to a temperature of
230°C minimum to 315°C maximum. The minimum heating time for repair welds shall
be one hour for each 25 mm of repair weld depth from the surface, but not less
than one hour. Post heat shall use electric band.”
Mr Dove crossed this
out and beside it wrote:
“NOT
REQUIRED
WOULD
REQUIRE
A NEW PQR.”
At the top of the
first page of the draft WPS Mr Dove wrote:
“PRIOR
TO USING THIS CRITICAL WELDING REPAIR
PROCEDURE,
THE CAUSE/REASONS FOR THE POOR WELD QUALITY NEEDS TO BE IDENTIFIED, & THE
METHOD OF OVERCOMING
THESE PROBLEMS NEED TO BE DETAILED.”
126.
ZPMC did not submit a new PQR. Mr Lu said the rejection of the draft
WPS was referred to himself and Mr Shen Daming. He said in his witness
statement that ZPMC did not submit a further draft WPS because they “could
not identify any detailed procedure for PQR to test a welding repair procedure”
(paragraph 5.4). What in fact happened was that on 3 February 2009 ZPMC
submitted a much shorter critical repair procedure, which omitted paragraph (7)
and contained no other reference to post heating. Instead, it retained
paragraph (6) of the draft document, which said: “Welding shall be done as
described in the approved repair procedure". This can only have
referred to the weld procedures that were approved in December 2008.
127.
ZPMC made clear in its final submissions that it was no longer any part
of its case that it was prevented by Fluor from using post heat (see paragraph
640.3). This, again, was a sensible and realistic concession. Nevertheless, I
should for the sake of completeness consider whether or not it had any material
effect on what ZPMC actually did.
128.
As Fluor has pointed out, there is no evidence that, at any time around
this period, Mr Dove was made aware that ZPMC had discovered instances of
transverse cracking in circumferential repair welds. Mr Dove visited Changxing
from 5-21 January 2009, about two weeks before the discovery of the cracking,
and then again between 9-13 February 2009. Of course it is possible that by
the time of the later visit ZPMC might have thought that the problem with the
cracks which had been found about a week earlier had been resolved, with the
result that it was not mentioned to Mr Dove. During the visit in February 2009
Mr Dove seems to have spent most of his time showing round a Mr Ken Mitchell,
of RWE, which by then had become
an investor in GGOWL. That was Mr Dove’s last visit to Changxing.
129.
In his report of that visit Mr Dove commented that the SAW welders had
no means of measuring the preheat temperature prior to welding and that
inadequate preheating was observed on the circumferential welds. In relation
to repairs, Mr Dove noted that repairs were still being made in the up position
using FCAW, with the result that in many cases the appearance was
unacceptable. He said also that the current repair rate was about 6%, which
was also unacceptable. There was no specific reference to any problem with
preheating in relation to repair welds: the only reference to this related to
the primary production welding, although if the methods of controlling or
measuring preheating were unsatisfactory for the primary production welds it
may well have been no better when carrying out repairs.
130.
In fact, concerns about the adequacy of the preheating carried out by
ZPMC on circumferential welds had been raised in mid December 2008 shortly
before the issue of the draft WPS. In a report dated 15 December 2008, Mr Zhou
Rhuikang made a number of criticisms of the adequacy of the preheating that was
being implemented at the Small Changxing outdoor erection site. In the report
he said this:
“When
we arrived at the site, two large circumferential weld seams were being
preheated (picture 1). In addition, 3 welders were performing repair welding at
three areas (see picture 2 and 3). The repair weld seen in picture 2 is very
long and was being welded by one welder. The repair weld seen in picture 3 is
not long; during the interval of welding, I touched it with my hand and it was
only tepid. There was no heating operator on site, and neither was there anyone
controlling temperature with a tempil stick. So to speak, almost all the repair
welding was performed without preheat. Later on, an operator was called to heat
the scene with a flame torch. Operating in such temperature (less than 10° C)
in the open air on thick plates and long weld seams, heating symbolically and
carelessly with a torch while the heating operator has no tempil sticks cannot
meet with the heating requirement and the temperature would cool down very
quickly. Thus, there was basically no preheating for weld repair, not to
mention the interpass temperature which was tended to by no one. They said that
the schedule was tight and they were shorthanded, and there was not enough
heating equipment. I think for short weld seams heating with flame is
acceptable, but at least each welder should be accompanied by a heating
operator with a tempil stick. For some long repair weld seams, the preheat
temperature can never be reached by heating with flame and they must be heated
with electric bands. There are three construction teams working on this pile
but few people were working. Due to the terrible welding quality, each weld
seam has to be repaired more or less, and for some weld seams the repair length
can reach almost half the length of the whole weld seam. In January the
temperature will be even lower and severe consequences could occur to the
quality of repair weld if no measures are taken.
Formal
weld seams are heated with electric pads which, however, can be quite slow. To
accelerate heating, more electric bands can be added and the heating zone can
be covered up with quilts . . . the electric bands are narrow and they can only
heat with one side (in some places the racks for electric bands are not
properly arranged so the electric bands are positioned too far from the
workpiece which results in worse heating effect). The cans are rolling and it
is difficult to heat on both sides; two electric bands can be placed
side-by-side on the welding zone to heat. In addition, heat loss should be reduced
which can be achieved by covering up with quilts . . . Of course, this would
require an increase of investment and manpower and the bosses would not be
willing to do this, so the leaders’ decision would be needed.
. .
.
Next
I would like to express my views on preheat temperature: the preheat
temperature in our PQR and WPS are determined in accordance with AWS D1.1, when
T≤65 mm, the minimum preheat and interpass temperature is 65°C; and when
T>65 mm, the minimum preheat and interpass temperature is 110°C. To prevent
the temperature of workpiece from going down quickly after preheating, the
initial preheat temperature needs to be higher at 150°C. The preheat
temperature required by European standard is even higher, when T≤60 mm,
the minimum preheat and Interpass temperature should be 130°C; when 60
mm<T≤ 80 mm, the minimum preheat and interpass temperature should be
140°C. The British client has already lowered their requirements by adopting
the AWS standard rather than the European standard. We might be able to
negotiate if we have done a good job in preheating and no cracking has
occurred, and yet the current on-site situation is that our preheating is far
below the standard and there are many problems - how could they possibly agree
in such circumstances? Besides, January has the coldest weather.
. .
.
Our problem now is how to
attach more importance to preheating and how to strengthen preheating to ensure
welding quality.”
These were remarkably prescient observations.
131.
On 4 February 2009 there was a report of transverse cracks in a repair
to a circumferential weld. This was investigated by the Testing Centre who
confirmed that it was a transverse crack and that it was definitely a cold
crack. The report gave guidance regarding on-site repair. These recommendations
included pre-heating to no less than 150°C and the maintenance of a temperature
of between 220-300°C post welding for approximately 1½ hours “guaranteeing
ample time to spread the hydrogen”. This, of course, was not a procedure
for a critical repair (in other words, where repairs had already been carried
out twice in the same place), but it is of interest that the Testing Centre was
at this point recommending a preheat temperature of no less than 150°C and a
significantly greater post heat temperature.
132.
The report noted that it was clear that the welding preheat work had not
been carried out properly. It said that the “relatively strict weld repair
procedure” that was conducted on the second day should not have led to any
transverse cracks and, “as expected", none were found.
133.
A project coordination meeting was held on 7 February 2009 attended by,
amongst others, Mr Shen Daming and Ms Ma. It said this:
“Due
to the cold weather, cracking can easily occur on weld seams. Currently the
pass rate for repair is low and the huge amount repair is worrying. The quality
of weld repair directly affects production progress . . . After tracking and
making analysis by Mr Shen and other welding engineers on the cracks that
occurred during weld repair, conclusions have been drawn which indicate that
the following four efforts shall be made:
1. Strengthen control on welding process; in
particular, the preheat and interpass temperatures must be strictly controlled
to prevent transverse cracking;
2. As
FCAW wires have a high hydrogen content and wires exposed to the air will
contain moisture which can easily cause cracking, they must be timely stored
indoors after use.”
134.
A further report resulting from the investigations into the transverse
cracking was prepared by the Testing Centre three days later, on 9 February
2009, in which it said:
“In
order to have good welding repair quality, we hereby reiterate several points.
Firstly, each stage in the repair process is critical, especially when the
plates are thick and constraining stress is high. WPS and the repair procedure
must be strictly implemented during on-site construction. Detailed procedure is
attached herein. Secondly, we need to reiterate some matters for your
attention. Please ensure preheating temperature and measures before gouging and
welding; try to use newly unpacked wires in the repair or at least do not use
wires that have been placed in the open air overnight; . . . conduct PWHT after
welding; FCAW is recommended for the first repair while manual metal arc
welding is recommended for multiple repairs in the same area; especially pay
attention to the above matters in outdoor repairs.
In a nutshell, we can
overcome difficulties by working together closely and complete the welding and
repair work with required quality.”
As already mentioned, "PWHT” stands for post weld heat
treatment which involves post heating at a much higher temperature than the
preheat or interpass temperature (at least 480°C and typically above 600°C).
No one has suggested that ZPMC should have used it here and I consider that the
reference to it in this document is probably the result of an error of
terminology or in translation (the document in the trial bundle was translated
by a linguist at ZPMC’s solicitors) and that it simply refers to ordinary post
heating.
135.
Unfortunately, the “detailed procedure” referred to was not attached to
the copy of the report in the trial bundle. However, the body of the report
refers to preheating to a temperature “not below 120°C before welding”.
Repairs were carried out to seven areas, four of which were repaired with FCAW
(but using newly unpacked Supercored 71H) and three using manual metal arc
welding. The former repairs were sound. This, therefore, is some evidence
that a preheat temperature of 120°C, properly applied - as I infer it would
have been since the repairs were being carried out under the supervision of the
Testing Centre - was sufficient to prevent hydrogen cracking.
136.
The Testing Centre produced a further document on 21 February 2009
headed “Notice on Reiteration of Matters for Attention in Wind Farm MPs and
TPs Welding”. This emphasised the importance of proper control of preheat
and interpass temperatures, but it also made two other points of significance.
First, that the preheat temperature was not only to be achieved at least 75 mm
from each weld seam, but also at the “rear side” (which I take to mean the
other side of the plates from that being welded). Second, it said that during
welding “in order to secure adequate interpass temperature, the rear heating
plate shall, instead of being taken down, be continuously supplied with power
for heating". However, there was no reference to keeping the heat
applied for any length of time after the welding was completed.
137.
Whilst I consider that Mr Dove’s reference to post heating to a “temperature
of 230°C minimum to 315°C maximum” being “not required" was
unfortunate, because it could be read as indicating that no post heating at all
was required, it was in one sense correct because it has not been suggested by
any of the experts that post heating to such a high temperature was required
(although ZPMC’s August 2015 tests indicate that post heating to such
temperatures prevents cracking). As Dr Gordon pointed out, post heating to a
temperature equal or below the minimum preheat temperature would be an
attractive course to a contractor in the position of ZPMC because it did not
require requalification.
138.
Ms Ma said in her first witness statement, paragraph 4.15, that:
“It is my belief that in
order to avoid confusion in the workshops as to the repair procedure to be used
in a particular repair, the critical repair procedure was used for all repairs
from 6 February 2009 onwards.”
I am not sure that this takes matters very far because the
underlying weld repair procedures, which concerned the first two repairs that
were carried out in the same place, were not changed. However, if it were
really the case that Mr Dove’s comments had been understood as a general
statement that post weld heat (to any degree) was not required, then I would
have expected there to be documents issued by the Testing Centre or Ms Ma (in
relation to branch company 2) to the effect that applying heat after the
completion of a welding repair was unnecessary. No document has been produced
which reflects such a procedure being implemented. Although I thought that Ms
Ma was a good witness, I think that on this point her recollection is mistaken.
139.
My reason for this conclusion is that Ms Ma’s recollection as to what
happened is quite unsupported by the contemporaneous documents and reports to
which I have already referred together with those to which I refer below. It
is quite clear to me that by early 2009 ZPMC was aware that a better way of
applying heat was by the use of heating bands that were applied to the opposite
side of the plate to that being welded. Further, it was appreciated that it was
beneficial to keep the bands switched on for a couple of hours after the
conclusion of the welding or, at the very least, to leave them in place as a
form of insulation in order to retard the rate of heat loss in the area of the
weld repair. This is quite inconsistent with any reliance on Mr Dove’s
comments.
140.
I am therefore quite unpersuaded that Mr Dove’s annotations on the
proposed critical weld repair procedure made any material difference to the
procedure actually adopted when carrying out repair welds from then onwards.
141.
It is worth adding that, by 3 February 2009, the state of completeness
of the welding on Shipment Nos 1 to 3 was as follows: approximately 97% of
Shipment No 1, about 60% of Shipment No 2 and about 27% of Shipment No 3.
142.
In the first report of Fluor’s welding/metallurgy experts (Dr Dolby, Dr
Hamre, Dr Howse and Mr Marlow) they said, at paragraph 3.1:
“We have never come across so
many defects of such a serious nature in our many years of experience in
welding. With respect to good quality and workmanship, the work in Shanghai on shipments 1-3 was significantly worse than normally encountered in steel
construction.”
In his report in reply, dated 18 December 2015, Mr Robert
Teale, ZPMC’s welding engineering expert, said, at paragraph 4.5 and 4.6:
“4.5 Even
Fluor’s expert John Marlow stated “I have never encountered this extent of
hydrogen cracking in fabrication in my experience”. Neither have I, which
immediately leads me to believe that this just could not be due to workmanship
issues.
4.6 Cracking is not a
common flaw and transverse cracking is very rare. If there was a significant
and widespread problem, it is a clear indication that the cause is way beyond
simple issues with preheat, interpass temperature o(r) flux recycling control
issues on the shop floor.”
143.
So, whilst Mr Teale was perhaps seeking to exonerate the welders on the
shop floors, he was in agreement with the view that the extent of the hydrogen
cracking at Shanghai was unprecedented. In fact, both Mr Marlow and Mr Teale
agreed that the cause of the hydrogen cracking was in the nature of a systemic
problem rather than just an isolated case by case problem. Mr Teale emphasised
that the fact that hydrogen cracking was so rare meant that if it occurred on a
systemic basis something must be wrong with the process or the nature of the
welding consumables being used: it could not be down to errors by individual
welders (Day 17/16). The real difference between the approach of Mr Marlow and
Mr Teale was that the former regarded the application of an incorrect or
inappropriate welding procedure to be a workmanship problem. That may or may
not be right, but in my view in the context of this case that distinction does
not matter.
144.
Turning to observations that were made at the time, in his witness
statement, at paragraph 4.2, Mr Dove said:
“In my view, based on what I
saw of ZPMC’s welding in 2008, ZPMC had a total disregard for weld quality.
They broke every fundamental welding rule in the book and did not heed or adopt
any suggestions/recommendations made by many industrial experts that would lead
to a significant improvement in weld quality. In fact, the welding at ZPMC
could be described as being ‘out of control’.”
145.
Although perhaps overstated, it reflects in part what he said in a
report dated 21 January 2009, following a visit to Changxing earlier that month
by him and Mr Hardie, Fluor’s European Regional Manager, Expediting and
Supplier Quality Surveillance. For example:
“There was an[d] extremely
wide variation in weld quality between workshops, ie some welding was of an
acceptable standard, whereas other workshops produced an extremely low,
unacceptable, weld quality.”
And:
“Inadequate preheating was
observed on the thick wall flange fabrication, ie the pyrometer was applied to
the heated surface, and not on the reverse side to where the heating was being
applied.”
This comment refers, as it says, to the welding of flanges
and not to the circumferential welds which have been the focus of investigation
at this trial. But it makes the point that where thick pieces of steel were
being welded, it was necessary to measure the temperature on the opposite side
of the plate to that to which the heat was being applied.
146.
The report noted that a testing programme had been introduced for
welders and that, of about 300 welders tested, 58 had failed. In addition, it
recorded that Mr Hardie was very critical of the SQS welding inspectors
retained by Fluor who, he said, had to improve “their proficiency and
diligence”. However, in mitigation of that criticism it went on to note that
currently those inspectors had been working a 77 hour week and monitoring up to
16 welding stations each, which was unacceptable. Unsurprisingly, it was
concluded that more welding inspectors would have to be employed.
147.
The report contained the following summary:
“Although
significant improvement in the weld quality of the welding on the MPs and TPs
has been achieved, there is still an enormous amount of work still to do ie.
Many
welders, who produce welds that are barely acceptable, will need additional
instruction and guidance on how to improve their welding.
Welders
who produce poor welds must be removed.
Welder
testing is ongoing.
More
good quality welding inspectors are needed.
SQS Inspectors working week
needs to be reduced.”
148.
A note of a meeting between Mr Dove and Mr Hardie and representatives of
RWE that took place on 3 February 2009 recorded that Fluor told RWE that “Quality
is vastly better now than it was in the beginning”.
149.
Whilst one needs to make some allowance for the exigencies of litigation
when considering the contents of witness statements, I see no reason to
question the criticisms that Mr Dove and Mr Hardie made at the time of their
visits to Changxing in late 2008 and early 2009. It is quite clear to me that
at the start of this project ZPMC was on a very steep learning curve. Indeed,
ZPMC itself accepted as much in a letter dated 12 August 2009, when it said:
“1. ZPMC expressed regret for welding problems of
the first shipment Mono Piles. But ZPMC will go all out to take remedial action
and cooperate with Fluor [in] the repairing activities.
2. The
loss from the first shipment is due to lack of experience and under estimate,
so ZPMC has some responsibility and ZPMC could share partial responsibility.”
150.
The position was aggravated by the fact that, for largely economic
reasons, ZPMC’s primary resource for achieving output was manpower rather than
automation. This observation is not intended as a criticism; it is simply a
statement of fact.
151.
The experts were agreed that QIS, who carried out testing at Vlissingen, reported a large number of unacceptable transverse indications and some
unacceptable longitudinal indications. The experts believed that a proportion
of these were transverse hydrogen cracks.
152.
The experts were also agreed that extensive transverse indications would
imply a high probability of hydrogen cracks as in this case: see their answer
to question 3(a) of the joint statement. They agreed also that DNV-C-401
(2004) Table 5 stated that cracks are not acceptable, regardless of size or
amplitude. However, I understood it to be ZPMC’s case that this agreement was
either subject to a qualification or was based on a misreading of what the
standard actually said.
153.
However, it was agreed unequivocally that the indications which were
identified at Vlissingen reasonably justified a further investigation, although
the experts were of the view that at the same time a coherent recovery plan
should have been developed (question 5). I accept this conclusion and agree
with it.
154.
So far as hydrogen cracking is concerned, the experts noted the
following factors as giving rise to hydrogen cracking (question 8):
(1)
The presence of hydrogen
introduced by the welding process and the presence of contaminants, such as
water, oil, grease and rust (if it contains moisture).
(2)
A susceptible microstructure.
(3)
Tensile stress, including both
residual and applied stress. It was not in dispute that tensile stress will be
highest where there is a high degree of restraint of the materials being
welded.
The experts agreed also that increasing weld metal
strength increases the risk of hydrogen cracking. Hydrogen cracks generally
form within 48 hours after welding.
155.
I consider that all of the experts who gave evidence were eminently well
qualified to do so. In relation to metallurgy, I found Dr Dolby to be an
impressive witness, as was Dr Gordon, although I felt that once or twice the
latter came a little close to adopting the role of an advocate (see, for
example, Day 18/17).
156.
In relation to welding, I thought that both Mr Marlow and Mr Teale were
very good experts, each of whom had enormous experience.
157.
Both Mr Marlow and Mr Teale agreed that the extent of the transverse
cracking was the result of a systemic problem (Day 17/14). In a similar vein,
Dr Gordon said that there appeared to have been a systemic problem with the
FCAW repair welds because they were so extensive, and Dr Dolby agreed with him
(at Day 18/23).
158.
So far as the prevention of hydrogen cracking is concerned, the experts identified
three further factors of particular relevance. First, that there should not be
an excessive overmatch between the strength of the weld material (from the
consumable) and the strength of the base metal. Second, welding consumables
should be stored in clean, dry and warm conditions and so as to minimise
contamination with water and dirt. Such contamination could be directly
responsible for hydrogen in the welds. Third, preheating reduces the rate of
cooling of the weld metal and adjacent metal, and this allows a longer time for
the hydrogen to diffuse out whilst the temperature is sufficiently high for it
to do so. It was agreed that high-energy welding processes, such as SAW
(submerged arc welding), generally require less preheat than FCAW (flux cored
arc welding).
159.
An additional aspect of the role of the consumables that was explored
with the experts at the trial was the choice of the flux cored wire used in
FCAW repairs. The wire used by ZPMC, Supercored 71H, was described by its
manufacturer, Hyundai, as a titania flux cored wire. The notes on usage
included the statement:
“Proper preheating (50~150°C)
. . . and interpass temperature must be used in order to release hydrogen which
may cause cracking in weld metal when electrodes are used for medium and heavy
plate.”
160.
It was Dr Dolby’s view that in high restraint repair situations you
would need a preheat temperature of 150° C - in other words at the top of the
quoted range (Day 18/101). Dr Gordon’s response to this was to point out that
the tests carried out by ZPMC in August 2015 showed that when preheating to
150°C was carried out, it did not prevent the occurrence of hydrogen cracks.
Mr Teale pointed out that he understood that this was done at Vlissingen and it
still did not work (Day 17/23). I will have to return to each of these last
points.
161.
Both Dr Dolby and Dr Gordon agreed that the use of the Supercored 71H
was a factor that contributed to the hydrogen cracking. There were three
reasons for this, the first of which was its relatively high hydrogen content.
This was nominally a maximum of 8 ml/100 g. However, this complied
with Fluor’s specification and is classified as “low” hydrogen, and so there
can be no question of its use being in breach of contract.
162.
ZPMC tested a sample of the Supercored 71H during the course of the
August 2015 tests and found that the diffusable hydrogen content of a newly
unpacked sample was 7.0 ml/100 g. When Dr Gordon wrote his first report he was
under the misunderstanding that the Supercored 71H had an H5 classification,
and so he commented that “even a small increase” - which he took to be 2
ml/100 g - can “increase the susceptibility to weld metal hydrogen cracking”.
163.
An additional factor was that, as both experts agreed, in 2008/2009 the
wire was constructed as a folded tube (as opposed to a sealed tube) and was
therefore more likely to pick up moisture than a sealed tube, which is how Dr
Dolby assumed that the wire would have had to have been constructed if it was
to contain hydrogen to a level below 5 ml/100 g (Day 18/36). This meant that
particular care would have to be taken in storing and handling the wire in
order to minimise its exposure to moisture.
164.
Mr Teale said in evidence that there was “something a little bit
special about this consumable” and “I think we have a different
consumable that has caused the problem” (Day 17/23). However, it was not
clear from this answer whether he was referring to the level of diffusable
hydrogen in the consumable or to one of the other factors.
165.
The second reason is that the Supercored 71H contained a high boron
content. This increased the susceptibility to cracking (Dr Dolby at Day 18/97,
Dr Gordon at Day 18/104, 106). There was some difference between the experts
as to the reason for this. Dr Dolby’s view was that it increased the tensile
and yield strength of the weld metal and therefore was a factor moving in the
wrong direction in terms of hydrogen cracking (Day 18/97). In short, he agreed
that the presence of boron in the consumable increases susceptibility to
hydrogen cracking (Day 18/97-99).
166.
Dr Gordon’s view was that the presence of boron increases weld metal
hardness which in turn increases its susceptibility to hydrogen cracking. His
view was that the deliberate addition of boron to weld consumables can
significantly reduce the critical diffusable hydrogen needed for weld metal
hydrogen cracking (page 46, first report).
167.
However, fortunately I do not have to resolve this difficult academic
debate since both experts were agreed that the addition of boron to the
consumable increases the susceptibility of the weld metal to hydrogen cracking:
the precise mechanism for this does not have any relevance to the issues that I
have to determine. There was no indication from the manufacturer of Supercored
71H as to its boron content and it is not, and could not be, Fluor’s case that
by using that consumable ZPMC was in breach of any term of the contract.
However, it is Fluor’s case that ZPMC should have been aware of the advice in
relation to preheat temperature that I have already mentioned, the implication
of which was that in a high restraint situation a preheat temperature at the
top end of the range quoted should be specified.
168.
The third reason is that the weld metal in the Supercored 71H consumable
used in the FCAW repairs was stated to have a typical tensile strength of 570
MPa. This was higher than the required minimum tensile strength of 483 MPa for
the relevant weld metal classification (E7 in the case of Supercored 71H). The
specified minimum tensile strength of the base steel was 470 MPa, so, as Dr
Gordon observed, on paper the consumable appeared to be a good choice.
169.
In fact, the measured tensile strength of the weld metal from samples
taken from repair welds was significantly higher than its stated minimum
strength, which, according to Dr Gordon, resulted in an overmatch of about 20% above
the specified minimum tensile strength of the base steel.
170.
Dr Gordon said that whilst the 20% overmatch would not normally be
considered excessive, in this case the increased strength of the metal in the
FCAW repair welds could give rise to stresses in excess of 550 MPa, which was
the stated yield strength of the weld metal.
171.
Fluor’s experts made a different point, namely that the yield strength
of typical weld repairs made using Supercored 71H, which varied between 494 and
574 MPa, greatly overmatched the base plate yield strength (325 MPa). This, in
their view, was a main factor leading to high longitudinal residual stress
levels in repairs. In evidence, Dr Dolby said that the Supercored 71H
overmatched the base metal in tensile strength by at least 35%, and by 65% in
terms yield strength. He described this as “a massive overmatch"
(Day 18/45).
172.
However, in the end, the difference between the experts was one of
degree. In his reply report Dr Gordon agreed that the high strength of the FCAW
repair welds could have contributed to the transverse weld metal hydrogen
cracking. He made the point that the strength of the weld metal was very
sensitive to the cooling rate: as the cooling rate increases, so the tensile
properties of the weld metal will increase.
173.
As I have mentioned, Mr Teale said that his initial impression would
have been that preheating to a temperature of 150°C ought to have been
sufficient to prevent cracking. However, his understanding was that a preheat
temperature of 150°C was used in Vlissingen without post heat and, as he
understood the position, did not work so that there must have been some other
factor in play. He said that what was necessary to prevent the cracking was
the application of post heat after welding up to a temperature of about 200°C,
which is what did work at Vlissingen (Day 17/17-18). By contrast, Mr Marlow
said that in his experience of some 25-30 offshore projects it had never been
necessary to apply post heat for offshore structures, and that preheating to a
temperature of 150°C was always sufficient (Day 17/19). It was Mr Marlow’s
view that preheating to a temperature of about 150°C should have been
sufficient in Changxing if it had been done correctly. In addition, he thought
that poor control of consumables was also a factor. Mr Teale disagreed because
satisfactory consumable control had been achieved at Vlissingen without
successfully preventing cracking. It was the composition of the consumable -
the Supercored 71H - that in his view was one source of the problem (Day
17/23).
174.
To an extent Mr Marlow agreed with this, because he said that the
consumable had a level of hydrogen that was higher than he would have expected
to see and that the flux inside the wire was also likely to attract moisture
(Day 17/40). However, his view was that the principal cause of the problem was
the fact that the ZPMC welders were preheating with gas torches to the same
side of the plate as that from which the welding was to be done (Day 17/45-46).
When asked about the tests carried out by ZPMC in August 2015, Mr Marlow said
that they suffered from the same problem. A little later, during
cross-examination, Mr Marlow said this (at Day 17/50-51):
“When preheating is done from
the backside, for example, correctly with electrical heating mats, or with a
gas manifold or gas burners, then that heating would be maintained throughout
the welding repair process, or the welding process. Whereas if a welder
preheats with a torch, he may say, with his Tempilstik, “That has reached 110°C,
I can start welding”, one minute that temperature could drop to 40, 50, 60°,
because the heat has not soaked through the thick section of material, and that
acts as a massive heat sink. It pulls the heat away from the surface.”
175.
Mr Marlow agreed that there was no requirement in the procedures that
ZPMC had to follow for the temperature to be measured on the opposite face to
that to which the heat was being applied: however, he said that if you did not
measure it on the opposite face you would get into trouble (Day 17/53). Mr
Teale said that the tests carried out by ZPMC showed that cracking could be
prevented either by using a very high preheat temperature - perhaps 180° or
200°C - or by applying post-weld heat. However, as he had pointed out in his report,
he said that welders could not be expected to work under conditions where the
surface on which they were welding was at a temperature of 200°C.
176.
Pausing here, whilst I have no hesitation in accepting Mr Teale’s
evidence about this, it does not really answer the point. If, for example, in
order to achieve a required minimum preheat temperature throughout the
thickness of the metal of 150°C, it was necessary to have a temperature of the
order of, say, 180°-200°C at the surface to which the heat was being applied,
then the obvious solution would be to apply the heat to the opposite side of
the plate to that being welded. The other difficulty with applying heat to the
surface being welded and measuring the temperature at the same surface is the
point made by Mr Marlow, which I accept, namely that it gives little indication
of the temperature gradient through the thickness of the plate, particularly
after the gas torch has been removed.
177.
Dr Dolby described the process of heating the surface of the plates to
be welded as creating a shallow bowl of heat under the area to which the heat
is applied. But he said that if the plates are heated from the side opposite to
that from which the welding is being done there has to be a much deeper bowl of
heat in order to achieve the required temperatures at the surface being
welded. When put like this, it is obviously correct and Dr Gordon agreed with
it. However, Dr Gordon went on to say this (Day 18/16):
“. . . I think the issue here
is not so much how the pre-heat was applied in terms of what was actually
required, so there is no requirement to heat from the backside. That might be
considered best practice, but it is not actually a requirement. So if you look
at the codes and you look at the Fluor specification, both of those are silent
in terms of how heat treatment, post or pre-heat should be applied. With that
in mind, I think ZPMC adopted a practice that is common and fairly standard
throughout the industry, and, you know, the alternative of heating from the
backside might be considered better practice but it was not required.”
This, of course, begs the question of what it was that ZPMC
was required to achieve. As Dr Gordon rightly points out, both the WPS and the
specification were silent about the methods of applying the preheat.
Accordingly, for the reason that I have already given, as a matter of principle
it was for ZPMC to adopt a method of preheating that would achieve the
temperature requirements laid down by the code and, all other factors being
satisfactory, would produce a sound weld.
178.
What has to be heated is the base metal, which is defined in AWS D1.1,
at Annex K, as the “metal or alloy that is welded . . .".
Section 5.6 of the code, which is headed “Preheat and Interpass Temperatures”,
states that “base metal shall be preheated, if required, to a temperature
not less than the minimum value listed on the WPS”. It is clear from these
provisions that it is all the base metal in the area being welded that has to
be preheated.
179.
Section 5.6 then goes on to say this:
“This preheat and all
subsequent minimum interpass temperatures shall be maintained during the
welding operation for a distance at least equal to the thickness of the
thickest welded part (but not less than 3 in [75 mm]) in all directions from
the point of welding.”
180.
The meaning of this was a source of acute disagreement between Dr Dolby
and Dr Gordon. Dr Dolby said that 75 mm in all directions meant that if the
plate was 75 mm thick and heated from the front, the required preheat
temperature would have to be achieved at the surface on the other side of the
plate at the line of the weld. Dr Gordon said that his reading of the code
would be that it meant 75 mm “in either width or length around the repair to
be welded, but not necessarily the through-thickness direction" (Day
18/18-19). In other words, Dr Gordon was saying that the dimension of 75 mm
applied only in all directions in the plane of the surface of the plate,
whereas Dr Dolby was saying that it meant in all three dimensions. However, at
times Dr Gordon did not appear to distinguish between the points at which the
temperature would be measured and the points where the required temperature was
to be achieved: more than once he said that there would be situations where one
could not measure the temperature on the other side of the plate: see, for
example, Day 18/25-26, and 27.
181.
A similar argument was developed by Mr O’Sullivan in ZPMC’s written
closing submissions. Paragraph 681.2.3 said this:
“It makes no sense to read
the Code as requiring one to measure the temperature a minimum of 75mm away
from the point of welding in a through thickness direction. That could only be
done if, for example, the steel was at least 80 mm thick and the repair no
deeper than 5mm. Most of the time it would simply be impossible.”
182.
In my view, this submission also confuses measurement with the
achievement of a required temperature throughout a particular region of the
base metal. The relevant paragraph of the code says nothing whatever about the
means of measuring the temperature, it is concerned solely with specifying the
region of the base metal that has to be heated.
183.
Mr O’Sullivan’s ingenious response to this objection in the course of
argument was to submit that this was taken into account by the requirement to
heat the base metal to a given distance, 100 mm, measured horizontally, from
the weld. Implicit in this submission was, I think, an assumption that the
greater the area of the surface that was heated, the greater the depth to which
the heat would penetrate. But in my view this is doing no more than explaining
why there is a “bowl” of heat as described by Dr Dolby. It follows, as a
matter of common sense, that if a substantial area of a sheet of metal is
heated by a torch applied to one surface, the rate of loss of heat into the
surrounding base metal at a given depth will be lowest in the centre of the
area being heated - simply because at that point the base metal on either side
is also hot so that the heat sink is limited principally to the base metal below
the centre.
184.
On this point I unhesitatingly prefer the evidence of Dr Dolby, which in
effect echoed that given by Mr Marlow. This is for the following reasons.
First, the purpose of preheating the base metal is to retard the rate of
cooling of the weld metal after it is deposited (as both Mr Marlow and Mr Teale
agreed: see Day 17/21-22). It is also clear from the evidence that temperature
is the most influential variable in determining the rate of diffusion of
hydrogen. It follows, therefore, as the code requires, that all parts of the
base metal in the vicinity of the weld must be preheated, not just the
surface. Indeed, Dr Gordon said (Day 18/26-27): “I think as the thickness
increases, the heat sink potentially increases so it is important, then, to ensure
this you have a broad and long enough area pre-heated to the right temperature".
He made a similar point at Day 18/28-29. This, I find, was an implicit
acceptance of Dr Dolby’s bowl analogy.
185.
Second, if “in all directions” means all directions in the plane of the
surface of the steel plate, then it is hard to see why the required distance
must be at least equal to the thickness of the thickest welded part. Although
“thickness” is not defined in this part of the code, both counsel and experts
proceeded on the assumption that it referred to the depth of the weld (or the
plate, if it was a full thickness weld): see Day 18/26 (Mr Brannigan and Dr
Gordon) and Day 18/30 (Mr O’Sullivan).
186.
Third, there is evidence that atomic hydrogen is deposited differentially
at different depths in the weld. The hydrogen and oxygen present in the air as
water become separated into their atomic states by the heat of the arc (see,
for example, Mr Marlow, at Day 17/39; Mr Teale at Day 17/67). The atoms of
hydrogen are the smallest of the elements and can diffuse through the lattice
structure of steel, the rate of diffusion being very dependent on the
temperature. In his first report Dr Gordon said that chevron cracks are
generally buried in that they do not extend to the surface: page 38, paragraph
8.2(2). This, he said, is partly the result of the hydrogen gradient in the
weld, which decreases close to the surface, and partly because of the reduced
residual stresses at the surface. According to Dr Gordon there is a trend for the
maximum diffusible hydrogen concentration to be in the central third of the
weld, decaying as one moves towards the surfaces. Increasing the pre-heat from
20°C to 100°C produces a significant reduction in the diffusible hydrogen
level. All this suggests that there is as great a need, if not a greater need,
to preheat the base metal at lower depths in the weld than at shallow depths.
187.
Fourth, in my view there is no warrant for limiting the words “in all
directions” to all directions in the plane of the surface of the plate at the
side being welded. The considerations that I have set out above seem to me to
point firmly in the opposite direction. Mr O’Sullivan’s points might have had
some force if the code had said that the temperature had to be “measured” at a
given distance in all directions from the point of welding, but it does not say
that.
188.
There are at least three methods of applying preheat to the base metal
prior to welding. The first is the use of a gas torch with what is known as a
“rosebud” head so as to provide a flame over an area. This is often used by the
welder and so the heat will be applied to the surface being welded. This was
ZPMC’s general practice during the early months of manufacture, and may well
have persisted well into 2009. The second is the use of gas burners with
several heads which, in an application such as this, would be configured to
follow the contour of the surface of the plate. The heat would be applied to
the surface opposite to that being welded. I have seen no evidence that ZPMC
made any or at least any significant use of gas burners on this project. The
third is the use of electric bands or pads, which are usually applied to the
opposite surface from that being welded. In an ideal world these would be
thermostatically controlled, but those used by ZPMC did not incorporate
thermocouples and so they had to be regulated manually.
189.
Dr Dolby and his co-experts criticised the use of handheld gas torches
because, without close supervision, they could produce regions under the area
being repaired that would be significantly cooler than the temperature at the
surface. By contrast, they said, if preheat was applied to the surface
opposite from that being welded there would be a much more uniform heat distribution
through the plate thickness underneath the repair groove so that the heat sink
effect would be negligible (Reply Report, page 5). I accept this evidence.
190.
In relation to the use of handheld gas torches, it seems to me that the
combination of the high dependence on the skill of the operator and the risk of
not heating a sufficient volume of the base metal in the plates makes it likely
that, in a fabrication operation the size of this one, there would be many
instances where the preheating of the base metal prior to welding would be
either insufficient or uneven. I consider that this often happened during the
first six months or so of fabrication (October 2008 to March 2009, perhaps
longer). Aggravating factors during this period - being the winter months -
would have been low ambient temperatures (making the base metal much colder)
and high humidity levels with consequently greater availability of hydrogen
from the atmosphere.
191.
A conclusion that preheating was often erratic is, in my view, supported
by references in the documents to the difficulties encountered by ZPMC in
carrying out satisfactory repairs to welds, concerns about the adequacy of the
preheating and references to the steps that should be taken to improve the
quality of the preheating and to retain the heat after completion of the
welding. For example, in addition to the documents to which I have already
referred, there were the following:
(1)
28 December 2008: a disciplinary notice signed by the Vice President
Production and Ms Ma which was issued in relation to poor welding of two
circumferential seams where a preheat temperature of only 44°C had been used,
instead of the minimum stipulated in the WPS of 110°C. It went on to say that:
“. . . the quality inspection
department has emphasised many time(s) that: welding must be performed strictly
in accordance with the WPS requirements. If the pre-heat temperature did not
reach the WPS requirement, it tends to produce defects and increases welding
repair volume . . . ”
(2)
7 February 2009: minutes of a project coordination meeting presided over
by Li Jianghua, the Project Manager, recorded that the project was in “a
difficult situation”. It was attended by representatives from each branch
company and Mr Shen Daming (who was in charge of the Testing Centre). It stated
that in cold weather cracking could easily occur on weld seams, that the
current pass rate was low and that the “huge amount” of repair was
worrying. Every effort was to be made to address the issue of repair quality:
in particular, there was to be strengthened control over the welding process so
that preheat and interpass temperatures were strictly controlled so as to
prevent transverse cracking.
(3)
9 February 2009: an extract from the notebook of Mr Chu Xiangjun, the
Production Manager of branch company 3, which was to the following effect:
“Now,
when we repair, hang the electric pre-heated plate over the opposite side, the
entire process is undergoing heating. 2 hours after welding completed, cut off
the electric plate, hugely reduced the production of crack.”
(4)
A report from the Testing Centre dated 10 February 2009 following the
discovery of transverse cracks in branch company 3. I have already quoted the
relevant passage but, for convenience, I shall set it out again:
“In order
to have good welding repair quality, we hereby reiterate several points.
Firstly, each stage in the repair process is critical, especially when the
plates are thick and constraining stress is high. WPS and repair procedure must
be strictly implemented during onsite construction. Detailed procedure is
attached herein. Secondly, we need to reiterate some matters for your
attention. Please ensure preheating temperature and measures for gouging and
welding; try to use newly unpacked wires in the repair or at least do not use
wires that have been placed in the open air overnight; try not to make the
repair groove too narrow and too deep, and ensure the shape coefficient;
grinding the carburized layer till it turns metallic lustre before welding;
properly control the parameters in the welding, adopt multi-layer and
multi-pass welding; conduct PWHT after welding; FCAW is recommended for the
first repair while manual metal arc welding is recommended for multiple repairs
in the same area; especially pay attention to the above matters in outdoor
repairs.”
In general, the longitudinal seams on the cans for the
monopiles and the work to the transition pieces was carried out indoors.
However, much of the welding of the circumferential seams was carried out in
the open air - hence the last phrase of the passage quoted above.
(5)
The “Notice on Reiteration of Matters for Attention in Wind Farm MPs and
TPs Welding” dated 18 February 2009 that I have already mentioned.
(6)
21 February 2009: an internal e-mail to Mr Chu noted that:
“In the morning,
57 transverse cracks were found beyond the acceptance criteria in the MP
[reference] six circles butt which need to be repaired . . . More than 20 areas
found beyond acceptance criteria in T026-3-67 circles butt are all transverse
cracks need to be repaired . . . ”
Mr Chu replied
emphasising the need to follow the welding process strictly and that the
electric heating plate “shall be hung high for the welding and post heating”.
(7)
23 March 2009: an e-mail from Li Ruixiang, ZPMC’s Vice General Manager for
Quality Assurance, asked Mr Shen Daming to carry out a technical analysis into
the problem of surface cracks in circumferential welds.
(8)
25 March 2009: a report addressed to Shen Daming on surface cracks in
circumferential seam welds (presumably the response to the previous document)
contained the following recommendation:
“Comply
strictly with WPS. Use electric heating to preheat each weld seam. The weld
width shall be controlled at around 16 mm. After completion of the welding, use
non-alkali bulk fabric to wrap the weld surface and vicinity tightly to make
them cool down slowly.”
Ms Ma pointed out
that these references to surface cracks were to something different from
transverse cracks (Day 13/114). Whilst I do not doubt her evidence on this, the
point that emerges from these documents is the persisting concern with the need
to carry out proper preheating and, in this case, taking steps to retard the
rate of cooling after welding.
(9)
25 March 2009: an e-mail from the Production Manager of branch company 2
to, amongst others, Ms Ma, which noted that the welding pass rate was still the
biggest problem with the circumferential seam welds. Ms Ma’s instruction sent
on the following day emphasised the need for proper storage of welding
materials, pre-heating and other matters. Again, Ms Ma emphasised in evidence
that this was not concerned with transverse cracking (Day 13/117-118).
However, it is another example of ZPMC’s junior management issuing instructions
with a view to improving working methods and, in particular, the need for
proper preheating.
(10)
A document issued by ZPMC’s Wind Power Project Team to every department
and every work team at Changxing dated 22 May 2009
said this:
“The current existing
phenomena: 1) The work teams do not manage strictly, and do not pay attention
to the protection and maintenance of the heating equipment, the heating bands
are often damaged cannot be used normally; 2) during can rotation in the can
heating process, the heating bands deviate and are not adjusted promptly, the
temperature control is not strict; 3) The welders who perform the work do not
pay attention to the welding temperature, perform welding casually before
reaching the welding temperature and do not promptly report the issue of
insufficient temperature . . .”
(11)
23 May 2009: an internal ZPMC e-mail from Chu Xiangjun, the Production Manager
of branch company 3, to the Project Manager and copied to many others,
including Mr Liu, Ms Ma and the Testing Centre, contained the following
statement:
“In
relation to cracks, our company 3 already discovered transverse cracks while
shipment 1 manufacture, under the guidance of welding lab, the measures we
adopted for procedure are as below, the preheat for repair welding is top priority,
the electric heating bands place on the opposite side of the repair welding
positions, the electric heated bands are always in the heated status during the
whole welding process, after completion of welding, continue the heat for 2
hours; for inspection, perform transverse cracks inspection by probes riding on
the welds for all repairs, discovered hundreds of transverse cracks one after
another, arrange repair by work teams in the workshop for these cracks . . .
Recommend company 1 and company 2 in relation to all repair positions of the
welds in shipment 4, perform overall transverse cracks inspection before FLUOR
third party random inspection.”
(12)
3 June 2009: a further e-mail from Chu Xiangjun, which concludes with a
request for assistance in the light of the fact that in January and February
many of his inspectors had fallen ill through exhaustion and that he had
reported the transverse cracks issue to the Welding Research Unit and raised it
many times during the daily meetings. Ms Ma was asked about this, and said
that although she did not remember those meetings very clearly, she did not
think that Mr Chu had raised the question of transverse cracks as often as he
suggested in this e-mail (Day 14/10-11).
(13)
16 June 2009: this was of the report of a specialist team set up by ZPMC
to carry out an analysis of the cracking problem. The report noted from
tracking the course of repairs that when the procedures were properly followed,
which included both preheating in accordance with the WPS and post heating in
accordance with the Welding Repair Procedure requirements, there was no
transverse cracking problem in repaired areas, and that first time pass rates
were 88%. It was also noted that inspection pass rates were much higher for
first-time repairs than for multiple repairs.
192.
The report of 16 June 2009 provides substantial support for the
proposition that if preheating was properly carried out and heat was applied
after welding, the appearance of transverse cracks could be, if not actually
eliminated, very significantly reduced. From what I have seen and heard of the
witnesses as a whole, I have formed the view that ZPMC was a company which, at
management level at least, had a well entrenched ethic about the achievement of
quality, even though its approach was to solve problems by introducing
additional manpower and, if necessary, imposing disciplinary sanctions for
non-compliant work, rather than by investing in new and up-to-date equipment.
193.
A number of witnesses called by ZPMC to whom these documents were put
sought either to disparage the qualifications or experience of the authors or
to cast doubt on the reliability or apparent meaning of their contents.
I was unimpressed with this. It was, I am afraid to say, an example of loyalty
to the company displacing loyalty to the truth.
194.
It was common ground that the application of post heat at a temperature
lower or equal to the minimum preheat temperature would not require
requalification of the WPS, and both Dr Dolby and Dr Gordon agreed that this
could have been achieved by the use of electric pads (particularly if they had
a thermostat): see Day 18/119-120. However, Dr Dolby had reservations about
ZPMC’s ability to maintain proper temperature control during post heating over
a two-hour period if it had to be done by manual observation. I am quite sure
that is a problem that ZPMC would have overcome if they had seen the need for
it.
195.
Dr Gordon said in section 3.3 of his report in reply, at paragraph 5):
“In
my view, as noted in my first report, there is a greater risk of hydrogen
cracking occurring in thick section repair welds rather than normal
production welds due to:
· The potential for increased diffusable hydrogen
in repair welds due to the shorter time between consecutive weld passes.
· A high level of constraint in repair welds that
can result in very high residual stresses.
·
Increased heat sink that can
result in fast cooling rates, which can result in increased hardness and
increased strength and reduce the potential for hydrogen to diffuse out of the
repair weld.”
196.
In their reply report, Fluor’s welding/metallurgy experts said, at
paragraph 7.1:
“Temperature is a more
important factor than elapsed time for the diffusion of hydrogen and it is
difficult to be certain that hydrogen build up is a key factor in repair
welds.”
197.
In evidence, in answer to my questions, it became obvious that the
difference in opinion between Dr Dolby and Dr Gordon on the first of the three
bullet points was one of emphasis, because both experts accepted that the rate
of hydrogen diffusion was a function of both temperature and time (Day
18/9-14), and that temperature was more important than time (see Dr Gordon, at
Day 18/116). However, in repair welds the two factors worked in opposite
directions: the shorter time between passes provided less time for the
deposited hydrogen to diffuse, whereas the higher temperature which resulted
from the weld material being put down repeatedly in a confined space would
increase the rate of hydrogen diffusion. But one thing that was quite clear is
that the higher the temperature and the longer the period for which the
temperature was maintained, the greater the rate of diffusion of hydrogen out
of the weld material.
198.
I have already mentioned the concerns about the application of preheat
at Changxing, that on 4 February 2009 transverse cracks were found on the
circumferential welds at Small Changxing and that the Testing Centre carried
out various tests in order to investigate the cause. One aspect of the process
that was tested was the use of the consumables and investigation of the extent
to which exposing the consumables to the atmosphere prior to use made a
difference. Four of the areas where cracks had been found were repaired with
FCAW, using newly unpacked Supercored 71H. The Testing Centre’s conclusion –
set out in a note dated 10 February 2009 - was that it was relatively easy to
produce good welds, including weld repairs, as long as the procedures were
properly carried out. Several aspects of the welding procedure were
emphasised, including the need to achieve the correct preheating temperature,
not using wires that have been left in the open overnight and carrying out post
heating after welding.
199.
An extract from the notebook of Mr Chu Xiangjun, dated 9 February 2009,
referred to the use of electric pads hung over the side opposite to the surface
on which the welding was being carried out which were then left on for 2 hours
after welding. This, he noted, hugely reduced the production of cracks.
200.
Following the tests carried out in early February 2009, the Testing
Centre produced a short report dated 18 February 2009 which contained the
following extract:
“Operations shall be in
strict accordance with the WPS requirements, with not only preheat temperature
but also interpass temperature properly controlled. Electrical preheat method
shall be adopted as far as possible for preheat, and it shall be ensured that
the preheat enables the area within at least 75 mm from each weld seam
(including the rear side and each side of cross joints) in work piece to
achieve the preheat temperature and interpass temperature requirements. During
welding, in order to secure adequate interpass temperature, the rear heating
plate shall, instead of being taken down, be continuously supplied with power
for heating."
201.
It is, perhaps, a little surprising that this report said nothing about
post heating, although that may be implicit in the last sentence of the passage
quoted above. What is instructive is that it refers to achieving the preheat
temperature on the rear side of the plates.
202.
On 21 May 2009 Ms Ma issued the Notice in the name of the Special Task
Group for Wind Power Project entitled “Regulations on Strict Implementation on
Pre-welding Heating and Post-welding Insulation of the Wind Farm Project",
to which I have already referred. It was addressed to all departments and
construction teams. The opening paragraph pointed out that the project involved
a large volume of work, with thick sheet metal and requiring a demanding
welding quality. It said that:
“The key to the success is
the correct use of heat process and a strict control of preheat temperature,
and inter-pass temperature, and insulation of post-welding. Improper control of
temperature may affect the welding quality, even lead to cracks. Currently
instances of no heating before welding and improper preheat temperature still
frequently occur. Although the quality department has repeatedly dealt with
this deadly chronic problem and penalty is enforced accordingly, yet the effect
is minimal. Recently Fluor issues 5 NCR one after another, the impact is
appalling, seriously impairing the company’s reputation, and this issue has
become the gravest deadly problem of this project of ours."
Whilst the language may, to western eyes, have been rather
dramatic in its tone, the message was clear enough and demonstrates that ZPMC
took the problems very seriously.
203.
The notice recorded the fact that welders did not attach great importance
to the preheat temperature and were proceeding to weld without checking whether
or not the temperature was correct and, further, no insulation was applied
after welding (in order to retard cooling). The notice also made these points:
“Heating
operator of the electrically (sic) heating team must be individually equipped
with a thermometer, after preheat, take initiative to check and determine that
the preheat temperature of both sides of the steel plate meet with the
requirements of the process."
(My emphasis)
And:
“In terms of weld repair
(especially carbon-dioxide arc welding repair) one must adopt preheat with
electrically (sic) heating method. Once the heat temperature as required by
the welding process meets the requirement, notify the quality inspector to
confirm, only then, the operator can start repair. During repair process,
heating plate shall be kept to be electrically connected to ensure interpass
temperature, after repair, the heating plate shall remain to be electrically
connected for two hours for heat insulation. Once the insulation time is over,
the heating plate shall be electrically disconnected, but not to be removed,
let it cool off with the weld beads."
It concluded by
setting out a series of punishments that would be imposed on those who did not
comply with these “regulations”.
204.
It is clear from these documents that those in ZPMC who had been charged
with investigating the problem of transverse cracks and their causes had
identified certain aspects of the process that they regarded as essential to
success. However, it is clear also that the instructions in the WPS about the
required preheat temperature were not being followed by many welders. As I
have already mentioned, when he opened ZPMC’s case Mr Andrew White QC emphasised
the very substantial size of the operation at Changxing, which was running 24
hours a day 7 days a week. With such a vast workforce, many of whom appear to
have been subcontracted labour, it is perhaps unsurprising that unless
supervision was very tight and discipline strict ZPMC would find it difficult
to ensure that the procedures were properly followed.
205.
In the context of the causes of the cracking, it is clear that
maintenance of the minimum specified preheat temperature in steel that was more
than 65 mm thick (110°C) was seen as an essential condition of success. It is
clear also that it was appreciated that this temperature would have to be
maintained throughout the thickness of the plate in the region of the weld.
That, I suspect, was why Ms Ma and others appreciated that electric heating
pads applied to the plate on the opposite side to that which was being welded
would be the best way of achieving this. Mr Marlow said that on thick material
you had to measure the temperature at the opposite side to that where the heat
was being applied (Day 17/50, 52, 130-131). In my view, for the reasons that I
have already given, that is obviously correct. Further, I find as a fact that
this was appreciated by ZPMC by late May 2009, and possibly 2-3 months earlier.
The problem with the use of torches was that identified by Dr Dolby, namely
that the “bowl” of heat created under the area of the weld was insufficient to
prevent the large mass of the plate acting as a heat sink, thereby drawing heat
away from the area of the weld.
206.
In addition, there is the question of whether a preheat temperature of
110°C was sufficiently high for repair welds. For the reasons that I have
already given, I consider that ZPMC should have adopted a preheat temperature
of 150°C.
207.
The problem of measurement of the temperature can be crudely illustrated
by the simple example of a poker in a fire. If the tip of an iron poker is left
for some time in a hot fire, it will probably become red-hot (about 500°C or
more). Nevertheless, the other end of the poker will usually be much cooler to
such an extent that the poker can be drawn out by hand without discomfort.
That is because there is a temperature gradient along the length of the poker:
as one moves away from the tip so the temperature of the iron falls. Suppose
now that, instead of being placed so that the tip of the poker is in the
hottest part of the fire, the poker is placed so that the heat of the fire is
applied to a region about 6 cm from the tip. When the poker is withdrawn that will
be the region that is red-hot, and the tip will be cooler. Measuring the
temperature of the red hot zone does not tell you the temperature at the tip of
the poker. If, therefore, with the poker in the same position one wants to heat
the last 6 cm of the poker to a given minimum temperature, that temperature
must be measured at the tip of the poker.
208.
The heating of the surface of the plates on the same side as that on
which the welding is to be carried out is like the second example with the
poker - where the opposite surface of the plate represents the tip of the
poker.
209.
Unfortunately, no tests have been carried out in the course of this
litigation (at least, none of which I am aware) in order to discover the
temperature that the opposite side of a plate, say, 85 mm thick is likely to
reach when the surface where the welding is to be carried out is heated by a
torch to 110°C. Dr Gordon was asked to what temperature one would have to heat
the face of the metal on one side of the plate in order to obtain a temperature
of 230°C on the surface of the opposite face. Dr Gordon, albeit with the
qualification that he was guessing, said it would have to be over 300°C (Day
18/166). The precise figures do not matter, but Dr Gordon is a very
experienced engineer and so I am sure that he was right in a qualitative sense
- if not as to the precise number. This suggests that if one side of a plate
65-75 mm thick was heated to 150°C, the opposite face might achieve a
temperature of 110°C. Conversely, heating one face to 110°C only would result
in a substantially lower temperature at the opposite face and, indeed, a
significantly lower temperature at a point 30 mm below the surface - where
hydrogen cracking might be expected to occur if a repair was being carried out
from the inside of the can (ie. to the larger weld).
210.
But for one point, therefore, I would have no hesitation in concluding
that the problems encountered by ZPMC in achieving successful repair welds was
very largely the result of inadequate preheating and the specification of a
preheat temperature, 110°C, which was too low. The former was the result of
using a torch to heat the face of the plates being welded, rather than heating
from the reverse side which is what I find ZPMC should have done. Both factors
were aggravated by the use of the 71H Supercored consumable. However, as I
have already concluded the latter was not a breach of contract but it did have
a consequence of making the selection and achievement of a suitable preheat
temperature much more important. The point that remains is whether such a
conclusion is consistent with the results of the repairs that were carried out
at Vlissingen and the tests that were carried out by ZPMC in August 2015.
211.
But before I consider this question, it is necessary to resolve an issue
about the location of the cracking, although by the end of the evidence I am
not sure that this was really a live issue - at least, to any extent that
matters.
212.
The issue here is whether the hydrogen cracking that was found at Vlissingen occurred in original production SAW welds or in repair welds carried out using
FCAW, or a combination of both. There are broadly two aspects to this. As I
have already indicated, the primary production welds were, on the whole,
carried out using SAW - although during the very early stages of fabrication it
seems that in the case of about 5 or 6 cans the seam production welds were
carried out using FCAW. It is not in dispute that, almost invariably, the
repair welds were carried out using FCAW. It is self-evident that one would
not have to carry out repairs unless there were defects in the original
welding. It is ZPMC’s case that virtually all the cracks that were discovered
either on inspection at Vlissingen in the case of Shipment No 1 or, in the case
of Shipment Nos 2 and 3, on inspections at Changxing prior to shipment, were
cracks in repair welds.
213.
If this is correct, then the cause or causes of the defects in the
original production welds would not be relevant because they were removed by
the process of repair. They are, of course, relevant in one sense, because in
the absence of defects in the original welds there would be no need to carry
out any repairs. But if the repairs had been carried out successfully and had
rectified all the original defects, the cause or causes of the original defects
would be no more than a matter of history.
214.
Fluor’s case originally was that whilst the defects that were discovered
in Shipment Nos 1 to 3 may have been attributable to a large measure to repair
welds, this was not the case with the subsequent shipments.
215.
In a presentation entitled "Greater Gabbard Fabrication Review”,
dated 22 June 2009, there was a table setting out the results of a 100%
retesting of shipment 3 showing the locations of the transverse cracking. Of a
total of 623 cracks found, all were in circumferential welds and 618 were in
areas that had been repaired. The current thinking at the time (on the part of
Fluor) was said to be that the problem was confined to the repair procedure and
was not associated with production welding. Unfortunately, very few samples
were taken of welds which had cracks; however, five coupons (or samples) which
were taken of areas where cracks had been found all concerned repair welds.
216.
Dr Gordon noted that hardness tests carried out by Dr Dolby and others
on FCAW repair welds produced average hardness values ranging from 196-238 Hv.
The maximum hardness values range from 205-245 Hv. It was Dr Gordon’s
conclusion that the cracking underneath the repair welds in Vlissingen was due
to a combination of high hardness in the root of the repair weld and the
application of preheat that was too low.
217.
Dr Gordon considers that there is no metallurgical evidence to support
the allegation that there was extensive transverse cracking in original
production SAW welds and this remained ZPMC’s case. In its closing submissions
Fluor accepted that the majority of the defects discovered at Vlissingen fell
into the category of FCAW repair welds "such that on any view the
category is important" (paragraph 708). This was a change of position
that followed the evidence given by the experts. It was also supported by an
e-mail from Mr Fuller dated 17 June 2009 in which he said that: “It appears
we have satisfied ourselves here that the problem is in the repair areas. If we
do a 100% UT of repair areas using Pattern D we should able to resolve the
quality concerns”.
218.
A report by Mr Estabrook dated 14 June 2009 entitled “Analysis into
Non-Destructive Testing on the 3rd Shipment Monopiles”
identified as a cause of the cracking the use of a torch for preheating as
opposed to using electrical heating or conduction bands. In his “Conclusions”
Mr Estabrook said:
“The main conclusion that can
be drawn is that the transverse cracks are found exclusively in areas
previously repaired by FCAW and that it is almost certainly due to a lack of
preheat causing hydrogen cracking. The lack of detection by ZPMC’s NDT QC and Fluor’s QA is likely due to operator performance."
219.
Mr Chen Bin said in his first witness statement that the indications
that were being identified at Vlissingen were “very nearly all in the
previously repaired areas” (paragraph 2.6).
220.
In the light of this material and the cross examination of the experts I
find as a fact that the majority of the transverse cracks discovered at
Vlissingen were cracks in repair welds carried out using FCAW. I am not in a
position to assess the precise proportion because the limited time available
for cross-examination did not permit a picture to emerge to an extent such as
to enable a precise conclusion to be drawn. It is sufficient to find that the
proportion of defects in production SAW welds was much lower than that for
which Fluor had contended. Again, in the light of cross examination, it is now
quite clear that those cracks had to be repaired unless and until an
Engineering Critical Assessment (“ECA”) had been carried out and had shown that
the piles were fit for installation in their as delivered condition. The
position was encapsulated in the following exchanges between Mr Brannigan and
Mr Teale and Dr Gordon. First, at Day 17/165:
“MR
BRANNIGAN: Mr Teale, we can agree this, can’t we: the one thing you wouldn’t
do, standing at Vlissingen, looking with horror at the fact you had these
cracks, you couldn’t just go ahead and install them without undertaking the
sort of exercises you have just described?
MR TEALE: That is why I just
described it.”
Second, at Day
18/201:
“MR
BRANNIGAN: I understand that. I think you agree that the one thing, the one
purpose you cannot put these things to, whenever they arrive on the dock and
you see the cracks in them, you cannot load them out and put them in the
ground, can you?
DR GORDON: No.”
221.
I will have to discuss the contractual implications of this evidence,
which I accept, later in this judgment. But its significance for present
purposes is that the cracks in the welds repaired using FCAW were, I find,
sufficient on their own to justify a programme of investigation and repair
which all the relevant experts agreed was reasonably necessary. It is
therefore unnecessary to reach any conclusion about whether or not the extent
or location of cracks in SAW production welds would, of itself, have had the
same consequence.
222.
By 1 June 2009 the MPs from Shipment No 1 had been unloaded and were
lying on sand berms. By that time three monopiles had been tested by RTD
Applus on behalf of GGOWL and three planar defects had been found in ground
welds. Initially, these were not thought to be cracks but one was investigated
during the next two days and was found to be a crack. On 4 June 2009 QIS, an
NDT company engaged by Fluor, began inspecting one of the unloaded monopiles
and immediately found transverse cracking. The previous day GGOWL issued NCR 6
in relation to Shipment 1.
223.
On 11 June 2009 Fluor sent a letter to ZPMC in which it recommended
changing the NDT procedure to the use of D scans wherever possible.
224.
By this stage ZPMC had not moved any welders to Vlissingen and Fluor had
engaged a local contractor, VDS, to carry out weld repairs and out of roundness
repairs. It is not clear from the documents precisely when VDS started to
carry out repairs or how many repairs they carried out.
225.
However, VDS issued a Welding Repair Procedure for the MPs at Vlissingen on 19 June 2009. This included two procedures for SMAW and one for FCAW. The
reason for the second SMAW procedure was that it was for welding from both
sides, as opposed to welding from one side only. In each case the preheat
temperature was 50°C and the interpass temperature for FCAW was 185°C. There
was no post heat. It appears from the DNV welding procedure qualification test
that the consumable used was Hyundai 81MAG.
226.
In an e-mail to Mr Dobbs dated 26 June 2009 Mr Ayres said that repairs
to monopile IGI 05 were 90% complete, that IGJ 02 was 15% complete on gouging
and that no progress had been made with IGJ 01, but that it was hoped that a
new repair company would start on the following Monday to commence work. In
this e-mail he went on to say:
“We have encountered problems
today in IGI05 that will further impact the completion of the repair works. It
seems that additional transverse cracks have propigated (sic) underneath the
already repaired area’s (sic) which will now require further work. Early
investigations indicate the reason for the cracking is “believed” to be coming
from very small undetectable cracks in repairs performed from the outside by
ZPMC. When heat is applied for the welding repairs, these cracks open up and
become a detectable defect."
227.
In his first witness statement Mr Dove said that he and others became
concerned that a problem facing Fluor at Vlissingen was that hydrogen already
present in the welds in its atomic form recombined to form molecular hydrogen
when heat was applied during the course of the repair. This concern appears to
have arisen towards the end of June 2009 during the repairs to the first
monopile (as indicated in the e-mail from Mr Ayres dated 26 June 2009 quoted
above).
228.
Between 29 June and 6 July 2009 a Mr Tennant, of Parsons Brinkerhoff,
visited Vlissingen in order to inspect the repairs to the monopiles. He
produced a short report at the end of his visit in which he recorded that,
although completion of the repairs to monopile IGI 05 was said to have been
imminent, those repairs were not in fact completed during his visit. He noted
that the preheat temperature of 50°C referred to in the procedures as being “below
that required by the DNV standard”.
229.
Mr Tennant noted that the preheating method being used was
“induction/electrical resistance” and that in all cases observed the
temperature recorded appeared to be between 80°C and 110°C, from which he
inferred that gouging/welding operations may have been started before the
required minimum preheat temperature was reached. It is not explained how the
adoption of preheat temperatures of between 80°C and 110°C is consistent with
the reference to a preheat temperature of 50°C in the written procedures.
230.
On 7 July 2009, Mr Ayres had attended a meeting at Vlissingen with
various subcontractors and representatives of Fluor. He said in his witness
statement that this was part of a comprehensive investigation into the weld
repair procedure to be used at Vlissingen. It was concluded at the meeting
that all work was to be performed at 150°C, but a note that Mr Ayres made at
the time goes on to record this:
“Hydrogen
Bake Out
Post-Weld:
go up to 200°C for 2 hours, cool down to be determined
. .
.
Reduce consumables hydrogen
content."
231.
An e-mail sent the previous day, 6 July 2009, indicated that the
previously adopted preheat temperature was 50°C, a fact which derives some
support from an earlier passage in Mr Ayres’s note and the visit report of Mr
Tennant. However, on the basis of the material presently before the court it
is difficult to say whether or not there was a period at Vlissingen during
which a preheat temperature of 50°C was in fact used, but there are reports
from Delta Heat Services, who carried out some of the preheating, that a
minimum preheat temperature of 50°C was applied on some occasions prior to 6
July 2009.
232.
On 7 July 2009 there was a telephone conference with Cathleen Shargay,
the in-house welding expert with Fluor, who set out a summary of the revised
repair procedure that had been discussed. This was as follows:
“1.
Apply 150°C preheat throughout gouging and do not cool after gouging (continue
preheat right into welding). This applies to all weld thicknesses . . .
2.
Preheat should extend over ¼ circumference min. and extend 25 cm min. beyond
the edges of the excavations
. .
.
7. Hold preheat after welding
for 2 hours."
233.
In response to that e-mail a Mr Mark van den Broek, a Welding and
Material Engineer employed by Fluor, said that the seven steps that Ms Shargay
had suggested were exactly what had come out of a meeting with the contractors
- presumably the one attended by Mr Ayres, except for one point in relation to
the post heating. Mr van den Broek suggested that the post heating temperature
should be raised from 150°C to 200°C. This is consistent with the reference to
200°C in Mr Ayres’s note.
234.
These discussions gave rise to a proposal to adopt a preheat temperature
of 150°C and to maintain it for two hours in order to drive off any existing
hydrogen before performing the repair. The weld would then be allowed “to
cool slowly from 150°C". Mr Dove suggested in an e-mail, sent on 8
July 2009, that this recommendation should be implemented immediately.
235.
On 14 July 2009 an internal RWE e-mail recorded that:
“We believe the current weld
repair procedure is giving defect-free welds. Fluor are applying a 150C preheat
as mentioned earlier, however they are also applying a 200C PWHT to, though I
am not sure of how long or what cooling arrangements.”
236.
At a meeting between Fluor and GGOWL held on 16 July 2009, and attended
by Cathy Shargay, the new method of weld repair was described as “pre-bake
after gouging and then preheat - post baking for 2 hours”. It was recorded
that the new weld repairs “have been successful”.
237.
On 19 July 2009 Mr Dove prepared a repair procedure for weld repairs to
the monopiles at Vlissingen. This involved the application of 150°C preheat
before gouging, which was to be maintained for 2 hours prior to and during
welding. After welding the temperature was to be held for a further 2 hours at
150°C to 200°C. The preheating was to be carried out using induction coils
located on the opposite surface to that being welded. A similar procedure was
adopted in Changxing the following month.
238.
It was not until mid July 2009 that ZPMC sent operatives to Vlissingen to assist with the weld repairs: 22 arrived on 16 July and a further 22 on the
following day. However, there were difficulties - such as obtaining passports
and visas and finding accommodation - in redeploying a Chinese workforce from Shanghai to Vlissingen at short notice, so the delay does not necessarily reflect any lack
of willingness by ZPMC to take some responsibility for resolving the problems.
At any rate, according to Mr Ayres they started work on 19 July. According to
the witness statement of Mr Chen Bin, the number of welders and other
operatives was subsequently increased to 169.
239.
A WPS (for FCAW) and a welding procedure qualification report for repair
works at Vlissingen was prepared by ZPMC in August 2009. This required a
minimum preheat and interpass temperature of 150°C where the base metal was
more than 65 mm thick (but still at 65°C where the thickness was between 38 mm
and 65 mm). The maximum preheat and interpass temperature remained at 230°C,
and post heat was to be at 150°C for 2 hours.
240.
Mr Teale said, in his first report (at paragraph 6.1) that initially
Fluor qualified three WPS, one using SMAW and two using FCAW, but these
specified a preheat temperature of only 50°C. The reference given for this is
a presentation dated 22 June 2009 entitled “Greater Gabbard Fabrication Review”,
which contained a reference to the flux cored consumable used in the repair
procedure as requiring a preheat temperature of 50°C in order to perform
properly. He went on to say that Fluor was forced to increase the preheat
temperature to 80°C, then to 100°C as the cracking continued. He said that
eventually it was increased to 150°C.
241.
Mr Teale then said this, at paragraph 6.2:
“It is also significant to
note that even when Fluor did increase their repair preheat value in Vlissingen
first to 80°C, then 100°C, and then to 150°C, none of these preheat values
stopped repair weld cracking. It was only after the addition of Post Heating
that the new cracking was contained."
242.
In relation to this paragraph, Fluor’s experts, in their report in
reply, said this (at paragraph 3.10):
“We have seen no evidence of
this suggested progressive increase in preheat from 50°C through 80°C and 100°C
to 150°C, and Mr Teale does not refer to any. Fluor started with preheat at
50°C, and when that was found to be inadequate, the preheat was increased
directly to 150°C as far as we are aware. In any case, we are unsure what the
relevance of Mr Teale’s statement is as it refers to Fluor’s experience, not
ZPMC’s."
243.
So far as I recall, this point was never discussed during the course of
the expert evidence and so the source of Mr Teale’s information remains
obscure. In a note that Mr Fuller prepared on 7 July 2009 he wrote:
“We
need to know
-
What temperatures do you preheat for excavation process.
- We have heard 50°C, 100°C,
150°C, 250°C."
Coincidentally, this was the very same day as that on which
Ms Shargay made her recommendations as to the weld repair procedure and
provided an answer.
244.
In his second witness statement Mr Chen Bin said (at paragraph 6.5) that
documentation that ZPMC received from Fluor after monopile IGJ01 had been
repaired by local sub-contractors indicated that that had been many repeat
repairs. However, his statement is silent about the repair procedure that was
adopted by these sub-contractors.
245.
All in all, I can find no evidence whatever to support Mr Teale’s
suggestion that cracking occurred at Vlissingen when a preheat temperature of
150°C was used. Equally, there is no evidence that a preheat temperature of
150°C was used at Vlissingen without some post heating at a similar
temperature, or at least a retarded process of cooling. It is therefore
impossible to draw a conclusion from this as to whether cracking at Vlissingen
was prevented by the use of a higher preheat temperature, 150°C, or the use of
post heating, or a combination of both.
246.
In August 2015 ZPMC carried out a series of tests to study the cause of
the transverse cracks. The conclusion drawn was that the test results showed
that a lack of post heat was the main cause of transverse cracking. Fluor was
given no notice of the proposal to carry out these tests, although ZPMC did
have them witnessed by representatives from Lloyds Register, AGS and TUV NORD -
all of whom are well respected testing agencies.
247.
The tests were performed on a full size simulation pile. They consisted
of gouging out sections of a circumferential weld and then carrying out weld
repairs. Without going into the procedure in any detail, repairs were carried
out using no preheat and with preheat - at temperatures of 50°C, 110°C, 150°C
and 175°C. These were carried out with and without post heat at 230-315°C for
2 hours. No detailed experimental procedure is included in the report, so what
was done must be derived from the results and the description of the process
given in the narrative parts of the report coupled with the photographs. The
photographs attached to the report show that the depth to which the welds were
gouged (according to notes in chalk on the plates) was between about 40-45 mm
and the cavity excavated was between 35-40 mm wide and about 200-225 mm long.
248.
Section 5.2 of the report of the tests, headed “Cracking Reasons”, said
this:
“Transverse
cracks found in the experiment were typical hydrogen induced cracking. The
contributory factors mainly include: diffusible hydrogen content and its
distribution, stress and material hardening microstructure.
In terms of repair weld,
because the welding repair area is small, the weld is short and the cooling
rate is high. When conducting welding repair, the specified preheat temperature
can be reached fast. Once welding repair is conducted, as it is semi-auto
welding, inter-pass temperature can be very high, and the repair welding can be
finished quickly. However, when repair welding is conducted in winter, as the
constraint stress is large and cooling rate is high, residual stress and repair
weld diffusible hydrogen cannot be released easily after welding, which can
easily induce transverse crack.”
249.
The report noted that the “amount and dimension of crack” decreases as
the preheat temperature increases. It concluded that although preheat
temperature increase is helpful in preventing formation of transverse cracks,
it cannot effectively inhibit the occurrence of such cracks. By contrast, the
application of post heat between 230-315°C for two hours prevented transverse
cracking.
250.
Photographs in the report showed that the preheating was done by torch
and to the same side (the inside of the pile) as the weld repair. There are
photographs showing the preheat temperature being measured at a point fairly
close to the weld, again from the inside of the pile. There is no suggestion
that there was any attempt to measure the temperature on the outside of the
pile. Indeed, one would not have expected them to have done so, because, as Dr
Gordon explained, the purpose of the tests was to replicate the procedure
adopted at Changxing. The statement that the preheat temperature was reached
“fast” suggests to me that the base metal may well not have been preheated to
the prescribed temperature for its full thickness.
251.
Although ZPMC was somewhat reluctant to admit this at the trial, it is
perfectly clear that the intention behind these tests was to demonstrate that
if the critical repair procedure that was rejected by Mr Dove in January 2009
had been adopted, transverse cracking would not have occurred in the
circumferential welds.
252.
Whilst on the face of it this work looks as if it might be a compelling
piece of evidence, in the absence of any clear record of the procedure followed
I regard it as being of somewhat limited value. There is no evidence that the
preheat temperature on the opposite side to the face being welded was ever
measured, let alone checked so as to ensure that it achieved the prescribed
temperature. The plates of which the pile was made were 60 mm thick, so since
the depth of the weld repair was of the order of 40 mm the prescribed preheat
temperature would have to be achieved for the full thickness of the plate. In
this context it is of interest that when a preheat temperature of 175°C was
adopted (and measured on the same side as that being welded) there were no
cracks.
253.
While the tests show that, had the critical repair procedure put to Mr
Dove in January 2009 been adopted for all repairs (and not just critical
repairs), much if not all of the transverse cracking would have been avoided,
they do not show the converse. In other words, the tests do not show that a
preheat temperature of 150°C, if properly achieved, would have been
insufficient to prevent cracking. All they show is that when the preheat was
applied by a torch from the same side as the welding, and the temperature
measured on the same side, a measured temperature of 150°C was not sufficient
to prevent cracking.
254.
One cannot know with certainty what would have happened if the preheat
had been applied from the opposite side of the plates but the temperature of
the steel had been taken on the same side as the welding. However, the repair
welding carried out under supervision by the Testing Centre at branch company 3
in Changxing in February 2009 suggests that a preheat temperature of 120°C, if
properly applied, was sufficient to prevent hydrogen cracking. Further, the
absence of cracking in the August 2015 tests when a preheat temperature of
175°C was adopted (measured at the surface being welded), suggests that the
lower temperature that would have prevailed at a depth of, say, 30-40 mm, was
in fact sufficient. This suggests quite strongly that if the preheat had been
applied to the opposite face of the plates and a temperature of 150°C had been
recorded on the face being welded, there would have been no cracking.
255.
For these reasons I consider that the August 2015 tests provide no
satisfactory evidence that a preheat temperature of 150°C, properly applied,
would not have been sufficient to prevent transverse cracking. On the
contrary, they provide some basis for concluding that, if applied to the
opposite side of the plate from that being welded, a preheat temperature of
150°C might have been sufficient.
256.
In spite of the substantial body of oral evidence, both from the parties
and the experts, and the many thousands of documents that have been put before
the court in this case, I have come to the conclusion that the cause of the
transverse cracking in the repair welds on the circumferential seams of the
monopiles is fairly self-evident. It was a combination of the factors set out
below.
(1)
The failure to devise a separate WPS for FCAW repair welds to the
circumferential seams having regard to the high restraint present. Such a
procedure should have at least prescribed a preheat temperature of 150°C and
probably, in addition, the application of post heat up to the same
temperature. The existing WPS could have been revised to provide for this
without the need for requalification.
(2)
Even if the proposed procedure had provided only for a preheat
temperature of 150°C (and no post heat) such preheating, if properly applied,
would have eliminated most if not all of the transverse cracking.
(3)
The failure to achieve, on a consistent basis, the preheat temperature
of 110°C actually prescribed. This problem was particularly prevalent when the
preheat was being applied by torch. However, it is clear that where the preheat
was applied by electric heating bands, these were not always properly kept in
place. However, I am not satisfied that a preheat temperature of 110°C, even
if properly applied, would have eliminated transverse cracking altogether.
However, I have little doubt that it would have reduced its incidence
significantly.
(4)
The use of Supercored 71H, which had a hydrogen content which was too
high for this application and a significant boron content. This in itself was
not a breach of any obligation owed to Fluor: however, ZPMC should have paid
proper attention to the manufacturer’s recommendation to adopt a preheat
temperature of between 50°C and 150°C - the latter being the appropriate
temperature for welding in conditions of high restraint.
(5)
The fact that many of the circumferential welds of the monopiles in Shipment
Nos 1 and 2 were carried out in the open air during winter, which increased the
rate of cooling of the weld metal thereby providing less opportunity for the
hydrogen to diffuse out. In these circumstances, ZPMC should have been
particularly aware of the importance of achieving the specified preheat
temperature throughout the base metal (and not just at the surface).
257.
Mr Dove’s rejection on 28 January 2009 of the proposed critical weld
repair procedure did not excuse or relieve ZPMC from its obligation to devise
an appropriate WPS for non-critical weld repairs. Indeed, there is ample
evidence that ZPMC did not rely on Fluor in this regard in that on many
subsequent occasions the Testing Centre proposed post heating for weld repairs
and clearly did not regard itself as prevented from doing so.
258.
By way of a definition, I can do no better than quote from paragraph 26
of Fluor’s NDT experts’ report:
“Non-Destructive
Testing is the term used to describe a test or series of tests that can detect
welding or in-service flaws without damaging the component under test. This can
be achieved by the use of ultrasound, magnetic fields, penetrating fluids and
x-rays or gamma-rays, to name but a few. The flaws, that could potentially
compromise the integrity of the component, can be either surface breaking or
buried within the welds or parent material. Ultrasonic testing is similar to
that used on pregnant women to check the age and health of the baby.”
259.
In this project the primary method chosen was ultrasonic testing. Much
of the description which follows is based on the helpful explanation in the
report of Dr Morgan, the NDT expert instructed by ZPMC. The method involves
the use of a probe that is placed on the surface of the metal being welded, or
sometimes on the weld itself, which, by means of a short pulse of ultrasound,
can detect imperfections or irregularities within the body of the weld or the
adjacent base metal. Dolphins use a similar system, but at a much lower pitch,
to detect obstacles and prey. Because ultrasound is at a very high frequency it
can be pointed at a particular target more easily than sound. Indeed, the beam
is treated as if it were a straight line like a well-focused beam of light from
a torch or a lighthouse.
260.
The probe is connected to a small screen which is carried by the
operator. It is important to appreciate at the outset that what the equipment
detects is an alteration in the signal that is reflected back from the material
being tested. If there are no flaws in the metal being examined the operator
will see two spikes on the screen: the first is the signal emitted (the “send”
pulse) and the second is the echo from the back of the steel plate, which
represents a discontinuity. The distance between the two spikes on the screen
represents the depth of the metal being examined. If the weld contains a flaw,
the operator will see two signals in addition to that given by the send pulse:
an echo from the flaw and a second echo (from the part of the pulse that misses
the flaw) from the back of the steel plate. The distance between the spike
from the send pulse and the spike representing the echo from the flaw indicates
the depth of the flaw.
261.
It will be apparent from this description of the process that certain
types of imperfection will be more readily detected than others. For example,
if a torch is pointed at a mirror placed face on in the dark, the reflection is
easily seen. However, if the mirror is turned sideways on, the observer may
see little more than a faint reflection in the form of a line representing the
edge of the glass. It is much the same with ultrasound. An additional factor
is that the strength of the signal diminishes with distance, partly because it
is diverging and therefore reducing in intensity and partly because some of it
is absorbed by the medium through which it is passing.
262.
Accordingly, there are different types of scanning pattern available to
the operator, the choice of which will depend on the type of flaw which he
is particularly interested in detecting.
263.
The presence of air in the material being examined will show up as a
discontinuity. Accordingly, the probe is usually placed on a water or oil
based liquid, known as a couplant, so as to eliminate or reduce the effect of
any irregularities in the surface of the metal on which the probe is placed.
If it is necessary to have the beam at an angle, the probe is placed on a metal
wedge in which case the couplant will be placed between the wedge and the
surface of the metal.
264.
As I have mentioned, the profile of a typical butt weld takes the form
of an irregular bulge - the weld cap - above the surface of the base metal. In
many places the presence of the cap does not matter, but in regions where
stresses are likely to be particularly high it can present a point of weakness
(such as a crack inducer) and so it has to be ground flat. The welds for which
this is required will be specified in the design. Where welds have been ground
in this way it is possible to place the probe on the weld itself. This is often
referred to in the documents as “riding on the weld”. It is technically
known as scanning pattern D (or D scanning).
265.
Scanning pattern E (or E scanning) involves directing the beam at an
angle with the probe placed, on a wedge, on the surface of the base metal
beside the weld. In addition to the beam being directed at an angle to the
horizontal, it is also directed at an angle to the line of the weld. Whilst
this method is efficient at picking up flaws that are parallel to the line of
the weld, it is not so good at detecting transverse flaws which are orientated
so that they are, in effect, edge on to the line of the beam (as in the example
of the mirror turned sideways on). E scanning is done from both sides of the
weld seam and usually at two or three different angles to the horizontal. In
this way the operator methodically works his way along the line of the weld
seam, scanning one side for a certain length and then the other.
266.
As I have said, D scanning involves moving the probe along the surface
of a weld which has been ground flat. It is much more efficient at detecting
imperfections that are transverse to the line of the weld. D scanning can also
be used, albeit much less reliably, on a weld which has not been ground but has
a reasonably flat surface. Alternatively, the weld can be partly ground to
improve the efficiency.
267.
There are also other patterns of scanning: A, B, and C. B and C
scanning play no part in the present dispute and so I can leave them on one
side. A scanning was described by Dr Morgan, but it is not necessary for me to
say anything about it in this judgment.
268.
The size (or amplitude) of the UT signal is used to give a measure of
the size of the flaw, but there is a complication. As I have said, like the
beam from a torch, the ultrasonic beam becomes weaker as it travels further
from the probe. Accordingly, the device has to correct the signal amplitude to
accommodate the distance from the probe to the flaw. This is done by means of a
Distance Amplitude Correction (“DAC”).
269.
For this purpose, a test piece of steel is taken and holes are drilled
in it at different depths. These simulate the presence of a flaw. Each hole is
scanned and a mark is made on the screen at the peak of the signal. The
process is repeated for each of the holes. A curve is then drawn linking the
peaks and this becomes the DAC curve. When the operator starts scanning
finished welds any difference in the response to the signal, known as an
indication, is compared with the DAC at the same point and the signal size is
assessed as a percentage of the level of the DAC curve at that point. The UT
specification for a particular project will provide acceptance criteria in
terms of a percentage of the DAC curve. For example, it may provide that any
indication in excess of 50% of the level of the curve is to be investigated
further and, if confirmed, is to be treated as a defect and will normally have
to be repaired.
270.
UT scanning is an art as much as a science. When the operator sees an
indication on the screen he will usually move the probe about in order to
optimise the signal response and thereby gain a better idea of the nature and
extent of the potential defect. The ability to categorise accurately the nature
of the defect observed is largely acquired by experience.
271.
As Mr John Lilley, and his fellow NDT experts instructed by Fluor (Mr
Armitt and Mr Traves), pointed out in their first report, at paragraph 66:
“The
amplitude of the response from a flaw depends on many factors including the
flaw size, the flaw type(s), the flaw orientation relative to the ultrasonic
beam and the manner in which the UT is conducted. The ultrasonic responses from
different types of defect are different and this permits defects to be
characterised, e.g. as cracks, lack of fusion or other forms of welding defect.
Defects can be complex in nature, either individually or as a combination of
co-existent defect types, and the process is somewhat subjective. Some defects
however, such as transverse cracks, are straightforward to characterise.”
272.
In relation to NDT, the two principal issues that arose at the trial
were, first, whether ZPMC should have used, and would have been entitled to
use, scanning pattern D once it became clear that there was a problem with weld
repairs and, second, what are the contractual consequences if the chosen
scanning pattern fails to discover cracks in the welds?
273.
The initial UT procedure prepared by ZPMC was based on AWS D1.1 Tubular
Structures Welding Code, but during the latter part of 2008 there were lengthy
discussions between ZPMC and Fluor about which standard was to govern NDT.
From an early stage Fluor made it clear that UT should be carried out in
accordance with the Offshore Standard DNV-OS-C401, not AWS D1.1.
274.
By the end of November 2008 ZPMC had been persuaded to agree to the
application of the DNV standard. It was agreed that ZPMC would retest all the
circumferential welds in accordance with the DNV standard, but that any
longitudinal welds that had already been tested in accordance with the AWS code
would not have to be retested. It is clear that Mr Estabrook of Fluor was
heavily involved in the drafting of the revised procedure.
275.
However, there is one provision in the revised procedure that is
disputed by ZPMC. It concerns the acceptance criteria. These are set out in
Table 3 in paragraph 16 of the procedure. It is as follows:
“16.3 Acceptance criteria see Table 3,
Structural Category ‘Special’
|
Table 3 Ultrasonic
testing
acceptance criteria of
Offshore Standard DNV-OS-C401, April 2004 Edition
|
|
Indication 1)2)3)
|
Structural Category
|
|
Special
|
Primary
|
Secondary
|
|
Echo height above
Maximum length 4)
mm
|
50% of reference level
t/3 or maximum 10
|
100% of reference level
t/2 or maximum 10
|
100% of reference level
t or maximum 20
|
Cracks are not acceptable regardless of
size or amplitude.
1)
Indications which the operator
based on experience, knowledge of the welding method and joint geometry deems
likely to be cracks, lack of fusion or lack of penetration may be unacceptable
regardless of echo amplitude and length. In such cases an independent
examination by another operator shall be performed.
2)
If only one side of the weld is
accessible for examination, all indications with a length >t/4 and exceeding
20% of the reference curve for the special category and 50% otherwise, may be
regarded as cracks, lack of fusion or lack of penetration unless otherwise
proven. In such cases an independent examination by another operator or by
different methods shall be performed.
3)
For longitudinal defects where the
indications intermittently are above and below the acceptance level, the type
of defect shall be determined when the areas exceeding the acceptance level are
repaired. If the defect is found to be crack, lack of fusion, lack of
penetration or slagline(s) the whole defect length is unacceptable regardless
of echo amplitude.
4)
Length is defined as distance
between points where the echo amplitude reach or pass the stated percentages of
reference level.”
“t” refers to the thickness of the metal being welded.
276.
ZPMC takes issue with two aspects of this table. First, it contends that
the structural category should have been Primary, and not Special. Second,
there is a dispute as to the meaning of the words “Cracks are not acceptable
regardless of size or amplitude”. Fluor submits that this means what it
says. ZPMC submits that it applies only where there has been an indication
above the prescribed level that turns out to be a crack, in which case it is
unacceptable.
277.
The DNV standard contains the following provisions in Section 3B,
Non-Destructive Testing (which, at paragraph 208, is defined as “visual
inspection, radiographic testing, ultrasonic testing, magnetic particle
testing, penetrant testing and other non-destructive methods for revealing
defects and irregularities”):
“101
Prior to commencement of fabrication the contractor shall submit a plan for
NDT, NDT procedures . . . For acceptance by the purchaser.
.
. .
104 Methods of NDT shall be chosen with due regard to the
conditions including the sensitivity of the method and the method’s ability to
detect defects likely to occur as a consequence of the chosen welding process
.
. .
201
NDT shall be performed in accordance with agreed written procedures that, as a
minimum, give detailed information on the following aspects:
.
. .
401
The extent of NDT shall be based on type and level of design stresses and
on the importance of the connection in question. The welds shall be assigned
inspection categories equal to the highest structural category of the two
components.
.
. .
Aspects
that shall be considered in determining the extent of NDT are:
.
. .
-
technique
.
. .
402 Unless otherwise agreed, NDT shall normally be
carried out to an extent not less than required in Table B1 . . .
.
. .
403 If a consistently low NDT failure rate is documented,
the extent of NDT inspection required for elements within structural category
primary may be reduced, but shall not be less than poor Inspection category III
.
. .
405 Frequent repairs shall result in increased extent of
NDT. The extent of NDT shall be increased in a manner such that all relevant
defects are discovered in the areas of concern and that representative sampling
is carried out on all welds. When the weld quality level has been restored, the
extent of examination may be reduced in agreement with the purchaser
406 If severe defects (i.e. cracks and other planar
defects or excessive slag lines) occur repeatedly, all welds made with the same
welding procedure during the period in question, shall be examined full length.
Frequent
occurrence of excessive porosity can be indicative of inadequate handling of
welding consumables. If inadequate handling is confirmed, the welds made during
the period in question shall be investigated by adequate methods for hydrogen
induced cracking.
413 Ultrasonic testing
Ultrasonic
testing shall be performed according to approved procedures. The procedures
shall be established according to recognised standards.
.
. .
417 For evaluation of flaw indications a reference curve
shall be established. The curve shall be plotted on the instrument screen.
Imperfections, which produce a response greater than 20% of the reference level
shall be investigated to the extent that the operator can determine the shape,
identity and location of all such imperfections and evaluate them in terms of
the acceptance criteria. All defects exceeding the acceptance criteria shall be
reported unless more stringent requirements are agreed.”
278.
Table B1 is headed “Minimum extent (in %) of non-destructive testing
for structural welds”. There are four test methods identified: visual,
magnetic, radiography and ultrasonic. For different types of joint a minimum
percentage is given for each test method, save that in some cases this is shown
as “Spot”, meaning approximately 2% to 5%. A note to the table says that “ultrasonic
examination shall be carried out for plate thicknesses of 10 mm and above”.
279.
Reading this section of the standard as a whole, therefore, it is
apparent that it differentiates between the test method, being the type of NDT
adopted, and the extent of the inspection, being the percentage or a proportion
of the number of welds that have to be inspected. The extent of the NDT is to
be specified after taking into consideration the various aspects mentioned in
the standard. In this context, I do not consider that the various different UT
scanning patterns can be classed as different methods of NDT: for the
purpose of the standard, they are UT. In its closing submissions ZPMC accepted
that the word “method” when used in the standard refers to the form of NDT (see
paragraph 714.5.1 of ZPMC’s closing submissions).
280.
Table B5 in the DNV standard is virtually identical to table B3 in the
agreed UT procedure that I have set out above.
281.
As Dr Morgan explained, the operator is searching for any signal which
might be over the threshold level. He then describes what would happen as
follows:
“Then you investigate the signal (you characterise
it). You stop the probe and point it at the place where the signal was found.
You then twist and rotate it around that position to get the maximum signal
size (which is noted) and observe how the signal changes as you move the probe,
to see if it has the characteristics of common flaws and whether it is
crack-like. Having decided the type of flaw, it must then be assessed against
the project criteria, most particularly measuring the flaw’s length, (in a
tightly specified manner), to decide if it is to be rejected.
. . .
These
two stages are often not distinguished in witness statements and expert reports
that I have read. If a witness says that the signal was above threshold when
he investigated it, he is not necessarily saying it was above threshold when he
did the search scan. It may only have been above threshold when the probe was
rotated and the signal maximised during the “investigation”. (The “search” scan
will always have a smaller signal than the maximum found when investigating).”
282.
If one applies this approach, the operator might find a signal below the
threshold which prompts further investigation in the manner described by Dr
Morgan. That further investigation may suggest that the flaw is a crack, but
the signal always remains just below the threshold. On Dr Morgan’s approach,
therefore, that crack can simply be ignored. I appreciate that this is
probably an artificial scenario, but I have created it in order to test the
hypothesis.
283.
However, during the course of the evidence Dr Morgan modified his
position to some extent because he agreed with Mr Lilley when he said that the
operator should investigate "any indication that is clearly visible on
the screen that may look, in the operator’s experience, as though it may come
up higher if the probe is optimised" (Day 16/21-22).
284.
Otherwise, the difficulty with following Dr Morgan’s logic would be that
it appears to ignore the words “regardless of . . . amplitude",
because the signal has to be of a particular amplitude in order to reach 20% of
the DAC curve. To respond only to those indications in excess of the threshold
is not to disregard the amplitude.
285.
There was disagreement also about the meaning of these words (in the
table setting out the acceptance criteria):
“Indications which the operator based on experience,
knowledge of the welding method and joint geometry deems likely to be cracks,
lack of fusion or lack of penetration may be unacceptable regardless of echo
amplitude and length. In such cases an independent examination by another
operator shall be performed.”
286.
To my mind, these words are reasonably clear. They say, first, that
flaws giving rise to indications which are likely to be cracks, lack of fusion
or lack of penetration "may be unacceptable regardless of echo
amplitude and length". Second, that if the operator using his
experience and professional knowledge thinks that what he is seeing is likely
to be a crack, lack of fusion or lack of penetration, then he should seek a
second opinion from another operator. I agree with Mr Lilley and his fellow
experts that if the operator is certain that what he is seeing is, for example,
a crack, then he can reject the flaw forthwith without needing to seek an
independent examination by a second operator. Dr Morgan, in his reply report,
appeared to suggest that an independent examination by a second operator was
required in every case where the first operator thought that he had found a
crack, irrespective of how confident he was about it.
287.
Linguistic analysis apart, the approach taken by Fluor’s experts seems
to me to be sensible. The usual purpose of requiring a second opinion is to
provide clarity in circumstances where there is uncertainty in the mind of the
first examiner. But if the first examiner is quite certain about what he has
seen - assuming that he is sufficiently experienced, seeking a second opinion
is an unnecessary luxury which is unlikely to be commercially justified.
288.
The revised NDT procedure provided that scanning pattern D was to be
used when welds were ground flush, and scanning pattern E when the weld cap was
not ground flush. For circumferential welds the minimum prescribed extent of
NDT was 100% of the weld; for the longitudinal welds it was 20%.
289.
By RFI 34 (Rev 1) dated 1
December 2008, ZPMC asked:
“Based on
ZPMC’s experience, there is no need to do UT after grinding, because the
grinding is only the work for the surface of weld. So, we think that only MPI
should be done according [to] the specification after grinding, and UT can be
done before grinding. Please confirm our understanding is correct..”
ZPMC then ticked the box that said that the RFI was being
submitted for “Contractor Convenience".
290.
The response, dated 3 December 2008, was as follows:
“Agreed.
All welds to be UT examined & repaired. Where grinding is required (as
table) then MPI at 100% shall be performed as a further check for crack
detection.”
MPI stands for Magnetic Particle Imaging.
291.
The consequence of this concession was that ZPMC would never have to
perform a D scan on a weld that had been ground if there had been an E scan
before grinding. Fluor must have assumed that the E scans would pick up any
relevant flaws. With the benefit of hindsight, it can be seen that this
request was inappropriate and its approval unwise. Nevertheless, from a
contractual point of view it left ZPMC free to choose whether it carried out UT
before or after grinding. If that had the consequence that cracks were missed
that would otherwise have been detected, which is in fact what happened, that
is a matter in respect of which of itself Fluor has no recourse against ZPMC.
As I have mentioned before, whether or not a particular circumferential weld was
to be ground was a matter for the designer. It had nothing to do with any UT
considerations.
292.
This is the issue raised by paragraph 405 of DNV C401. For ease of
reference, I shall set it out again:
“Frequent
repairs shall result in increased extent of NDT. The extent of NDT shall be
increased in a manner such that all relevant defects are discovered in the
areas of concern and that representative sampling is carried out on all welds.
When the weld quality level has been restored, the extent of examination may be
reduced in agreement with the purchaser.”
293.
This issue is of importance because as I have explained, certain types
of transverse crack produced a UT echo which was well below the acceptance
criteria when E scanning was adopted, but gave an indication that was
unacceptable when tested by D scan.
294.
I agree with ZPMC that increasing the “extent of NDT” does not
mean changing the NDT method to be adopted. Such an interpretation does not
fit with the terminology used in the standard. In evidence, Fluor’s NDT
expert, Mr Lilley, did not accept this. He said that if one read through the
standard the word “method” was sometimes used to refer to the form of NDT but
at other times it referred to the “way in which NDT is applied, the
technique” (Day 16/71). He may have had in mind the reference to “methods”
in the last sentence of paragraph B 406; however, that seems to me to be using
“methods” in the sense of the type of NDT. On this point, therefore, I do not
agree with Mr Lilley.
295.
However, as Mr Lilley pointed out, paragraph 405 makes it clear that the
object of increasing the extent of NDT is to ensure that all relevant defects
are discovered in the areas of concern - in this case the circumferential
welds. The problem here is that, since the NDT requirement for the
circumferential welds was already 100% UT, there was no scope for extending it
using scanning pattern E. In the case of repairs, there was a similar problem
in that the extent of the UT required was only in the immediate area of the
repair – so there was no scope for extending it.
296.
However, for the reason that I have already given, I do not consider
that altering the UT scanning pattern amounts to a change of method. Indeed,
in one sense Mr Lilley agreed with this, as the following exchange (at Day
16/74) shows:
“MR
JUSTICE EDWARDS-STUART: Mr Lilley, in this context, looking at paragraph 104,
could you just give me, off the top of your head, three methods of NDT? Just
name three methods.
MR
LILLEY: there is radiography, ultrasonics and magnetic particle.
MR
JUSTICE EDWARDS-STUART: Right. Is scanning pattern D a different method from
scanning pattern E, in your view?
MR LILLEY: I would call it a
technique.”
297.
Dr Morgan accepted that, for example, increasing the number of probe
angles may be considered an increase in the extent of the NDT, although it
would depend on the procedure (Day 16/82).
298.
The question is whether changing or adding a scanning pattern can be
regarded as increasing the “extent” of NDT. Suppose, for example, that ZPMC
became concerned at the discovery of cracks in repairs to circumferential welds
that were not being picked up by E scan. It could then, in my view, increase
the scanning by carrying out an additional D scan on, say, all welds that had been
ground flush in order to confirm the findings of the E scan already carried
out. I can see no reason why that should not be considered an increase in the
“extent” of the NDT since it would not involve changing the method or the
agreed procedure. Its only effect would be to override the concession granted
by RFI 34. I consider that that is what ZPMC should have done once it was
apparent that D scans carried out by “riding on the weld” were
discovering cracks that were not being revealed by E scanning.
299.
The language of the first sentence of paragraph 405 is in mandatory
terms: the verb “shall” appears twice, and the definitions in the standard make
it clear that when the verb “shall” is used, it denotes a mandatory requirement
(see paragraph D 101). It seems to me, therefore, that paragraph 405 should be
construed in a manner that, so far as possible, allows proper effect to be
given to its obvious purpose.
300.
For these reasons, I consider that, in principle, it was not only open
to ZPMC to increase the extent of the NDT by adding a requirement for D scans
to be carried out in addition to E scans but also that, under paragraph 405, it
was obliged to do so if that was necessary to ensure that “all relevant
defects are discovered in the areas of concern”. However, there is an
important qualification: in this event the D scanning to be carried out would
have to be in accordance with a technique laid down in the agreed written
procedures. Dr Morgan said that a contractor would require the customer’s
consent to such a change if he was “changing his process” (Day 16/83);
but, by implication in my opinion, an increase in the extent of the NDT that
did not require a change to the agreed process would not require the consent of
the customer. Therefore, once it became apparent to the operators in branch
company 3 that cracks could be discovered by “riding on the weld” that
were not revealed by E scanning, they should have taken the immediate step of
carrying out D scans to all ground welds (notwithstanding the concession
confirmed by RFI 34) and at the same time raised the matter with higher levels
of management within ZPMC. Failure to do the former was a breach of paragraph
405 of the DNV standard and the latter a breach of ZPMC’s workmanship
obligations under the PO.
301.
In this context Dr Morgan said also (at Day 16/30):
“We have a D scan standard
and an E scan standard. If it is acceptable to the E scan and rejectable to the
D scan, my feeling is that under the basis of good working practice, good
engineering practice, you should take the conservative sensitivity . . . Which
is with the D scan, indeed."
This, to my mind, must be correct. Further, it suggests
that in a situation where frequent repairs were required a contractor who was
aware of this difference in sensitivity of the two types of scanning pattern
should, wherever permitted by the agreed procedure, increase the extent of the
scanning by the use of D scanning in order to ensure that all relevant defects
are discovered.
302.
In relation to welds that had been ground flush, this would not present
a problem because the agreed NDT procedure for such welds was D scanning.
However, this was not permitted where the weld had not been ground flush,
because in that event the procedure provided that E scanning was to be used.
303.
As I have already mentioned the Purchase Order contained a warranty that
the monopiles would be “of good . . . workmanship”. ZPMC submitted that
this obligation amounted to “no more than a warranty that reasonable skill
and care has been used in carrying out those specified or described work
processes". This submission was
made by reference to paragraph 3-084 in Hudson’s Building and Engineering
Contracts, 13th Edition, where the authors say:
“In the absence of any
special term or direction in the contract specifying the manner in which the
work is to be done, there is an implied condition in all contracts for work and
labour that the described work will be carried out carefully and skilfully or,
as it is sometimes expressed, in a good and workmanlike manner."
304.
I do not accept this submission. It is a warranty that the work has been
carried out with reasonable skill and care (see also paragraph 331 below).
305.
Paragraphs B101 and 104 of DNV-C401 impose a duty on the contractor to
prepare NDT procedures and submit them to the employer, using methods of NDT
that have due regard to the relevant conditions, including the sensitivity of
the method and the method’s ability to detect defects likely to occur as a
consequence of the chosen welding process.
306.
In these circumstances it seems to me that it is an incident of the duty
to exercise reasonable skill and care in carrying out the prescribed processes
that the contractor will bring to the attention of the employer any
shortcomings in the methods of NDT or procedures chosen which have become
apparent and to propose alternative procedures of which the contractor is or
ought reasonably to be aware that will enable a type of defect that has become
apparent to be detected. Of course, it would be a matter for the employer to
agree or withhold agreement to the proposal.
307.
If, where frequent repairs were being carried out, ZPMC became aware of
the occurrence of cracking that was not always being detected by E scanning,
but which could be detected by D scanning, then in my view, in addition to the
steps set out in paragraphs 298 and 300 above, it became obliged to submit a
proposal to adopt a different method of NDT or, alternatively, different UT
procedures so as to identify the cracks. Its failure to do so was a breach of
its workmanship obligations under the PO because it should have acquired the
relevant knowledge if branch company 3 had reported the fact.
308.
Although this is a conclusion that I reach as a matter of construction
of the contract, it derives some practical support from the evidence of Mr Li
Ruixiang, who was the QA Vice General Manager at Changxing. At Day 14/48, he
gave this answer:
“If company 3 clearly knew at
time that their NDT testing method was outside the scope of the contract, and
if they clearly knew that company 2 and company 1 were not using such scanning
method, then I think they should raise this issue as a specific issue, as a
specific subject."
There would be no point in raising this issue with the
other two branch companies unless it was anticipated that some action would be
taken in the light of it.
309.
Although this is posed as a single question it contains, in my view, two
separate elements. The first is to respond to Fluor’s allegation that ZPMC
should have told it about the need to implement D scanning in order to detect
the transverse cracks, or at least most of them. The second aspect arises
because knowledge of an inspection or fabrication problem within ZPMC may, as
an incident of workmanship or good practice, trigger an obligation to take
steps to raise the matter with Fluor with a view to changing the agreed
procedures.
310.
Each element may give rise to a separate answer. In relation to the
first, the knowledge required must be knowledge that is capable of being
imputed to ZPMC as a company. Where actual knowledge is concerned, it is trite
law that it is only the knowledge of employees at a certain level that will be
imputed to the company. What that level may be will depend on the
circumstances. Fluor did not suggest that in this case some form of
constructive knowledge would suffice.
311.
However, in relation to the second element, knowledge of a more junior
employee, such as a foreman, may be relevant because it may trigger a chain of
reporting within the company. With these points in mind I turn to the
evidence.
312.
In an extract from the notebook of Mr Chu Xiangjun, the Production and
QC Manager of branch company 3, dated 9 February 2009, it was noted that “Adopting
straight welding seam UT inspection on base material is unable to detect, must
ride over the welding seam then only be able to detect”. This followed a
request from Mr Chu a few days earlier asking if Mr Shen Daming could visit “Small
CX” to find out the cause of
the repeated appearance of transverse cracks on FCAW repairs. The extract from
Mr Chu’s notebook is clear evidence of the fact that in branch company 3 it was
known at junior management level that D scanning (or a variant of it - if it
involved “riding on a weld” that had not been fully ground) was able to detect
cracking that was not picked up by E scans. It is not clear from this entry
whether Mr Chu was referring to cracks in primary production welds or in repair
welds, although from the wording of the entry the former looks more likely.
313.
There is an undated and unsigned internal ZPMC document (but is dated by
the metadata as created on 22 May 2009), which, according to Mr Cao Weizhong
(at least, at one point), was written by a Mr Yan Hua, a manager in ZPMC’s QA
department. In this document he said:
"Investigation
and analysis in relation to the causes for transverse cracks of the wind
power project
The wind power
project, from the commencement of large production in last November to
present, this problem has always existed. Through long term statistics and
observation, the transverse cracks mainly exist on repair positions. Recently,
the supervisor increased the strength of onsite inspection, the frequency of
discovering transverse cracks increased, therefore raised doubts to our
inspection quality and product quality.
However, through
technical analysis and analysis of the onsite quality inspection and NDT
staff's experiences, the main causes are as follows:
1.
Insufficient
preheat. This is the currently common belief of the supervisor, welding
technicians and general staff. Indeed, the issues of proceeding welding without
preheating, insufficient preheat temperature were discovered onsite many times,
there was also the issue that the preheat position did not match the welds;
2.
No
temperature keeping after welding. According to the procedure requirement,
temperature keeping should be performed on the welds after welding. While
welding, the electric heating band cannot be reached, should be placed near the
welds, but these requirements were not strictly implemented.
3.
Issue
of CO2 welding. Most of the places where transverse cracks occurred were the
positions of CO2 repair welding. The CO2 welding wires itself may have issues,
whether low in hydrogen (did not reflect in the quality warranty letter). In
addition, CO2 onsite were not taken back to the consumables room in the evening
to perform temperature keeping, heating process, left in the workshop
overnight, very easy to be damp. The baking system was basically strictly
implemented on the electric welding rods, therefore, the electric welding rods
repair welding positions basically did not occur transverse cracks.
4.
Issue
of welder's welding. Some welders in order to be fast, did not implement the
WPS requirements, increased electric current and voltage, causing energy input
increased, the penetration bigger and wider, the fusion metal filled too much,
causing problems of stress and defects exist in the welds etc.. When repairing
the nearby positions, these defects which should be postponed in occurrence
occurred immediately in the welds.
5.
The
increase of the chance to discover electronically transverse cracks also
related to the inspection method. According to the requirements of the
drawings and procedure, we only performed transverse scanning by riding on the
welds for the welds which require grinding under the drawings, and performed
transverse scanning of 15 degree or 10 degree from both sides for other welds.
When FLURO [sic] performed transverse scanning by riding on the welds for all
welds, naturally the chance to discover transverse cracks increased."
(My emphasis)
314.
In my view, four points are apparent from this document:
(1)
The problem of transverse cracking was in the belief of the writer, a
persistent one, that is from November 2008 onwards and occurred mainly where
there had been repairs.
(2)
A recent increase in the extent or thoroughness of the scanning had
revealed many more cracks.
(3)
D scanning was only required on welds which were required to be ground,
and that is what ZPMC did.
(4)
The reference to “transverse scanning” carried out by ZPMC in the second
sentence of the final paragraph must be a reference to E scans (because D scans
are not done from both sides). This is to be contrasted with the “transverse
scanning” said to have been carried out by Fluor by “riding on the welds for
all welds”.
315.
It is reasonably clear to me that this document shows that the author
was unaware that any of ZPMC’s fabrication units had discovered transverse
cracks in early 2009 by using D scans. If, as stated by Mr Cao (and there is
no evidence to contradict him), the author of this document was a manager in
ZPMC’s central QA department, then it is reasonable to infer that those who
worked in that department were not aware in early 2009 that D scans were more
effective than E scans at detecting transverse cracks of the type that arose at
Changxing. Indeed, the inference from the last paragraph - whether right or
wrong - is that this was only discovered by Fluor.
316.
In cross-examination Ms Ma said that she first became aware that people
employed by ZPMC were using D scans in May 2009, which was when Fluor’s
inspectors started using D scans in branch company 2 (Day 13/58). I have no
reason to think that she was not telling the truth.
317.
Fluor relies on an e-mail dated 23 May 2009 sent by Mr Chu Xiangjun to (or
copied to) a number of employees of ZPMC. They included: Sun Mingfeng, Zhou
Jinhua, Tian Hongliang, zhucz, lingjy, chencs [full name unknown], Lu Hanzhong,
Ma Xiaomei, Cao Guiming, Liu Jianbo, Shen Daming, Li Jianghua, Zhang Ming, Tang
Yung, Feng Zhiwen, Cao Yi. It said this:
“5.
In relation to cracks, our company 3 already discovered transverse cracks while
shipment 1 manufacture, under the guidance of the welding lab, the
measures we adopted for procedure are as below, the preheat for repair welding
is the top priority, the electric heating bands place on the opposite side of
the repair welding positions, the electric heating bands are always in the
heated status during the whole welding process, after completion of welding,
continue to heat for 2 hours; for inspection, perform transverse cracks
inspection by probes riding on the welds for all repairs, discovered hundreds
of transverse cracks one after another, arrange repair by work teams in the
workshop for these cracks; For the repairs of more than twice, request to use
welding rods to perform repair welding (basically did not discovered cracks of
welding rod welding, but low efficiency). Recommend company 1 and company 2 in
relation to all repair positions of the welds in shipment 4, perform overall
transverse cracks inspection before FLUOR third party random inspection.”
(Mr Brannigan’s emphasis)
318.
This is consistent with the extract from Mr Chu’s notebook that I have
already quoted, in that it is saying that branch company 3 was using D scans
from a very early stage. It is not clear quite what was said to have been done
“under the guidance of the welding lab”, but that seems to refer to the
measures that were taken to improve the welding procedure (rather than the
inspection technique).
319.
On 3 June 2009 Mr Chu sent an e-mail to Mr Yan Hua, the final paragraph
of which was as follows:
“Mr Yen, please assist appropriately,
initially Small Changxing's Quality Inspection was under my strict supervision,
exhausted in doing this project, many of the quality inspectors had fallen ill,
at the end of January, beginning of February, I reported this transverse
cracks issue to the Welding Research Unit, I had also raised this issue many
times during the daily Wind Farm Power Project meeting, did not get sufficient
attention, I had tried my best. I led Company 3's Wind Farm Power Project
team(s), forget about reward money, just hope that will be separately treated,
not to be punished and criticized."
(My emphasis)
320.
This was clearly a plea for clemency (although I am not entirely clear
why he thought he needed it) and, without wishing to cast any doubt on the
integrity of the author, he would have had an understandable interest in making
the point that he had raised these issues before but that no one had taken any
notice. Fluor invites the court to draw the inference that not only did Mr Chu
report the occurrence of cracking at the daily meetings, but also that he
reported the fact that branch company 3 was finding those cracks by using D
scans, not E scans. Ms Ma was asked about this e-mail and whether she
remembered Mr Chu raising the issue of transverse cracks on many occasions at
the meetings. She said that maybe he had raised it “but I don’t think so many
times” (Day 14/11). She went on to say that she just had a vague memory of
it which, seven years after the event, is hardly surprising.
321.
Apart from Mr Chu’s reference to mentioning the issue of transverse
cracking at daily meetings, there is no evidence at all from the documents
disclosed by ZPMC that anyone within ZPMC outside branch company 3 was aware of
the fact that D scans could detect transverse cracks that were not picked up by
E scans. Fluor invites the court to infer from the various references to the
discovery of transverse cracking from January 2009 onwards that this cracking
must have been discovered by the use of D scans and that the management
of ZPMC knew this. These two things are certainly possible, but in my judgment
neither is an inference that the court can draw with any degree of confidence.
322.
What I find telling is that, subject to one possible exception which I
will address below, there is no evidence
whatsoever that, until at least early April 2009, any of those who were engaged
by Fluor to monitor the NDT carried out by ZPMC realised that branch company 3
was finding transverse cracks by using D scans in situations where the
prescribed technique was an E scan. In his first witness statement Mr Estabrook
said, at paragraph 40, that he was sure that ZPMC was only using E scans, at
least after early December 2008; he said that he usually walked around the
various welding shops “more or less every day” and would frequently see
operators doing NDT, but that he now cannot remember what type of scanning they
were doing. He said he would have seen if he had looked closely, but he was
concentrating on whether they had the appropriate equipment and appeared to be
using it in the right way.
323.
In March 2009 a Mr Richard Edwards, of RWE, visited Changxing and
produced a report dated 27 March 2009. On 6 April 2009 he sent an e-mail to Mr
Estabrook and Mr Ayres by which he forwarded an e-mail that he had sent
internally within RWE earlier that day. In the earlier e-mail he said this:
“Vince has
asked me to forward to you both this e-mail that I sent to him on Thursday.
Basically it summarises my enquiries with DNV since the issue of our report of
27th March, on NDT and acceptance standards. It concludes that; on
what we have seen, we cannot have confidence in the current ultrasonic
inspections performed by ZPMC and SGS. Therefore, without revised procedures
and 100% re-inspection we should conclude that there are sub-surface flaws
present in these components (monopiles and transition pieces) that do not
comply with the standard.”
The other e-mail referred to in the passage quoted above was
an internal e-mail sent by Mr Edwards to others within RWE on 2 April 2009
(“the Edwards e-mail”). In that e-mail he said this:
“The
bottom line is that for all of: UT sensitivity (including corrections for
transfer loss), defect evaluation and sizing, defect removal, scanning and
detection for transverse flaws (chevron cracking, our interpretation of the DNV
code and our expectations based on other EN and ISO inspection codes [are]
required to be applied on this project. I can expand on the detail further if
required, much of which is covered anyway by our last report but in a nutshell
ZPMC and Fluor should be:
1.
Testing with angle probes at DAC +
14 dB and evaluating anything that breaks the DAC line.
2.
Measurements/corrections for
transfer loss should be carried out and applied 3. sizing the length of
defects should be done using the 6 dB technique, which means basically all of
its length
3.
when excavating flaws lack of fusion
and slag defects must be completely removed even if the bits at the ends are
very low amplitude. The only way to check this is to grind the surfaces of the
excavation and carry out MPI.
4.
Transverse scans should be
carried out from the weld cap provided the surface is smooth enough, which it should be on normal submerged arc welds of
this size and in the case of what we have seen at ZPMC after the welds have had
a proper visual inspection and have been dressed or repaired so they conform.
This is another practical reason for doing the MT prior to the UT.
(My
emphasis)
My recommendations would be:
1.
. . .
2.
Modify the ZPMC and SGS UT NDT
procedures to reflect requirements above and retrain/instruct operatives as
appropriate
. . .
Without the above I cannot
see anyway that GGOWL will be able to have confidence that the butt welds on
the MPs and TPs are free from sub-surface flaws.”
324.
In his witness statement Mr Ayres said that, beyond recognising that Mr
Edwards was criticising the way ZPMC was carrying out the NDT, he did not
really understand this e-mail because it was too technical. He said that he
left it to Mr Estabrook to investigate the issues that Mr Edwards had raised.
However, since it quickly became clear that Mr Estabrook’s investigations were
taking up a lot of his time, Mr Ayres then decided to ask Mr Dove to
investigate the problem and sort it out. In his witness
statement served in the GGOWL arbitration, Mr Ayres said that he was very
surprised at the suggestion that the NDT procedures were inadequate.
325.
In his witness statement Mr Estabrook said this, at paragraph 50:
“I took
exception to his criticisms, and spent a lot of time in April and May 2009
refuting them. As well as setting out my own views in numbers of e-mails, I
roped in support from outside experts including Ohlen from DNV, and American
expert called Bill Blanshan, and later an English expert ASNT level III called
Dr Ian Thomas. Eventually Dr Thomas produced a report on 6 May 2009 concluding
that our procedures complied with DNV code.”
326.
In evidence Mr Estabrook said that he rejected the criticisms made by Mr
Edwards because he firmly believed that “the procedure we had conformed to
the requirements of DNV-OS-C401" (Day 4/143). However, in his witness
statement in the arbitration Mr Estabrook said that by early May 2009 he had
instructed Fluor’s quality assurance inspectors to perform D scans on unground
welds in Shipment 3; but he did not instruct ZPMC to change its procedure.
327.
It is quite clear from this evidence that when it was first suggested
that D scanning should be carried out on unground welds where it was possible
to do so, this was strongly resisted by Mr Estabrook. I find that, until he
received the Edwards e-mail on 6 April 2009, Mr Estabrook was unaware of the
fact that D scans might detect the existence of transverse cracks that were not
seen with an E scan. Whilst I find it understandable that a person in Mr
Estabrook’s position may not have paid close attention to which scanning
pattern was being used in branch company 3, and therefore remained unaware that
they had started to use D scanning on the cap of the welds, it is less easy to
understand how it was that seemingly none of the NDT inspectors engaged by
Fluor noticed that some fabrication shops within ZPMC were using D scans in
situations where the agreed procedures required the use of an E scan. The only
possible explanations are either that D scans were not used very widely in
branch company 3 or that the Fluor inspectors were not very thorough in checking
what was going on or, possibly, a combination of both.
328.
In their third witness statements, Mr Li and Ms Ma each said that they
were unaware that branch company 3 had been carrying out D scans on repair
welds from early 2009. The only evidence that begins to contradict this is the
statement in the e-mail by Mr Chu (who was not called as a witness) that he
mentioned the issue of transverse cracking at the daily meetings, but I have
already dealt with this.
329.
In relation to the first element, the burden of proof is on Fluor to
establish that ZPMC’s management was aware of the fact that transverse cracks
were being found by D scanning that were not being found by E scanning. On the
basis of the evidence, it has not been shown that knowledge of this spread outside
branch company 3 until early or mid May 2009, by which time it was known to
Fluor also. In the context of this project, I do not consider that the
knowledge of Mr Chu, the Production and QC Manager of branch company 3, can be
regarded as the knowledge of ZPMC. In the organisation chart for the Wind Farm
Project, which was attached to the witness statement of Ms Ma (attached as
Appendix A), he appears at the lowest level of management - which was the
production and QC management in each of the three branch companies. On the
Quality Assurance side, there were three intermediate levels of the hierarchy
above this and below the level of Vice President.
330.
For these reasons I am not prepared to find that ZPMC as a company knew
before May 2009 that many transverse defects in the circumferential welds could
not be detected by E scanning - the agreed procedure - but only by “riding on
the welds", that is to say by using a D scan procedure on welds that had
not been ground flat. Accordingly, ZPMC was not in breach of any contractual
obligation to disclose those matters. Whilst it is possible that ZPMC’s
knowledge of this preceded that of Fluor (although I do not find this is a
fact), any difference was probably measured in days and not weeks and would
therefore not have been relevant as a matter of causation.
331.
However, in relation to the second element of knowledge I reach a
different conclusion. An obligation of good workmanship, or to ensure that the
work will be carried out skilfully and carefully is not an obligation simply to
take reasonable steps to ensure that such a standard of workmanship is
achieved, but actually to achieve it. A breach of good workmanship which
remains unrectified is a breach of contract irrespective of the level in the
corporate hierarchy at which it occurs. Indeed, in a contract such as this one
it is for the most part the fitters and welders who do the work contracted for,
not the general managers and vice presidents.
332.
I have already concluded that if ZPMC’s shop managers became aware of
the occurrence of cracking that was not always being detected by E scanning,
but which could be detected by D scanning, they should have reported this up
the line. In my view this would at least have required ZPMC to bring the
matter to the attention of Fluor and, probably, to submit a proposal for the
adoption of a different method of NDT or, alternatively, different UT
procedures so as to identify the cracks. In this context I agree with Mr Li
that if the production or QC management in branch company 3 knew that the NDT
testing procedure that they were having to adopt in order to detect cracking was
not in accordance with the agreed procedures, and if they knew that the other
two branch companies were not using such scanning method, they should have raised
the matter with their superior management. If that had happened, it would have
been the duty of the superior management to raise the matter with Fluor and, as
I have already found, to submit an appropriate proposal for the modification of
either the procedures or the methods of NDT. I consider that a failure to do
so would have been a breach of ZPMC’s workmanship obligations under the PO.
333.
In fact, in the light of the many reports and contemporaneous documents
to which I have referred, I find that the production management in Branch
Company 3 was aware from early 2009 that D scans on unground welds could detect
transverse indications that were not picked up by E scans. Accordingly, it
should have reported this to senior management within ZPMC and the failure to
do so, or to do so in a manner that ensured that the point was understood, was
a breach of ZPMC’s workmanship obligations under the PO.
334.
On 20 January 2009 Mr Yuan Zhiyong, who was the team leader of the NDT
inspectors in branch company 3, sent the following e-mail to Mr Chu:
“Today, the total length of the weld seams for which
the UT testing was performed is 43,748 mm and 3 areas, measuring 470 mm in
total, need to be repaired.
Supervising Engineer randomly inspected 12 repaired
areas on M 48-12 - M 48-17-1 prepared by Zhu Chunjing team and transverse
cracks were found thereon. Gouging was arranged and MT testing will be
performed tomorrow. I really could not stop them doing the gouging. Zhu
Youngjun and Fang Min wanted to do gouging and grinding themselves. In the end
nothing could be done so Meng Guangdong and Li Yujun had to bring the gouging
gun. After gouging, Fang Min did the grinding by himself. I will pay more
attention to this in the future. I heard that Big Changxing did not even allow
supervising engineer to perform spot check.
Please find the daily pass rate in the Daily UT
tracking record for the UK Wind Farm Project.
. . .”
Unfortunately, this e-mail was not disclosed to Fluor until
18 December 2015.
335.
The essential content of this version of events is challenged by Fluor.
However, no material has been put before the court that suggests that Mr Yuan
might have had any reason to be untruthful. However, I bear in mind that the
language used by ZPMC employees in messages of this sort can sometimes be a
little over dramatic. For example, whilst this e-mail might give the impression
that Mr Fang might have done both the gouging and the grinding, I am quite
satisfied that he did not do any gouging. Gouging needs special training,
whereas grinding - using what in this country is called an angle grinder - is
an operation that can be carried out by anyone with a sufficiently steady hand,
particularly if the machine being used is relatively small, which was probably
the case here given the nature of the operation. Mr Fang described the machine
used by ZPMC as a “sand wheel machine” (Day 19/68). That sounds to me like an
angle grinder.
336.
In his witness statement, which was served at a very late stage in the
proceedings, and well after the trial had started, Mr Yuan said that Mr Zhou
and Mr Fang had identified potential transverse cracks “by riding the probe
over the weld seam on top of the repair weld” (paragraph 17). Although
this is possible, given that there is evidence that this was being done at the
time in branch company 3, there is no mention of it in his e-mail.
337.
Fluor says that neither Mr Zhou nor Mr Fang are named as inspectors in
the Manufacturing Data Book for the relevant pile. In response to the witness
statement served by Mr Yuan, Fluor held a telephone call with Mr Fang. A Mr
Tom Smith, of Hogan Lovells, participated in the call with Mr Hans Ho, of
Fluor, acting as an interpreter. The call took place on 3 March 2016.
According to Mr Smith’s note of the call, the accuracy of which I have no
reason to doubt, Mr Fang said that he had been a team leader of the night shift
at Small Changxing from January 2009 to April 2009 (however, this was
contradicted in evidence when he said that the nightshift did not have a
separate team leader because it reported to the leader of the day shift: Day
19/43). His primary work in January 2009 was working on the transition pieces.
His role was to oversee the visual inspection of the welding processes in order
to ensure that ZPMC’s work followed the proper procedures. He said that he did
not work alongside Mr Zhou, because he led the day shift. He said that he had
no involvement with NDT inspection, although he was qualified in China to Level II. He said that although the name of Mr Yuan Zhiyong sounded familiar, he
had no clear memory of him.
338.
This last statement by Mr Fang proved to be palpably untrue. It was
evident that he knew Mr Yuan quite well: on at least one occasion in 2015 they
had had dinner together when they went out with some other colleagues. Indeed,
it emerged that in fact Mr Fang had spoken to Mr Yuan on the morning before the
telephone conversation with Hogan Lovells. In cross-examination he agreed that
he had told Mr Yuan in a later conversation on 9 March 2016 that SGS were
complaining that he, Mr Fang, had not carried out his duties in accordance with
the required procedure and that, as a result, he might have damaged the
reputation of his employer, SGS.
339.
It also emerged during the cross-examination of Mr Fang that he had
previously worked for four years in a job that required him to perform a range
of different kinds of NDT, including ultrasonic testing. He was well aware,
for instance, of the difference between a longitudinal defect and a transverse
defect.
340.
In his witness statement Mr Fang said that he did not know that there
were transverse cracks in the welding carried out by branch company 3 in early
2009, and that he did not carry his own NDT equipment because he did not carry
out any NDT. He said that he would not have been able to identify a transverse
crack by reference to the image on a UT monitor.
341.
In his third witness statement, dated 7 March 2016, Mr Hans Ho exhibited
the examination reports for the monopile MP 48, welds 12 and 17-1, which are those
referred to in Mr Yuan’s e-mail. These show that on 8 January 2009 weld 12 was
inspected by ZPMC using what seems to have been E scanning (with beam angles of
approximately 45°, 60° and 70°) and seven defects were found, all of which were
described as slag defects. These were therefore rejected. On 20 January 2009
the same points along the weld were re-examined using the same method and were
recorded as acceptable. The latter examination described the welds as being
both FCAW and SAW, which appears to confirm that they were repairs. That
report was countersigned two days later.
342.
So far as weld 17-1 is concerned, the only examination report is dated
20 January 2009 in which no defects are reported and the weld was passed. The
weld was described as SAW, suggesting that there had been no repairs.
343.
The examination reports, therefore, do not provide any support for the
existence of 12 repaired areas on these two welds. If the welds were
re-inspected on 20 January 2009 following ZPMC’s earlier inspection that day
and cracks were then found, it becomes difficult to see how ZPMC could have
signed off the report two days later as it appears to have done. The e-mail
does not say that Mr Fang and Mr Zhou found the transverse cracks: rather, the
fact that they were mentioned by name whereas the “Supervising Engineer” was
referred to only by title, tends to suggest that they were not the same people.
344.
I consider it unlikely that Mr Yuan would have made up the involvement
of Mr Zhou and Mr Fang altogether, but it seems to me to be more consistent
with the inherent probabilities of the situation that they were involved in the
investigation of the defects, rather than in their discovery. Indeed, it was
not put to Mr Fang that he discovered the defects himself by “riding on the
weld” (although, in fairness to him, Mr O’Sullivan was by then cross-examining
against the clock).
345.
In fact, a document identified by ZPMC in its closing submissions (which
I do not recall being referred to during the trial), which clearly referred to
the same welds as Mr Yuan’s e-mail of 20 January 2009, strongly suggests that
it was ZPMC itself that discovered the cracking in the repair welds. In a short
report dated 25 January 2009, an entity described as “Small CX Inspection
Department” (although probably a draft prepared by Mr Yuan) said this:
“In
respect of the small CX part of the wind farm project, during the UT inspection
on the weld seams, transverse cracks are being found in the repair areas
successively, see figure 1. The first time is that the supervisor detected
defects in the length of 20 mm for repair on MO32-14 circle weld produced by
Zhu Chunjing construction team on 12 Jan 2009 and during the UT (horizontal
scanning) on the repair, transverse crack was found with the depth of 30 mm.
Because of this, small CX strengthened preheat and post heat to eliminate
transverse cracks (must use electric heating to preheat the weld to 110°C and
welding shall be conducted after inspector has inspected and confirmed. The
interpass temperatures shall be controlled above 230°C. Repaired surfaces
should be ground smooth and transitioned smoothly into the adjacent base metal
or weld. After welding, electric heating should be continued for 1 hour. After
that, the welding area should be covered with chrome free mat for the welds to
cool down slowly to the ambient temperature). Based on aforesaid, Zhu Chunjing
construction team repaired 12 areas on MO48, and then found transverse cracks
on all of these 12 repaired areas by UT.”
346.
In another version of the same document, which was produced by Fluor,
the first few lines appeared rather differently. They were as follows:
“For the
Xiaochangxing branch of the Greater Gabbard Wind Farm Project, in the weld UT
detection process, transverse cracks have been discovered at the repair points,
as shown in Figure 1. The first time was on 12 January 2009, during the random
inspection on the MP MO32-14 CW completed by Zhu Chunjing’s construction team,
a length of 20 mm was repaired. After the repair, the UT inspection horizontal
scan found a transverse crack with a depth of 30 mm.”
347.
Unlike the former version there is no indication as to who performed the
“horizontal scan", which I take to be a reference to a D scan. Although
ZPMC submits that the report shows that the UT was undertaken by SQS, and not
by ZPMC, I am not persuaded that this conclusion can safely be drawn.
348.
If some transverse cracks were found in the two welds, which on balance
seems to me to be likely (because I can see no reason for Mr Yuan to invent
it), then I can understand that Mr Fang and Mr Zhou - if this happened at the
changeover of the shift - would have been keen to know whether the indications
were in fact cracks. I do not find it unlikely that they would have put
pressure on ZPMC to carry out the excavations of the welds straightaway, if
necessary by threatening to do it themselves. Again, I see no reason why Mr
Yuan should have made up the allegation that Mr Fang did the grinding if it was
in fact untrue. For Mr Fang to do this might not have accorded with the
procedures, but I find it hard to see how he could be criticised for his
eagerness to discover the nature of the defects. It seems far more like an
excess of zeal, rather than culpable wrongdoing.
349.
In reaching these conclusions I take limited account of the evidence
given by Mr Yuan. Like that of Mr Fang, it was very unsatisfactory in certain
respects: in particular, his explanation of an incident which he described in
an e-mail dated 31 January 2009, in which he said this:
“There is
still a transverse crack in the repair area on T003-02 at Gaokua workshop. The
construction team erased the mark and marked a false location, and after
re-inspection tomorrow afternoon, the supervisor will be asked to confirm.”
350.
When confronted with this Mr Yuan embarked on a detailed explanation
(from memory) which I found neither convincing nor plausible. First, I
consider it very unlikely that he could remember in such detail an incident
that occurred more than seven years previously. Second, I found parts of his
explanation to be implausible. For example, when asked what would have been
re-inspected, he replied “the repair spot”. When it was then suggested
to him that those carrying out the re-inspection would not have known where the
real defect was - because it had been falsely marked - he said that the entire
circumference was re-inspected and the true repair spot was then found (Day
14/121). But of course this would only have happened if the team carrying out
the re-inspection had been told that the mark indicating the crack was in the
wrong place, which would defeat the point of marking a false location in the
first place.
351.
ZPMC relied on Mr Yuan’s e-mail of 20 January 2009 in order to submit
that Fluor, through its inspectors SGS, was aware of transverse cracking in the
welds in early 2009 and of the fact that D scanning could detect such cracks in
circumstances where E scanning could not. I reject both aspects of this
submission. First, knowledge of some transverse cracks in two circumferential
welds on one occasion would not, in my view, be expected to put an independent
testing contractor on notice that there was a widespread problem with such
cracking throughout the site. Second, for the reasons that I have now given
the evidence does not establish clearly who in fact found the cracks, or by
what means, although I consider that they were probably discovered by ZPMC
using a D scan.
352.
I have to say that the detailed argument that developed around the
incident described in the e-mail of 20 January 2009 was in my view little more
than a storm in a teacup. It is an unfortunate consequence of our adversarial
system, with its focus on the trial, that minor issues such as this can be
blown up out of all proportion to their relevance with the result that disproportionate
resources are devoted to resolving them.
353.
I have already set out the paragraph in Section 8 of the Purchase Order
upon which Fluor relies. This is a section which is concerned with shipment
and delivery and which requires ZPMC to submit reports every two weeks until
delivery which were to show, amongst other things, actual progress against
planned progress dates and which were to “detail specific or potential
problems of which [Fluor] should be made aware”. Reading this clause in
its context makes it quite clear that it is concerned with problems relating to
programme and delivery dates.
354.
In my judgment it is only where there is an actual or potential problem
in meeting a delivery date that the obligation to report under this section
arises.
355.
In his witness statement Mr Ayres said that from October 2008 he
implemented weekly meetings so that ZPMC’s progress could be monitored closely
and that problems could be dealt with as soon as they arose. He said that it
was much more effective to meet with ZPMC face to face rather than to
communicate by e-mail (paragraph 3.5).
356.
At paragraph 3.24, Mr Ayres said this:
“ZPMC’s
welding was not perfect and the welds did not look pretty, but I considered the
issues to be snagging items and I had no idea that the welds contained cracks.
If I had known this, I would have investigated them prior to the shipment
departing (as we later did with Shipment 3), not least because they had all the
necessary equipment and infrastructure in Shanghai and very little in Vlissingen.”
357.
Clause 5.26.3 of AWS D1.1, on which Fluor also relies, provided that
prior approval of the Engineer was to be obtained for “repair of major or
delayed cracks”. Fluor contends that ZPMC was in breach of this clause.
Fluor asserts that ZPMC’s decision “to repair transverse cracks” without
informing Fluor and obtaining their prior approval was a breach of this clause
(see paragraph 682 of Fluor’s closing submissions). I have heard no evidence
as to what is meant by the expression “major or delayed cracks”:
however, it seems to me that it refers either to individual cracks that are
major or to cracking that is delayed. But this is not a case about major cracks,
it is about a very large number of small cracks. It is also not a case about
delayed cracks, which I take to mean cracks that would not be in existence at
the time when NDT is carried out 48 hours after completion of the relevant
welding. If cracks formed within 48 hours of welding, then in principle they
should be detected by the contractual NDT procedures and so there would be no
need for any specific provision in the code. In the absence of any evidence
that clause 5.26.3 bears some different meaning, I consider that it does not
apply to the facts of this case.
358.
Clause 5.4 of the agreed Weld Repair Procedure, which formed part of the
Quality Control Plan, provided that ZPMC was not to attempt to repair any
longitudinal or transverse cracks until a thorough investigation had been
conducted and approval to repair had been obtained from Fluor. This seems
fairly unambiguous and, in particular, it is not limited to cracks of any
particular magnitude.
359.
ZPMC submits that this procedure was replaced by a Weld Repair Procedure
that was issued by Fluor on 20 October 2008. Paragraph 8 of that procedure said
that the WPS used for a weld repair needed to be qualified for both the
position being welded and the joint consideration being repaired. However, I
do not consider that this addresses the point raised by clause 5.4.
360.
The answer seems to me to lie in the provisions of the Inspection and
Test Plan -Structural, Revision 7, which was issued in December 2008. This
provided that Fluor’s inspectors (SQS) were entitled to witness some types of
operation and so ZPMC had to give them notice when that operation was to take
place. If the SQS representative did not appear, then the operation could
proceed. However, other types of operation were ones that were not only to be
witnessed by Fluor’s SQS, who had to be given 1 days’ notice, but also could
not go ahead without being witnessed. These were designated W/H (“witness
hold”). Weld repairs other than to cracks were designated M, meaning that they
had to be monitored, but crack repairs were designated W/H.
361.
It seems to me that this procedure was intended to reflect the
requirement of clause 5.4 because, since cracks could not be repaired without
the repair being witnessed by a representative of Fluor, it meant in practice
that the repair could not go ahead unless Fluor’s representative was prepared
to approve the repair procedure. So it was not Fluor itself, but Fluor’s
representatives on the shop floor - in other words Fluor’s SQS - who had to
approve the weld procedure. When Mr Estabrook was asked about this procedure
he said that it all depended on ZPMC giving the proper notification, which it
did not always do. However, when this happened Fluor complained about it and,
if the failure to notify involved a W/H operation, the result would be the
issue of an NCR.
362.
For these reasons, I consider that Fluor’s reliance on clause 5.26.3 of
AWS D1.1 and clause 5.4 of the Weld Repair Procedure is misconceived. So far
as the alleged failure by ZPMC to notify Fluor under Section 8 of the Purchase
Order is concerned, in my view the obligation to notify under that provision
arises only if there is a problem that would imperil a forthcoming shipping
date or some other critical project milestone. This would require knowledge by
employees of ZPMC at a sufficiently senior level such that their knowledge
could properly be imputed to ZPMC as a company.
363.
I have already concluded that neither ZPMC, as a company, nor Fluor had
any knowledge prior to early May 2009 of the possibility that cracks could be
detected using D scans which were not identified by E scanning. The first
indication - so far as Fluor was concerned - that this might be the case came
with the e-mail from Mr Edwards on 6 April 2009. But, as I have already
described, Mr Estabrook disputed the conclusions reached by Mr Edwards and was
determined to refute them.
364.
However, the prior question is: when did ZPMC, as a company, first
become aware that it had a serious problem with transverse cracking in repair
welds?
365.
Relevant communications within ZPMC include the following:
(1)
An entry in the Li Ruixiang’s notebook for 14 of January 2009 refers to:
“Groot lay on ship appeared [XX] cracked. Welding cracks problem, how
to deal with it". In evidence, Mr Li said that this referred to
another project: he said that the vessel mentioned was a 4,400 ton pipe laying
vessel (Day 14/44-45).
(2)
On 31 January 2009 Mr Chu sent an e-mail entitled “Progress in Small
CX" to a large number of recipients in ZPMC, which included Mr Lu and
Mr Liu Jianbo, the Changxing General Manager. Under the heading
“Difficulties”, this said:
“5. Performing UT for transverse cracking inside the
repaired welds is a key factor that is constraining the progress. Contact Mr Gu
Fuming today and ask for technical support.”
Ms Ma said that
she could not say whether or not she would have read this e-mail at the time,
since it concerned branch company 3.
(3)
Mr Chu sent a further e-mail on 3 February 2009 that was addressed or
copied to many of the same people, except Mr Liu Jianbo, in which he noted:
“Quality: Transverse cracks often appear on FCAW welds. Mr
Shen, please go to Small CX to help find out the cause.”
(4)
Two days later Mr Chu sent another e-mail to a similar group, but this
time including Mr Liu Jianbo, in which he said “inside the repaired welds
often exist transverse cracks, bothering progress".
(5)
At a Project Coordination Meeting held on 7 February 2009 it was
recorded that:
“Due to the cold weather, cracking can easily occur on
weld seams. Currently the pass rate for repair is low and the huge amount of
repair is worrying. The quality of weld repair directly affects production
progress. There are still over 50 m of weld seams that need to be repaired for
Shipment 1 and we must hurry up in weld repair.”
It is not clear
whether this is a reference to cold or hydrogen cracking, or is a reference to
the type of cracking referred to the report cited at (11) below.
(6)
On 18 February 2009 the Test Centre circulated a notice containing dos
and don’ts to prevent the “formation of defects such as cracks”. A copy
was sent to both Mr Lu and Mr Li.
(7)
In February 2009 there were internal reports from Mr Yuan to Mr Chu of
branch company 3 of cracking being found on a regular basis.
(8)
Between 17 and 19 March 2009 a number of e-mails were circulated within
ZPMC with the title “URGENT!/WELD DEFECTS NOT BEING REPAIRED FOR FIRST
SHIPMENT", some of which were copied to Mr Hans Ho, Mr Ayres and Mr
Estabrook. So at this point Fluor was being kept in the picture by ZPMC.
(9)
On 23 March 2009 there was an e-mail from Mr Li to, amongst others, Mr Huang,
the Vice President, and Mr Lu. This was entitled “The crack problem of the
Greater Gabbard Project” and said that monopiles were frequently subject to
crack problems of circumferential welds. It said that SQS staff found a 15 m
long surface crack on a circumferential weld.
(10)
On 25 March 2009 there was an e-mail from Mr Zhang Haisheng, the
Production Manager, branch company 2, which was copied to both Ms Ma and Mr Lu
and stated “welding pass rate still biggest problem hindering increase in
production of circumferential seam welds”. The reply from Ms Ma on the
following day referred to “circumferential seam surface cracks".
Ms Ma explained in evidence that her understanding at the time was that these
surface cracks were not the same thing as transverse cracks (Day 13/114-116).
(11)
On the same day the Inspection and Welding Procedure Office produced a
report entitled “Report on Surface Cracks in Circle Seams for Wind Farm
Project”. The report makes it clear that the cracks in question were the
product of cyclic loading (caused by temperature difference between day and
night) which produced unacceptable stress concentrated at a “gully” in the weld
seam. It contains no reference to cold or hydrogen cracking.
(12)
On 15 April 2009 Mr Hovermale sent an e-mail to Mr Dekker and Mr Fuller
in which he said the “transverse cracking of welds is new to us”.
366.
It is clear from the e-mails sent by Mr Chu in January and early
February 2009 that it must have been known within ZPMC’s middle management that
there was a problem with transverse cracking in circumferential welds within
branch company 3.
367.
But at a wider level, and as time went on, there is also no doubt that
ZPMC was having a general problem with the frequency of weld repairs and their
quality, and there is also no doubt that Fluor was made aware of this in the
run up to the first shipment. However, in spite of the early references to
transverse cracking in branch company 3, I do not consider that it is fair to
conclude that in, say, March 2009 there was any general awareness within ZPMC
that there was a significant problem with transverse cracking - as opposed to
other types of crack or defect - that merited special attention in the context
of delay to the forthcoming shipment.
368.
Shipment No 1 left Shanghai on 4 April 2009 - two weeks later than the
original shipment date. However, there is no documentary evidence of any
complaint by Fluor that it was not being kept aware of this delay or the
reasons for it. Indeed, an exchange of e-mails around 19 March 2009 between
Fluor and ZPMC shows that the need to meet the shipping date (then 20 March
2009) was not to prevail over the need to achieve proper weld quality.
369.
However, it was known from December 2008 that cracks had been found in
the flange welds, but those welds were in very thick sections and the problem
was not thought to be of general application (see the evidence of Ms Ma at Day
13/55-56).
370.
There were some fairly widely circulated reports in March 2009 of
surface cracking in circumferential welds, but I accept the evidence of Ms Ma
that this was seen to be a different problem (Day 13/110-116).
371.
On the material before the court I am not prepared to find that, prior
to the anticipated shipment date of Shipment No 1, there was a clear
understanding at middle to senior management level within ZPMC that there was a
widespread problem with transverse cracking which was likely to cause delays to
the schedule. By contrast, it is clear that there was widespread concern at
the extent of weld repairs generally and the difficulty that ZPMC was having in
producing acceptable repairs. In my view the court must be very astute not to
attribute to people on the ground knowledge that is rather more easily
identified with the benefit of hindsight. The edifice of knowledge that Fluor
seeks to erect is in my view based on foundations that are too slender to
support it.
372.
Shipment No 2 left Shanghai on 6 May 2009. By this time Fluor had become
aware of the Roberts report and the discovery of a hitherto undetected
transverse cracks in a monopile that had been shipped in Shipment No 1. But,
as I have already explained, the initial reaction within Fluor, led by Mr
Estabrook, was to dispute the suggestion that this might be a serious problem.
It was not until about a fortnight after Shipment No 2 had left Shanghai that the full extent of the problem began to be appreciated.
373.
For all these reasons I consider that Fluor has not proved its case that
ZPMC was in breach of any duty to notify Fluor of any problems under section 8
of the Purchase Order.
374.
GGOWL’s involvement with NDT at Changxing really began with the Edwards
e-mail (of 2 April 2009 and to which I have already referred), in which,
amongst other things, Mr Edwards said this:
“Transverse scans should be
carried out from the weld cap provided the surface is smooth enough, which it
should be on normal submerged arc welds of this size and in the case of what we
have seen that ZPMC after the welds had a proper visual inspection and have
been dressed or repaired so they conform. This is another practical reason for
doing the MT prior to the UT.”
Mr
Estabrook’s response, typed into the e-mail, was as follows:
“Incorrect. There is
absolutely no requirement whatsoever to scan the surface of the weld cap
according to DNV OS C401. Scanning is performed to pick up all indication in
all planes in the weld.”
375.
Mr Estabrook, through his comments typed into the e-mail, disagreed
strongly with any suggestion that the UT and NDT procedures being followed by ZPMC
(and SGS) should be modified; on the contrary, he wrote: “ZPMC has performed
the UT in accordance with approved procedures and in accordance with DNV OS
C401”.
376.
Very shortly after receipt of this e-mail Shipment No 1 left Shanghai.
377.
On 15 April 2009 Fluor was sent a copy of a report by a Mr Roberts, of
RWE, following inspections that he had carried out at Changxing between 18 and
24 March 2009. The report recorded
that on the final day of the inspections transverse chevron cracking (in fact,
in a subsequent telephone conversation between Mr Hovermale and Mr Reilly this
description was changed to “transverse cracking”) was found in a weld on
monopile IGI 04.
378.
Mr Hovermale agreed in evidence that Fluor wanted to rebut the findings
in this report so as to avoid any demand by GGOWL for further testing at
Vlissingen (Day 6/120). To this end, Mr Fuller, Mr Ayres, Mr Ho and Mr
Estabrook wrote a joint seven page memorandum dated 29 April 2009 addressed to
Mr Dekker in order to clarify the quality requirements for the welding on the
project and how those requirements were being implemented and monitored. It
concluded as follows:
“Based on the above facts, it
is our opinion that the weld quality inspection process on the project meets
specifications, is healthy, and is providing the specified quality for the
project.”
379.
Mr Hovermale, who was at the time the Project Director, agreed that the
conclusion of this report reflected Fluor’s view at the time (Day 6/121-122).
In addition, he said (at Day 6/133) that he did not want anyone to know about
the earlier change of standard from AWS to DNV in relation to NDT:
“because it might give them
an excuse to NCR the shipment and that is going to cause me all sorts of
problems in terms of the money and the schedule.”
380.
Mr Estabrook’s reaction to the Roberts report was to set about
investigating whether Mr Roberts could be right. At paragraph 54 of his witness
statement he set out various steps which Fluor took in the light of it. These
included checking ZPMC’s records of the monopile that Mr Roberts had examined;
checking the results of a Time of Flight Diffraction analysis on the same
monopile which had been carried out by a testing company called Sonovation; the
preparation of an internal report dated 28 April 2009 and providing a report to
GGOWL on 5 May 2009. In addition, Fluor arranged for Sonovation to go to Vlissingen when Shipment No 1 arrived to carry out further testing on the monopile in which
Mr Roberts had found cracking. This followed a recommendation by Mr Dove that
this should be done (in a draft report dated 29 April).
381.
The short report that was sent to GGOWL on 5 May 2009 contained the
following conclusions:
“RWE have not provided the
exact location of their reported defects in the circ welds of MP 082, so it is
impossible to determine if TOFD was applied to these same welds locations. As
Fluor QA at ZPMC was not informed of these findings until RWE had left China, there was no opportunity to verify the exact nature of these indications. However,
the testing performed by ZPMC, Sonovation and SGS does not indicate any
transverse cracking.”
382.
On 14 May 2009 Mr Dekker wrote to Mr Jim Smith, of GGOWL, enclosing the
internal memo on weld quality dated 29 April that Fluor had prepared, saying “I
am confident this memo addresses your concerns about weld quality shipment no.
1.”. Mr Hovermale agreed that at
this stage Fluor was still “pushing back” against UT testing at Vlissingen (Day 6/135).
383.
On the same day there was contract Progress Meeting Number 13 attended
by representatives from GGOWL and Fluor. At item 12/4.2 the following was
noted:
“• F
have no proposal to do more NDT’s (sic) but will check for underfill. G may
request more NDT’s. There is a concern over IGI 04
. . .
• TP’s - Coating
checks, adhesion checks, visual inspections. 14/05/09: G reviewing whether more
NDTs are necessary. G requested a drawing of the welding geometry but F
maintain that there isn’t one. G to revert with the testing requirements
formally early next week.”
384.
At that point, therefore, Fluor’s stated position was clear (as was
accepted by the evidence of Mr Hovermale): it was not proposing to carry out
any further testing of the MPs and TPs at Vlissingen in general, although it
was arranging for Sonovation to carry out a further test at Vlissingen on the
monopile in which Mr Roberts had found cracking.
385.
Meanwhile, the reaction within ZPMC was rather less robust. In an e-mail
dated 11 May 2009 to Mr Chen Bin and Mr Cao, Mr Yan Hua wrote this:
“There
are some transverse cracks on the repaired MP welds, and of course they have
already been repaired. Regarding the reason for multiple times of repair, the
base considers that it is because the welding procedure is not strictly
followed. However, after the site has strengthened control, the problem is
still not completely resolved.
Fluor
has not squarely brought up the issue; maybe it’s because Fluor was rather weak
in its NDT check.
And yet this is a very
serious issue. If Fluor finds further problems that we left out during the
check at the client’s wharf, things will get out of hand. We have to request
the base to find out the root cause of the problem and solve it from its root once
and for all.”
386.
Although Mr Estabrook had found no evidence that Mr Roberts was correct
(because the monopile in question was still on its way to Vlissingen), by the
middle of May 2009 he had discovered that performing a scan on the top of the
weld cap was a better means of testing for transverse cracks (paragraph 57 of
his first witness statement).
387.
On 19 May 2009 GGOWL wrote to Mr Hovermale requiring facilities to carry
out additional NDT of the monopiles in Vlissingen. It said this:
“Further
to other communication and meetings about the works to be carried out in Vlissingen, please take this note as confirmation that GGOWL want to verify weld acceptance
and quality by additional NDT.
The
requirement is to inspect to
ZPMC
procedure simply QC-DNV-UT-02, Revision 1 dated 17th February 2009
using scan D as defined in the procedure. GGOWL will arrange independent NDT
operators to carry out the work, they will be available from 25th to
30th May.
The
area of weld to be inspected is the internal ground welds in the location of
the mud line being the highest stressed areas, three monopiles are to be
inspected. In most cases this will mean the three circumferential ground welds
internal to the monopiles. The intention is to carry out ultrasonic NDT of the
most available length of weld without additional access facilities being
provided by Fluor, this in terms of weld length is expected to be about 6
meters and with the three ground welds being inspected be the equivalent of one
full circumferential weld per monopile.
The three monopiles to be
inspected should be nominated by Fluor together with time periods for
inspection so as not to cause any disruption to the planned works in Vlissingen.”
388.
Coincidentally, on the very same day, 19 May 2009, Mr Fuller sent an
e-mail to Mr Dekker asking whether Fluor had been “able to avert re-testing
of the welds for Shipment 1”, which suggests that Fluor had no intention at
that stage of carrying out such retesting of that shipment.
389.
The following day, 20 May 2009, Shipment No 1 arrived at Vlissingen. By then Shipment No 2 was in transit, having left Shanghai on 6 May 2009.
390.
Towards the end of May 2009 numerous problems had arisen at Vlissingen such that the site manager was becoming overwhelmed, and so on 27 May Mr
Hovermale asked Mr Ayres to go to Vlissingen as a matter of urgency and take
over. There is no suggestion in the documents that any of these problems
concerned weld testing or weld cracking.
391.
However, at Changxing testing that had been carried out on the
instructions of Mr Estabrook which involved carrying out D scans on both ground
and unground welds revealed six areas of serious transverse cracking on one
monopile. This was reported to ZPMC by Mr Estabrook in an e-mail dated 21 May
2009. He described the results as striking and very worrying. However, the
reaction from ZPMC was to say that SGS should not have been testing along the
cap of unground welds (e-mail dated 22 May 2009).
392.
On 26 May 2009 Mr Estabrook sent an e-mail to ZPMC to notify it that
Fluor SQS would be performing
“an
additional 20% NDT inspection on the third shipment mono piles circumferential
seams . . . This increased testing is due to the fact that your NDT QC has missed an abnormal amount of defects through their NDT process.
Testing will be strictly in
accordance with ZPMC approved NDT procedures. We will begin these activities
immediately . . .”
Mr Estabrook explained that by “strictly in accordance
with ZPMC approved NDT procedures” he meant using D scans on ground welds
and E scans on unground welds (paragraph 74 of his first witness statement).
So although Mr Estabrook had become seriously troubled about the discovery of
further cracking, there was no proposal for any general enhanced testing (ie.
testing that went beyond the agreed procedures) of Shipment No 3 at Changxing
or in respect of Shipment No 1 at Vlissingen. Nevertheless, ZPMC replied
promptly in the letter of the same date asserting that this additional testing
was “out of the contract scope”.
393.
At this stage, therefore, Fluor had engaged Sonovation to carry out
further tests at Vlissingen on the pile in which Mr Roberts had found cracks
but, the beyond that, I find that it was still not proposing to carry out any
widespread testing at Vlissingen.
394.
On 28 May 2009, two relevant events occurred. First, Fluor decided to
perform a 100% re-test of all circumferential welds in Shipment No 3. This
followed further testing on Shipment No 3 during which Fluor found an
increasing number of transverse cracks in welds that had passed the ZPMC QC
process. Having increased its QA testing to 20%, Fluor found even more
transverse cracks. Fluor then decided to increase this to 100%.
395.
The second event was that RTD Applus, the independent testing company
engaged by GGOWL following its letter of 19 May, noted planar transverse
defects in monopile IGH 06 during the inspection at Vlissingen. Mr Hovermale
said that this was testing that Fluor had tried very hard to avoid. However,
when Mr Dekker asked Mr Hovermale whether they had found transverse cracking at
Vlissingen, Mr Hovermale passed the enquiry on to Mr Hardie. Mr Hardie’s
immediate reply was “No we have not” and, two days later, in an e-mail
to Mr Hovermale of 31 May 2009, he said:
“UT
was carried out on 3 piles on ground welds. Some indications were found, these
are planar defects. And are not considered to be cracks.
We are excavating one of the
indications to determine if the indications are detrimental and will continue
to scan additional ground welds if these are found to be injurious to the
structural integrity.”
396.
On 3 June 2009 Mr Short, of Fluor, sent an e-mail to Mr Gao, of ZPMC,
copied to Messrs Hovermale, Ho, Den Dekker and Ayres, in which he wrote:
“Fluor
and GGOWL have been undertaking further NDT on the first shipment of Mono-Piles
in Vlissingen and I am sorry to say that in one of the first Mono-Piles that
was checked we found a crack in the steel measuring 40 mm x 25 mm. This is
extremely serious and at the moment we do not know if this is an isolated
incident or not. Either way it is not good news for the Project. We will know
more by the end of the day as to the seriousness of the problem but meanwhile
you need to consider planning to get your NDT expert over to Vlissingen for him
to see the extent of the problem and validate our findings as this could result
in an extensive back charge.
As soon as I get more
information I will send it over to you.”
397.
The same day, Mr Reilly, of Airtricity, on behalf of GGOWL, sent the
following message to Mr Hovermale:
“Please find attached initial
document re further NCR on Monopiles for discussion tomorrow morning 0830 hrs,
an update of NCR log is attached for completeness, you should also note that
the power transformer failure is included.”
398.
Non conformance report GGL-NCR-006 (“NCR 006”) was dated 3 June 2009,
and followed the inspection at Vlissingen by representatives of GGOWL that week
to which I have already referred. As I have mentioned, it appears that it was
sent to Fluor the following day. It described the relevant materials as “1st
Shipment Mono Piles (14 in total)”. The details of the non conformance were
described as follows:
“Ultrasonic
examination of the five fatigue ground wells in the mud-line on MP IGH-06
revealed that four out of the five welds contained recordable transverse
indications varying in amplitude. The indications are recorded as typically
planar defects that are outside the code acceptance criteria. Additional
testing on MP IGI-04 is continuing but similar indications have been identified
and examination of MP ICJ-03 is continuing.
Based on this sample, the
validity of the ultrasonic examination executed by ZPMC on all mono piles
within the 1st shipment is in question and the examination results
have to be re-validated and appropriate weld repairs made to ensure that all
welds meet code requirements.”
399.
In his evidence, at Day 6/171-172, Mr Hovermale said this:
“We
were already fixing the ones that we knew about. But we had to do more. The
effect of the NCR was now we had to do the whole shipment.
Q.
So you had to then do the whole shipment?
A.
Yes.
Q.
Yes. I think you agree with me that once you receive the NCR that getting it
cleared was the driver for you?
A.
Yes.
Q.
And at the point at which the NCR had been issued, your evidence to the
Tribunal was that you believed the welds to be sound. Do you stand by that bit
of evidence?
A. I do.”
400.
This evidence is entirely consistent with an e-mail that Mr Hovermale
sent at the time, on 4 June 2009, following receipt of the NCR, to Messrs Ayres
and Fuller, in which he said: “We have to formally clear these before we can
take them offshore”.
401.
Although Mr Hovermale was at pains to reconstruct the precise timing of
the various e-mails with a view to showing that Fluor had already embarked on
repairing the defects before the NCR was actually issued, the evidence that I
have just set out and in the skilful cross examination that led up to it shows
very clearly, in my judgment, that the issue of the NCR effectively put a stop
to any plans for the imminent loading out of Shipment No 1 and imposed the
testing and repair regime that I consider that Fluor would not otherwise have
countenanced. This was an attempt to rewrite history that I did not find
convincing.
402.
On 11 June 2009 Fluor wrote to ZPMC instructing the following changes to
the NDT procedure:
“٠ Scanning
Pattern D shall be required for all repairs and whenever deemed possible to
sufficiently couple the probe to the face of the weld to allow scanning.
٠ Scanning Pattern E shall be required for all welds
regardless of whether or not the weld has been scanned using Pattern D.”
403.
On 16 June 2009 ZPMC wrote to Fluor in the following terms:
“The
first shipment of Mono Piles and Transition Pieces arrived in Vlissingen
already and we understand from your email that Fluor had found some welding
problems by undertaking NDT. Your email also suggested ZPMC staff shall be in Vlissingen to validate the findings which could result in extensive back charge.
ZPMC
offered our assistance within reach in Vlissingen. And ZPMC is of opinion that
ZPMC has fully fulfilled the contractual obligation. The site work in Vlissingen is performed by Fluor voluntarily and it’s out of the contract scope. The
reasons are as follows.
The
NDT inspections carried out during fabrication by ZPMC are all strictly
compliance with the NDT procedure approved by both parties. Following are some
extract from its requirement:
. .
.
In
view of above, ZPMC considers that the NDT testing in Vlissingen beyond the
agreed NDT procedure scope. Therefore, testing and repair work in Vlissingen are out of the contractual specification between ZPMC and Fluor, and back charge
to ZPMC is not appropriate. Quite a few weld defects discovered are within the
scope of allowable and it will not impact the operation
ZPMC will try our best to
support Fluor.”
404.
What this letter shows very clearly is that from the outset ZPMC was in
no doubt about its contractual rights. It understood clearly that it was not
required to carry out without payment any work that was outside the scope of
its contractual obligations. For its part, Fluor was justifiably concerned
that the instructions in its letter of 11 June 2009 could be used as the basis
of a claim by ZPMC for additional work.
405.
At some stage in June Mr Hardie had a conversation with a Mr Pashley, of
GGOWL, to discuss what Fluor had to do in order to have the NCR released. Apart
from providing the relevant paperwork in relation to the welds, Mr Pashley made
it clear that Fluor would have to scan all the welds using D scanning. Mr
Hardie said that it was not practicable to scan unground welds with the probe
on the weld cap on account of the irregularity of the surface, but he was told
that it could be done using copious amounts of couplant.
406.
On 25 June 2009 Fluor wrote to ZPMC giving formal notification of the
discovery of “many instances of welding problems” at Vlissingen that had
required repair. After setting out certain provisions of the PO, the letter
went on to explain that:
“Based on the above two paragraphs, Fluor maintain
that it is their right to backcharge ZPMC for the costs involved in additional
inspection of the Mono-Piles at Vlissingen and furthermore to claim for the
additional costs for all repair and rework and any other expenses incurred
including stand-by costs payable to our installation contractor due to the lack
of acceptable piles that can be installed.
Furthermore we wish to advise our intention to claim
for liquidated damages for delay due to the late arrival of the 1st
shipment . . .
We are in the process of working out the costs, some
of which are ongoing and will not be finalised for some time. As soon as the
full extent of these are known we will let you know the overall cost of this
claim giving you a detailed breakdown of the costs involved.
Please be advised that the contents of this letter only
refers to the Mono-Piles from the 1st shipment and we reserve our
right to submit further claims in the event of any additional inspection,
rework and/or delays for any other items being supplied.
We
invite ZPMC to offer proposals as to how we can work together to mitigate the
cost and schedule impact resulting from this problem.”
407.
On the same day there was a meeting at fairly high level between
representatives of Fluor and ZPMC, including Mr Fuller Mr Cao and Mr Huang. Mr
Fuller told Mr Cao and Mr Huang that Fluor had suffered losses of around £40
million as a result of the welding defects in Shipment No 1, and that he was
expecting that a similar number of defects would be found in Shipment No 2 when
it arrived.
408.
On 29 June 2009, the day on which Shipment No 2 arrived in Vlissingen,
there was a further high level meeting in Shanghai at which Fluor told ZPMC
that it was facing costs of about $47 million as a result of the welding
problems, of which about $16.6 million was made up of standby costs of the vessels
that had been chartered to carry out the installation. The meeting was
constructive and cooperative and ZPMC indicated that it was prepared to provide
support for the testing and repair operation in Vlissingen.
409.
By early July 2009 Mr Fuller had prepared a draft of a “White Paper” in
which he reached the conclusion that the agreed procedure for NDT in Changxing
could not be expected to find all defects with the result that indications
below a certain level would be regarded as acceptable, even though they might
in fact reflect the existence of a crack. If the agreed procedure complied
with the DNV code, as Mr Fuller concluded that it did, this was an acceptable
state of affairs and one which could not give rise to legitimate complaint by
GGOWL.
410.
According to a note made by Mr Ayres, on about 9 July 2009 Fluor began
testing Shipment No 2. At this stage no NCR had been issued in respect of
Shipment No 2.
411.
It seems that one dissenting voice within Fluor at that time was that of
Ms Cathy Shargay, Fluor’s in house welding expert. In an e-mail dated 13 July
2009 to Mr Hans Dekker, who had become Fluor’s Project Director for the Greater
Gabbard project on 1 July 2009 in place of Mr Hovermale, she said, in relation
to the draft “White Paper”:
“I
disagree with the logic of the last few paragraphs starting at “After further
consideration . . .” If we know we have welds made with a process susceptible
to transverse hydrogen cracking that exceeds acceptance criterias (sic), we are
obligated to use the best methods to detect it. This is per Code, as stated in
Section 3, paragraphs 405 and 406:
. .
.
Hence, we can use the
difference in scanning patterns to explain why the cracks were missed in China, but not claim that we should not be doing the D-scans.”
412.
However, initially at least, her view did not prevail because, on 16
July 2009 Mr Dekker instructed Mr Ayres that, in relation to the monopiles for
Shipment No 1, the ZPMC NDT testing procedure was to be used from then on and,
in relation to Shipment No 2, there was to be no (or no further) NDT testing
unless otherwise advised and that these monopiles were to be prepared
immediately for loading out. This, therefore, revoked the instruction given in
the letter of 11 June 2009.
413.
On the same day there was a meeting between Fluor and GGOWL in
Camberley. Mr Dekker said that Fluor’s strategy for this meeting was to try and
force GGOWL “off the side lines” and make it state its position in
relation to Shipment No 2. At paragraph 6.33 of his first witness statement,
Mr Dekker said:
“Accordingly, the dilemma we
faced was that if we really did change back to the previously approved NDT
procedure, the likelihood was that we would catch only some but not all of the
transverse cracks; and if that scanning was not done properly, we would miss
even more. At that stage, we still did not have an ECA to tell us what, if any,
defects would be left unrepaired and we did not have an independent expert view
confirming Doug Fuller’s analysis of the code. Against that background, I knew
that however GGOWL responded to our bluff, Fluor had no choice but to continue
to find all the defects and repair them.”
414.
Mr Dekker’s bluff was to tell GGOWL that, whilst Fluor would continue to
repair defects that had been identified in the retesting of Shipment No 1, the
monopiles from Shipment No 2 would not be tested and would be loaded out as
they were. However, GGOWL reacted strongly to this proposal. Its position was
recorded in an e-mail that Mr Dekker sent to Mr Steve Dobbs on 17 July 2009, in
which he said:
“The
client’s project director John Hill called me late afternoon today. He asked me
if I was serious in continuing executing the works in Vlissingen as I told them
in my presentation Thursday morning in Camberley. I reconfirmed to him the
direction I am taking. Hill states Fluor should adapt the testing methodology
themselves to include pattern-d on non-grounded welds. This because scanning
pattern-e is not picking up to transverse defects which maybe can only be
allowed for certain cracks (sic) sizes as stated by TWI. He stated we are
responsible for installing products with minimum design life 25 year and can
not step back from this.
He
also stated that he was going to slow us down and stop us by executing NDT
testing in shipment 2 monopiles that we have prioritised for loadout on the
barge: “once we find a defect, which we will by carefully searching, you have
to repair it”.
It was to be expected the
client would respond to our presentation of last Thursday. I am sure we will
see this response also reflected in their activities on the project level in Vlissingen and Camberley next week. I think this creates the clarity we need and makes the
client aware of the impact and consequences of any position he chooses to take.
We might want to conclude it is appropriate timing to elevate the argument of
testing to Pat and Jim Smith next week if the project develops in a manner as
suggested by Hill.”
415.
Later the same day, Mr Dobbs replied:
“Thanks. Agree. Let us make
sure our designer and technical experts are in agreement that piles passing the
code testing are 25 year piles. Then Pat should work with Jim to explain we
have a code compliant product with a valid warranty and see if we can get on
with it. I don’t like the attitude of (sic) expressed in the call and Jim
should be made aware that the “test until we find something” threat will be a
no win for all of us.”
416.
This message was clearly suggesting that Fluor should do nothing about
loading out Shipment No 2 until it had received reassurance from both the designer
and its technical experts that the monopiles in their unrepaired condition
would meet the 25 year design life. Indeed, after Mr Jim Smith, of GGOWL, had
spoken to Mr Dekker’s superior, Mr Flaherty, Fluor thought better of any
precipitate action and so it was decided that the proposal to load out the
shipment would not be pursued.
417.
Of course, it was still the case that by this time no NCR had been
issued in relation to Shipment No 2. What I find was preventing Fluor from
loading out the Shipment No 2 piles without further ado was its concern that,
in their present condition, they may not be good for the 25 year design life.
Whilst it was putting up an ostensibly confident front, Fluor had no reason to
think that the condition of the monopiles in Shipment No 2 was likely to be
materially better than those in Shipment No 1 and the likely presence of
defects created a reasonable source of doubt.
418.
In his evidence prepared for the arbitration Mr Dekker gave a very clear
account of his state of mind in mid-July 2009. In his first witness statement
in the arbitration (at paragraph 49) Mr Dekker said this:
“By mid-July, I began to
realise, after several weeks of investigating the welding and NDT issues, that
Fluor and ZPMC had not done anything wrong in Shanghai. Fluor/ZPMC had
developed a code-compliant UT procedure, and by all accounts, both Fluor and
ZPMC had complied with those procedures. The only reason GGOWL (and now Fluor)
was obtaining different results in Vlissingen was that they had changed the procedure
in a way that was more likely to discover and reject indications found in the
welds. I began to feel quite strongly that Fluor was only required to do what
the DNV Code required and not what GGOWL was demanding . . . Unfortunately, I
was not successful in convincing GGOWL (Jim Smith) on these points.”
419.
When Mr Dekker was asked in cross-examination whether or not that
paragraph was true, he said this (at Day 7/31):
“I
started to become convinced that the reason we started to find the cracks in Vlissingen was because of the fact that we did not apply to ZPMC testing code.
So, at that point in time, I
thought if the testing code - the ZPMC testing code - is correct and we find
cracks in Vlissingen with a different testing code, we apply the D-scan on top
of unground welds, then there might be an argument that ZPMC is correct. So
that is what I - that is my recollection of that - of that time.”
420.
I regard this as a rather reluctant admission that what Mr Dekker had
said in paragraph 49 of his witness statement for the arbitration was correct.
Apart from anything else, Mr Dekker’s recollection of what he felt at the time
about such an important problem is not one that is peculiarly dependent on
contemporaneous documents, so even if he had been provided by Fluor’s US
lawyers with a carefully filleted selection of documents - as he implied in the
course of his evidence - I would not expect that to affect his evidence on a
point so fundamental as this.
421.
However, in other places Mr Dekker gave evidence that was directly
contrary to what he had said in his witness statement for the arbitration.
Whereas, for example, at paragraph 73 of his witness statement in the
arbitration he had said:
“By issuing that NCR
GGOWL was preventing us from proceeding with the loadout of shipment 2, which
it had been threatening to do and which I was in favour of doing since 16 July”
when Mr Dekker was asked if that statement was correct he
said that it was not and that what had prevented Fluor from loading out
Shipment 2 were the cracks in the piles, a point that he made on several
occasions see (Day 7/35, 37-38 and 39).
422.
By contrast, at paragraph 25 of his witness statement in reply in the
arbitration, Mr Dekker put his original position even more strongly when he
said this:
“At paragraphs 9.4 and 9.8 of
his Witness Statement, John Hill makes an effort to repeat GGOWL’s position
that it never “directed” or “instructed” Fluor to perform the Employer Required
NDT and Remediation. This is a theme that I have noticed in many of the GGOWL witness
statements, but I lived through those events of the summer of 2009, and I know
that GGOWL was forcing their view on us, while trying to avoid giving a direct
written order.
25.1 NCRs
006, 008 and 009 condemn all the TPs and all the MPs in Shipments 1, 2 and 3,
which brought the construction phase of in (sic) project to a complete halt. As
described above at paragraph 16, John Hill’s 24 July 2009 letter . . . made
clear what was required to remove those NCRs.”
Again, this is an example of evidence that bears the ring
of firm recollection, not of a reconstruction of events based on carefully
selected documents prepared by others. I therefore conclude that what Mr
Dekker said in his witness statements in the arbitration reflected Fluor’s view
of the position following the issue of the three NCRs. I do not accept the
evidence to the contrary that Mr Dekker gave at the trial.
423.
Whatever may have been Mr Dekker’s level of confidence in the quality of
the monopiles, it is clear that Fluor’s senior management was not prepared to
take the step of installing them without an assurance that the presence of the
cracks would not be detrimental to their service life. Thus at this point the
delay in installing the MPs of Shipment No 2 was in my judgment the result of
doubts about their condition, not the result of anything done by GGOWL -
although, of course, GGOWL had made it clear that they shared the same doubts.
424.
But the situation changed because, during an inspection carried out on
23-24 July 2009, a number of recordable transverse indications were found on
three monopiles in Shipment No 2 which were described as planar defects outside
the acceptance criteria. As a result, on 27 July 2009 GGOWL issued but did not
provide to Fluor NCR 008 in relation to Shipment No 2. This was received by
Fluor on 29 July 2009. The materials were described as “2nd Shipment
Mono Piles (14 in total)”, and it was in the following terms:
“Root
Cause Analysis report from Fluor (presentations of 25th June &
16th July) identified Hydrogen cracking arising from failure to
adequately control consumables in the SA W process in ZPMC. Fluor indicated
changes in the process had been implemented following the 3rd
shipment.
Following
ultrasonic examination of a sample of ground welds in a selection of three mono
piles a number of recordable transverse indications varying in amplitude were
detected as follows:
. .
.
The indications are recorded
as typically planar defects that are outside the acceptance criteria defined in
table B5 of the code. As all welds in this shipment of mono piles utilized the
same welding procedure the integrity of all items is in question until the
requirements of clause B405 and B406 of the code have been complied with.”
425.
It seems to me that once this NCR had been issued Fluor became bound to
comply with its requirements before the MPs in Shipment No 2 could be loaded
out. In these circumstances the only rational conclusion is that the issue of
NCR 008 prevented the subsequent loading out and installation of the MPs of
Shipment No 2, at least until such time as Fluor had satisfied itself that
those piles were fit to be installed and would fulfil their 25 year design life
(which Mr Dekker said was the end of September 2009: see Day 7/47).
426.
Accordingly, in relation to Shipment No 2, I conclude that the position
is as follows:
(1)
The reason why the MPs were not loaded out and installed during July
2009 following delivery to Vlissingen on 29 June 2009 was Fluor’s doubts about
their quality and, in particular, whether the likely presence of cracking would
affect their ability to fulfil the 25 year life.
(2)
After the issue to Fluor of NCR 008 on 29 July 2009, the MPs in Shipment
No 2 had to be re-tested and repaired where necessary in accordance with the
NCR so that the costs incurred as a result were the result of the issue of the
NCR.
427.
Shipment No 3 arrived in Vlissingen on 1 August 2009. Unloading started
the following Tuesday, 4 August, and GGOWL tested a sample of MPs almost
immediately.
428.
On 6 August 2009 Mr Ayres reported by e-mail that GGOWL had already
found one defect in Shipment No 3 and would “either NCR this shipment or ask
Fluor what they intend to do”. But the following day, before Fluor had an
opportunity to consider the options, GGOWL issued NCR 009. The materials were
described as “3rd Shipment Mono Piles”, and it was in the following
terms:
“Root
Cause Analysis report from Fluor identified hydrogen induced cracking in
submerged arc welds arising from failure to adequately control consumables
during the welding process in ZPMC. Ultrasonic examination of a sample of welds
was undertaken to determine if hydrogen induced cracking was present.
Examination was completed in accordance with ZPMC US procedure ZPQC-DNV-U2-02
Rev1 Feb 17th 2009 with cap scan (D) used on ground welds profiles
and side scan (E) on un ground weld profiles.
A
sample of circumferential and longitudinal weld in three mono piles was
selected and a number of recordable transverse indications varying in amplitude
were detected as follows:
. .
.
The indications are recorded
as typically planar defects that are outside the acceptance criteria defined in
table B5 of the code. As all welds in this shipment of mono piles utilized the
same welding procedure the integrity of all items in the batch is in question
until the requirements of clause B405 and B406 in section 3 of the code have
been complied with.”
429.
By this stage part of Shipment No 3 was still to be unloaded. Fluor’s
first reaction, as recorded in an e-mail from Mr Fuller dated 10 August 2009,
was to consider loading the piles back onto the vessel on which they had been
shipped and return them to Shanghai for repair. In fact, this was not done and
the piles remained at Vlissingen.
430.
In view of these events, the same reasoning applies and I consider that
the costs of any subsequent testing and repair of Shipment No 3 MPs were
incurred as a result of the issue of NCR 009.
431.
On 31 August 2009 there was a high level meeting between Fluor and ZPMC.
Amongst those present were Mr Guan, for ZPMC, and Mr Dobbs and Mr Fuller, for
Fluor. In an e-mail sent later the same day, Mr Dobbs said that it had not
gone well. He summarised the position - no doubt as ZPMC saw it - very pithily
in the following terms:
“Basically we did not just
order piles from them - we told them how to build the mouse trap. They followed
our instructions, we signed off on the product that was shipped, so how can
they have any responsibility. We watched them do exactly what we said to do.
Later, people we presented as experts gave them repair procedures. These people
were not experts and these repairs caused more cracks. We started repairing
things in Europe without ever telling them about it and ended up spending a lot
of money and getting nothing for it.”
432.
On 1 September 2009 there was a further meeting between Fluor and ZPMC.
It was attended by the following:
|
For
Fluor:
|
For
ZPMC
|
|
Messrs
|
Fuller
Ho
|
Messrs
|
Guan
Cao
Liu
Huang
Gao Feng
|
|
|
|
|
On ZPMC’s side the meeting was led by Mr Guan. He opened by
pointing out the unfairness of the contract, which he said was very “biased”.
According to an e-mail sent by Mr Ho the day after the meeting, Mr Guan said
that ZPMC would accept “some responsibility” for weld defects and, in
particular, would assume responsibility for repairing them. ZPMC’s notes of the
meeting record ZPMC as saying that it would “take the responsibility
entirely” for repairing defects in the welding. ZPMC stated expressly that
it would not be liable for indirect or consequential damages, including the
cost of engaging other contractors to carry out repairs. Mr Cao’s notes and
recollection were largely in line with ZPMC’s minutes (he was not asked about
the meeting in evidence).
433.
There is no reference in any of the notes of the meeting to Mr Fuller
giving any indication of the position that Fluor would take in relation to
claims. Nothing was agreed at this meeting. The way in which Mr Fuller put it
in evidence was: “this was them venting; and we didn’t agree with it"
(Day 8/21).
434.
The next meeting on which reliance is placed by ZPMC was the first of a
series of meetings which took place over three days at the end of September.
It was another high level meeting and it took place on Wednesday, 30 September
2009. The following were present:
|
For
Fluor:
|
For
ZPMC
|
|
Messrs
|
Dobbs
Fuller
Ho
|
Messrs
|
Guan
Cao
Huang
Gao Feng
|
|
|
|
|
435.
Mr Ho and Mr Cao both made notes of the meeting on 30 September. The
relevant parts of those notes are set out below:
|
Mr Ho’s note
|
Mr Cao’s note
|
|
Fluor (Dobbs):
“NDT
deviate.
Do again.
Cracks - Some of the
procedures. Acceptance Criteria not perfect.
Client use this reason not
to install, cost.”
“Alternate
proposal
Install the product as is 1
to 3
What is
Fluor will provide SSE
notification
no cost from either side
Roundness, Lounge, Paint”
|
Fluor’s
suggestion:
“Some
cracks were found by using the same method for weld metal defects. Fluor,
ZPMC, and the customer all checked but did not find.
Now
we should share the loss incurred by these quality problems.”
|
436.
Mr Fuller said that his understanding of the purpose of the meeting was
for Fluor to tell ZPMC that they were going to discontinue operations for the
repair of the monopiles in Vlissingen and that accordingly ZPMC would need to
start withdrawing their workforce (Day 8/44). He said that the meeting turned
out to be longer and tougher than they expected but that he did not remember
them talking about sharing the losses (Day 8/46). In relation to the
reference to “SSE notification no cost
from either side” in Mr Ho’s note, Mr Fuller said that he thought that this
was a reference to the extra contractual testing that they had been doing (Day
8/47). He said that the meeting fell apart over the issue of the bond,
although he accepted that there is no reference to this in either of the notes.
It was because the meeting had not ended satisfactorily that Fluor decided, in
Mr Fuller’s words, “to re-engage and to keep the dialogue going” (Day
8/47).
437.
Mr Ho gave evidence immediately after Mr Fuller and he said that he had
some recollection of the meeting and, if he was pointed in the right direction,
“probably I can tread on my memory”. In relation to his note of “No
cost from either side”, he said that he did not really know what that cost
was (Day 8/185-187). Mr Ho did not recollect any discussion about the 25 year
warranty, but he thought that there would not have been a further discussion on
the following day unless Mr Guan had been fairly receptive during the first
meeting.
438.
In his witness statement Mr Cao said (at paragraph 5.6) that both sides
had concerns about the extent of the costs incurred by the other: Fluor would
have been concerned that ZPMC might make a claim for the additional testing and
repair work carried out by ZPMC in both Vlissingen and Shanghai, and ZPMC was
concerned about the enormous size of Fluor’s costs and that these costs have
been incurred because of the weld cracks in the MP’s and TPs in Shipment Nos
1-3. He said that Fluor had said at the meeting on 30 September that the
parties should “share the loss caused by the weld cracks issue”, and
that he understood this to mean that Fluor and ZPMC would each bear its own
costs and would not claim against the other.
439.
Although there was clearly a discussion at this meeting about sharing
the losses resulting from the welding defects, I find that there was no
concluded agreement to this effect: at this stage the talks were only exploratory.
440.
On the following day, 1 October 2009, Fluor wrote to GGOWL a long letter
dealing with the NDT requirements that were being implemented at Vlissingen. The letter included the following passages:
“Non-Destructive
Testing Requirements / Non-Conformance Reports
the
purpose of this letter is to outline the factors that have prevented
anticipated progress on offshore installation and to identify certain actions
to mitigate those factors, with an aim towards successful completion of the
project in accordance with the contractual requirements.
Reference
is made to monopile (MP) non-conformance reports designated GGL-NCR-006,
GGL-NCR-008, and GGL-NCR-009 (the “MP NCRs”) . . . Suffice it to say that the
Employer’s testing parameters, methodology and techniques, including the
requirement for the use of ultrasonic testing (UT) with a scanning sensitivity
of + 14 dB over reference level (DAC), instead of + 6 dB and the use of
scanning pattern “D” on unground welds to identify indications, which, after
evaluation, the Employer has deemed to be Defects, as that term is defined in
the Contract, so as to require the removal, re-welding, and re-testing of that
area using again the same improper testing procedures (the “Employer Required
NDT and Remediation”) is in violation of the Contract and not required by the
welding codes incorporated therein.
. .
.
Of
course, the Employer Required NDT and Remediation in Shanghai and Vlissingen
has forced Fluor to incur substantial indirect costs also, including extended
overhead due to the resulting delays; lost productivity and inefficiencies
resulting from disruption, interference and work-performed out-of-sequence; and
idle time costs - particularly relating to offshore construction and
installation vessels, which, as was made known to you, had been reserved for
the MP, TP, Inter Array Cable and Wind Turbine Generator (WTG) installation in
accordance with the Construction Programme.
Although
Fluor is still quantifying all those damages, current indications are that they
total no less than £76 million to date, with a projection of no less than £390
million if this process were to continue unabated. Neither figure includes
ZPMC’s very substantial costs, which are still being quantified . . .
While
Fluor has been expending its resources in prodigious amounts to comply with the
Employer Required NDT and Remediation, it has simultaneously continued its
investigation of that wrongly imposed regime by consulting with and seeking the
advice of outside consultants and experts noted for their expertise in the area
of steel welding standards and procedures in general and NDT and UT of welds in
particular and, most importantly, their effect on the integrity of structures
like the MPs and TPs in question. Their advice has reinforced and supported Fluor’s
position on this issue, as originally stated to you; i.e. the Employer
Required NDT and Remediation is not required by the applicable codes . . .
Accordingly,
this is to provide you notice, as may be required by any applicable provision
of the Contract, that Fluor deems the MP NCR’s invalid and of no force and
effect, because they are the product of an NDT procedure neither required nor
permitted by the Contract. The
Employer Required NDT and Remediation presently being conducted on MPs and TPs
by Fluor and ZMPC (sic) at the Vlissingen Staging Port will, therefore, cease,
and Fluor will proceed immediately to install the MPs presently available,
likely beginning with those in Shipment 3 and will also proceed immediately
with fit-out of the TPs to prepare them for the earliest possible installation.
Moreover, Fluor will henceforth strictly enforce its contractual right to
restrict the Employer’s testing on welds in the MPs and TPs to the ZMPC (sic)
facility in Shanghai, and no such testing will be permitted at the Vlissingen
Staging Port. After very careful consideration, Fluor is confident that, by
proceeding in this manner, it is not only satisfying all applicable code
requirements and mitigating the damages and delays that are being incurred, but
it is also fully and completely discharging its contractual duty to execute the
work in the “manner specified in the Contract” and “in a proper workmanlike and
careful manner, in accordance with Good and Prudent Practice.
Testing
in Shanghai
Because
Fluor and the Employer have agreed upon and are proceeding with a testing
protocol for the MPs and TPs before loading and shipping from Shanghai, which
is based on the Employer Required NDT and Remediation and which involves the
participation of ZPMC, Fluor and the Employer, Fluor will continue that
protocol for Shipments 4 through 8 inclusive. All those efforts, however, have
been - and will continue to be - without prejudice to and with a complete
reservation of Fluor’s rights to recover all resulting direct and indirect
costs, which rights Fluor intends to pursue.
. .
.”
(My
emphasis)
441.
Accordingly, Fluor’s stated position at the time of the meeting on 1
October 2009 was that whilst it had been “expending its resources in
prodigious amounts to comply with the Employer Required NDT and Remediation”,
it had now concluded that this was unnecessary as well as being not in
accordance with the contract.
442.
Reverting to the meetings, Mr Fuller said in evidence that Fluor had
decided that it might be more productive if the level of representation at the
meeting the following day was, as Mr Fuller put it, “taken down a notch”
(Day 8/51). As a result, the meeting on Thursday, 1 October 2009, was attended
by Messrs Fuller and Ho only for Fluor, and Messrs Cao, Huang and Gao Feng for
ZPMC.
443.
The relevant parts of the contemporaneous notes of the meeting on 1
October are set out below:
|
Mr Fuller’s speaking note
“Make
sure there are no issues between Fluor and ZPMC. ZPMC will not submit a
request for payment for any additional work for this or for any other issues
in the past or future. In turn, Fluor will not look to ZPMC for liquidated
damages or any of the other costs we have incurred because of this issue.”
|
|
Mr Ho’s note
|
Mr Cao’s note (as translated by Pinsent Masons for
internal use)
|
|
“Concepts
A)
Ship 1, 2 and 3 with issues
GGOWL okay with 4, 5
therefore 6, 7, 8 will be the same as 4
& 5} same procedure testing
weld defects → hydrogen cracking
preheat
consumables mgmt.
B) VL work will stop
. . .
C) Warranty for 25 years
. . .
D) Payment will follow upon warranty 25 yrs
E)
Proceed per concepts
·
No issues between Fluor and ZPMC
·
No claims from Fluor } past +
future
·
No claims from ZPMC } past +
future
→
4 main points
Repair cost
Standby cost
Re-mobilised cost
LD for damages
power on
F)
Support Fluor with GGOWL.
G)
. . .
H) GGA - unknown
· File for injunction→ repairs defects
by ZPMC
· Terminate the contract
ZPMC
- will support W/Manpower VISA
|
“I. the pile roundness issue
(1) lengthening stiffener ring. ZPMC’s
on-site team can carry out part of the repair work of stiffener ring. Today
we only discuss the principles and specific instructions shall be issued by
the operation department. [In another translation of the note, by Merrill
Brink, this sentence reads:
“What is talked about today is only an
outline and the details will be given by the legal department.”]
1. There is a dispute on shipment 3. Shipments 4
and 5 are satisfactory. Hope this inspection method will continue to be
applied to shipments 6, 7 and 8. √
1.2 The cracks are caused by the storage, use and
preheating of welding materials. Hope it will be improved. If there is any
more crack and the User knows, we will be in
trouble. √
2. People in Netherlands can be sent back --
repair work. The remaining work at the site
{painting
could include {stiffener ring
{flange etc
Make a decision of the on-site work after completion
of inspection.
3. ZPMC shall warrant the unrepaired piles in the
first, second, and third shipments for 25 years ---
*
4. ZPMC does not accept any LDs for delay/delay
penalties. Fluor will pay all of the contract price to ZPMC on the condition
that it gets the [25 year] warranty [in the form of a bank guarantee] and
will not claim its costs [against ZPMC]. [This point raised by Mr Cao]
5. Fluor and ZPMC shall be respectively responsible
for their own costs. √
[The Merrill Brink translation reads:
"Both parties bear their own expenses,
respectively.”]
6. Hope ZPMC will support Fluor when Fluor makes
claims against the User. √
|
444.
Mr Fuller explained in cross-examination that what he meant by “any
of the other costs we have incurred because of this issue” in his speaking
note were the costs of the extra contractual testing, by which he meant the
testing and repair programme that was going on in Vlissingen and, Mr Fuller
thought, in Shanghai also (Day 8/54). The account of this meeting in Mr Cao’s
witness statement appears to be based on the Pinsent Masons translation rather
than the Merrill Brink translation. He explained that he placed a tick at the
end of points 1, 1.2, 2, 5 and 6, because these were points to which ZPMC had indicated
at the meeting it would agree. He said that the tick against point 1.2
indicated that ZPMC had agreed to improve the storage, use and preheating of
weld materials.
445.
In cross-examination, Mr Ho was asked to tell the court what he
remembered of the context of the discussion which took place on the following
day, 2 October 2009. At Day 9/8, he said this:
“So on the first day, which
is the 1 October, we discussed the concept. At the end of the meeting ZPMC walk
away, did not really provide too much comment, and I assumed they actually
updated or provided a status update on our meeting to Mr Guan. And subsequently
they came back the following day and they were basically giving us their
response to the eight points that we have.”
That answer was not challenged. Indeed, Mr White
acknowledged it by saying “Yes”. That answer may explain why Mr Cao was not
asked any questions about the meetings of 1 and 2 October 2009.
446.
Mr Fuller described the approach to the meeting of 1 October 2009 in the
following terms, at Day 8/56:
“No, what I remember is going
through and laying out the eight points. And I think I actually started with
nine and said: listen, before we get started, we are going to talk about a lot
of things. Let’s make sure that whatever we agree here, it’s going to be in
writing, it’s going to be signed by both sides because we are going to be
talking about a lot of stuff. So I remember kicking off the meeting that way.
I remember laying out the points.”
This chimes quite closely with the wording in the Merrill
Brink translation of Mr Cao’s notes of the meeting (“What is talked about
today is only an outline and the details will be given by the legal department”).
I find as a fact that Mr Fuller did say something to the effect that any
agreement reached at the meeting would have to be put into writing and signed
by both parties. I find also that at this meeting Fluor was setting out the
framework of a possible settlement.
447.
However, there was a conceptual difficulty with the proposal recorded by
Mr Ho, in so far as it concerned “no claims . . . past + future”. If
Fluor was really saying that it would make no claim against ZPMC for any
welding defects that might become apparent in the future, that would empty the
warranty of most of its content: since welding defects would be one of the most
likely causes of any pile failure within 25 years, Fluor could well be
prevented from making a claim under the warranty if future claims in respect of
welding defects had been waived in their entirety.
448.
So if the parties had paused to think about it, it should have been
clear to them that the statement “no claims . . . past + future” would
need some qualification. For that reason, it seems to me that Mr Fuller’s
explanation of what he meant by “this issue” makes sense. I find also
that this fits with the reference in the Merrill Brink translation to “both
parties bear their own expenses, respectively”, in the sense that the
expenses being referred to were those caused by the “extra contractual
testing”.
449.
The final meeting, on the following day, Friday, 2 October 2009, was again
attended by Messrs Fuller and Ho for Fluor, but this time by Messrs Huang and
Gao Feng only for ZPMC.
450.
The relevant parts of the contemporaneous notes are set out below:
|
Extracts from Mr Fuller’s notes of the meeting
|
|
“1.
Testing - will continue testing same as [same] on Shipment 4 & 5. Will
focus on preheat and handling of flux.
2.
. . .
3.
Warranty
· 25 years no problem
· ZPMC wants to provide letter guarantee
· Explained need bond and not flexible
4.
. . .
5. ZPMC will not ask for extras / Fluor will not
hold ZPMC responsible for LDs / standby / extra because this issue.”
|
|
Mr Ho’s note
|
|
|
“A) Agreed with same testing for ship 6, 7, 8
similar to 4 & 5
· Preheat } agreed with
and by
· Consumable management } ZPMC production
B) VL works will stop
· Stiffener - ZPMC supply manpower, equipment
Fluor will provide material and
jacking frame. Canopy?
· Flange – roundness
Work with Fluor and ZPMC
It is their problems.
· Painting - Touch up but not major
- ZPMC
disagree it is their responsibility
C) Warranty
· Bond issue ? amount/Parent CCCC
· 25 yrs - ?
X Probably 3rd parties bond & guarantee
D)
Payment okay for 100%
E)
Waive future claims from both parties
F)
ZPMC will support Fluor
G)
. . .
H) Remob ZPMC
workers & equipment to VL”
|
|
|
Telephone
call at later that evening:
Mr
Guan says that “ZPMC will not provide a bond to Fluor.”
|
|
451.
Mr Fuller agreed that there was agreement in principle between Fluor and
ZPMC on the items discussed, but he said that it was fully accepted that they “would
have to be more fully embellished than what we were talking about” (Day
8/64). By this I understood Mr Fuller to mean that the terms of the agreement
would have to be set out in writing before they could be finally agreed.
452.
In relation to this meeting, Mr Fuller’s cross examination concluded as
follows:
“Q. .
. . You didn’t want ZPMC to get the impression that Fluor had agreed to waive
its claims against ZPMC
A. I
don’t think that we did, impression or otherwise.
Q.
You did what?
A.
Waive our claims against ZPMC.
Q.
That’s what you had said at the meeting, didn’t you, no claims?
A.
For extra contractual testing.
Q.
What does that mean?
A.
It was the extra contractual testing.
Q.
What does that mean?
A.
It means what it says in that letter.
Q.
No, but what do you mean by that? Because you’ve used that term I think
on five occasions today. When you say there will be no claims against ZPMC for
extra contractual testing, what’s that?
A.
That was testing - D scan on top of the unground welds at a higher
sensitivity and everything else that was associated with that.
Q.
But you would only have ever had a claim against ZPMC for that testing if
they were in breach of contract; correct?
A.
I’m not sure about that. We expected ZPMC to go through there and provide
us a welded product that didn’t have defects in it, regardless of how it was
tested.
Q.
Yes. And your concern was that defects were being found in the welds;
correct?
A.
Say that again.
Q.
Your concern was that defects were being found in the welds?
A.
Of course.
Q. And
that was causing you to incur massive delay and additional cost?
A. Yes.
There were a lot of costs associated with the fact that there were defects in
those welds, yes. And we had told ZPMC on several occasions that: we would not
be here trying to mitigate this problem if there were no cracks in those
welds.”
453.
In my view the discussions between the parties at this point were
focused principally on the very substantial costs that each of them had
incurred as a result of the NDT regime imposed by GGOWL and GGOWL’s insistence
that all cracks found on examination were repaired. However, both Fluor and
ZPMC must have had cause to consider why the cracks were there in the first
place and whether or not their existence was the result of a breach of contract
by ZPMC (and, in consequence, a breach by Fluor of its contract with GGOWL).
The fact that in earlier discussions ZPMC had indicated its willingness to take
some responsibility for the situation suggests that it was concerned that its
workmanship, particularly in relation to Shipment Nos 1 to 3, might not have
been up to standard. The early reference in Mr Fuller’s note to focusing on “preheat
and handling of flux” is, I find, a recognition of the fact that there were
still concerns about the quality of the workmanship in Changxing. As Mr Fuller
pointed out, the problem had only arisen because there were cracks in the welds
in the first place.
454.
If an officious bystander had intervened at this point and asked each
party whether it thought that Fluor was agreeing to waive a claim for any costs
attributable to welding defects that had been incurred prior to the
imposition of the extra contractual testing insisted upon by GGOWL (by NCR
006), I do not consider that he or she would have received a ready answer. I
consider that the parties were concerned to reach agreement in principle, and
that the finer points - such as the precise extent of any waiver - were to be
left to the drafting. However, on any view it appears to have been the common
intention that Fluor would not seek to hold ZPMC responsible for the costs
occasioned by the “extra contractual testing” imposed by GGOWL, but
would instead join forces with ZPMC in order to recover those costs from GGOWL.
455.
By way of example, Fluor’s letter of 16 November 2009, the relevant
parts of which are set out in full below, specifically referred to “deficiencies
that were discovered in ZPMC’s welding procedures” and mentioned the
requirement for ZPMC to follow acceptable and appropriate welding procedures
regardless of what requirements might be imposed by GGOWL. Fluor was not alone
in this view, in an internal ZPMC document prepared on 7 December 2009, which
appears to have been a draft of a report on “Onsite Rework in the
Netherlands” prepared for Mr Chen, the author referred to the fact that
many welders with insufficient skills were hastily brought into the project
with a consequent high ratio of rework “putting a lot of risk in the future”.
456.
So far as the position in relation to the warranty was concerned, the
note of the telephone call conveying Mr Guan’s decision not to provide a bond
makes it clear that the question of the warranty remained open. At this stage,
therefore, there was no concluded agreement, albeit that many of the
ingredients of a potential agreement were largely in place.
457.
On 14 October 2009, Mr Dobbs sent an e-mail to Mr Fuller in which he
told him to be careful not to be manoeuvred into “re-engaging” with the
discussions that were abandoned after 1 October. By this time there had been
no change of position by ZPMC in relation to the provision of a bond. The e-mail
went on to say this:
“The
message that you should send back to Guan indirectly is that I was disappointed
in not being able to settle are issues on GG after making the effort to travel
all the way to China and meet with him face to face.
We
continue to appreciate all of the support they are providing and appreciated
Shipment 5 arriving on the agreed date. However, ZPMC must understand that
since we did not settle the issues between us during my last visit, all of the
issues remain to be settled. At some point, we will need to meet again to
settle those issues and this will need to be done before we do any more work
together . . .
The key point I need them to
understand is that at this point, we have not agreed on anything. You do not
need to be blunt or direct, but specifically we have not agreed to waive claims
against each other.”
458.
On 24 October 2009, Mr Fuller replied to Mr Dobbs in the following
terms, having attended a meeting with ZPMC on 22 October 2009:
“Steve:
I
arrived over the weekend and kept a low profile for the week. On Wednesday I
received a request to meet with Mr Cao in Pudong on Thursday.
Mr
Cao, Gao Feng (Ryan), and Fred (VP of Quality Assurance) represented ZPMC at
the meeting. They had 4 items on their agenda:
1)
They would like a formal letter
from us confirming the direction to demobilise their workforce from performing
weld repairs in Vlissingen.
.
. .
With
regard to item 1, I told them that we would discuss this request internally and
respond before the end of next week. I cautioned that the letter would likely
reflect the fact that we have not reached agreement and that all items we had
discussed, including the agreement not to pursue claims against each other were
still on the table and needed to be resolved at the next time Mr Dobbs was in
Shanghai or Mr Guan was in the US. (I asked Hans Ho to make sure this
statement was clearly recorded in the Meeting Minutes when they are produced.)
.
. .
In all, the meeting was
constructive and Mr Cao clearly wants to continue their assistance in Vlissingen and Shanghai. He confirmed they were in agreement with the items we discussed
in the meetings in late September with the exception of the form of guarantee
and that issue was with Mr Guan.”
459.
Mr Ho complied with this request in an e-mail to Mr Gao Feng dated 28
October 2009 in which he said:
“Ryan,
Please
incorporate the following comments to your meeting minutes that was discussed
on that day.
“The
lack of agreement on the items (8 concept points) from our October 1 meeting
including agreement not to claim against each other and the need to come to
closure on these items the next time Mr Dobbs is in Shanghai or Mr Guan is in
the US. Therefore all items remains (sic) open as there are integral part of
the entire agreements.”
Please call me if you have
any questions.”
Mr Gao Feng sent an e-mail to Mr Cao the following day
saying that Fluor had asked for the text set out above to be added to the
meeting minutes and sought his agreement for this to be done.
460.
Later that day, 29 October 2009, Mr Cao replied as follows, with a copy
to Mr Huang (Fred):
“gaofeng,
Personally I think it is all
right to add this issue (because it is the only issue which has not been agreed
at the time). But you should send the finalised meeting minutes to Mr Guan for
his information and thus he knows that Fluor would talk about this issue again
with him in the future. There will be a big trouble if we agree that Mr Guan
has not been notified. Please consider.”
461.
In my view, it is quite clear from this exchange that ZPMC also understood
that no agreement had been reached on the matters that had been discussed at
the September/October meetings. However, neither side had given the other any
indication that it would not be prepared to renew the discussions from the
position where they had left off. It must have been clear to ZPMC that no
agreement was possible that did not include some form of long term warranty
about the suitability of the piles.
462.
In the meantime, Fluor was putting together a case against GGOWL which
would attribute all the costs of the repairs and delay to the issue of the
NCRs. On 16 November 2009 Fluor wrote to Mr Gao Feng in the following terms:
“Dear
Ryan,
Subject: NDT and Repair of Mono-Pile and Transition
Piece Welds
This
letter is in response to your letters dated . . . concerning the above
referenced subject.
Because
we have had ongoing discussions with ZPMC regarding the issues raised in those
letters, we do not think it would be productive to rebut each point with
additional correspondence. Suffice it to say that Fluor continues to disagree
with some of the statements made in those letters regarding the MP and TP
welding and sets forth below a statement of the path forward that ZPMC should
be following in the circumstances that have defined that course of action.
As
a result of the Non Conforming Reports (“NCRs”) issued by the Greater Gabbard
Offshore Winds Ltd (“GGOWL” or the “Employer”) with respect to certain welds in
the mono piles on Shipment Nos. 1, 2, and 3, there has been much confusion
regarding the appropriate Non-Destructive Testing (“NDT”) and the subsequent
repair of any defects found in the welds, and, unfortunately, that has in turn
caused much disruption and delay to this Project. This letter is an attempt to
address that issue so that you will have a better appreciation of Fluor’s
actions in this regard and to finally put to rest questions concerning this
problem.
As
you know, any deficiencies that were discovered in ZPMC’s welding procedures
with respect to the MPs and TPs have been and continue to be addressed by your
QC personnel and our QA staff. We have always expected ZPMC to follow
acceptable and appropriate welding procedures regardless of what requirements
GGOWL imposes or attempts to impose on the welding process, and that
expectation remains in full force and effect.
The
NCR with respect to Shipment No. 1 was not issued by GGOWL until that shipment
reached Vlissingen and was inspected and tested by GGOWL there, even though
GGOWL had done NDT on the MP welds while they were still at ZPMC’s facility in Shanghai. In an attempt to satisfy the Employer’s demands, Fluor agreed, under protest and
with a complete reservation of its rights, to adopt an NDT procedure being
required by the Employer, even though that procedure required ultrasound testing
with a different scan pattern and at a higher sensitivity than that required by
Fluor’s Contract with the Employer, the applicable welding codes incorporated
therein, and Fluor’s Inspection and Test Plan (“IT&P”). That Employer
Required NDT and Remediation required an extraordinary undertaking at the
Vlissingen Staging Port, including the establishment and maintenance of a vast
infrastructure to support the testing and repair work, as well as, of course,
the transfer of some one hundred fifty ZPMC tradesmen to the Vlissingen
Staging Port to perform that work.
. .
.
Fluor
has continued to meet with the Employer in an attempt to: (a) better understand
the Employer’s justification for issuing the NCRs and subsequently imposing the
Employer Required NDT and Remediation; and (b) share with the Employer the
investigation and analysis that Fluor and its consultants have done with
respect to that issue, so as to give it the assurances that the structural
integrity of the MPs and TPs and the twenty-five year design life and not in
any way or to any extent been diminished. We know you share our conclusions in
this regard and look forward to having your assistance in that effort with the
Employer.
I believe that, going
forward, the best approach is for ZPMC and Fluor to work together in an effort
to ensure that all the welding of the MPs and TPs, which remains to be
completed, is performed in the appropriate standards of quality so as to
eliminate any issue in that regard. We look forward to having your cooperation.”
463.
It is to be noted that in this letter Fluor appears to be saying two
things. First, that “deficiencies” had been discovered in ZPMC’s welding
procedures and that these continued to be addressed by ZPMC’s QC staff and
Fluor’s QA staff. Second, that it was the NCRs issued by GGOWL that had
caused much “delay and disruption” to the project and the NDT procedure
required by GGOWL that was responsible for the “extraordinary undertaking at
Vlissingen"; it was not an independent need to repair cracks in the welds.
Mr Dekker agreed in evidence that the position set out in the third paragraph
of this letter was contrary to Fluor’s present case in this litigation (Day
7/91).
A meeting in Shanghai in November or December 2009
464.
It is ZPMC’s case that in late November or early December 2009 there was
a meeting between Mr Guan and Mr Dobbs in Shanghai, but there is no record of
it. The only evidence that it took place comes from Mr Liu, who said that he
was present. He said in his witness statement that it took place on a cold
winter morning at the hotel where Mr Dobbs was staying in Puxi, Shanghai. He was there to translate. In evidence, he said that he thought the meeting was
arranged at very short notice at a time when Mr Dobbs was passing through Shanghai.
465.
In his witness statement he said that Mr Dobbs made it clear to Mr Guan
at the meeting that for there to be no issues and claims between the parties
the issue of the 25 year warranty would have to be resolved. Whilst Mr Guan
was quite prepared to give a 25 year warranty for both the MPs and the TPs, he
could not agree to Mr Dobbs’s demand that it should be supported by a bank
guarantee. Mr Liu said that Mr Dobbs made it plain that if ZPMC were to provide
a 25 year warranty supported by a bank guarantee, there would no longer be any
issues and claims between them and ZPMC would help Fluor in preparing
information and documents to support the claim against GGOWL. He thought that
Mr Dobbs was genuinely keen to reach a settlement with Mr Guan in order to
avoid a dispute between Fluor and ZPMC - not only because he clearly valued the
business relationship between the two companies, but also because of his
personal relationship with Mr Guan.
466.
He said that the meeting ended with Mr Dobbs saying that he would ask
Fluor’s lawyers to write up an agreement for the settlement of the issues
regarding the weld cracks problem between Fluor and ZPMC. The meeting took
place very shortly before Mr Guan retired.
467.
Fluor does not accept that this meeting took place, but it did not call
Mr Dobbs as a witness in order to refute Mr Liu’s account.
468.
Since there was no contrary evidence from Mr Dobbs, I see no reason not
to accept Mr Liu’s account of the meeting, at least in general terms. However,
in the absence of any contemporaneous note I am somewhat sceptical about the
reliability of Mr Liu’s recollection of precisely what was said by either Mr
Dobbs or Mr Guan. I think that it is more likely that, having read what had
been said at the earlier meetings, he is remembering that which he would have
expected to have been said, rather than what was actually said: however, his
account of what happened is plausible and is entirely consistent with what had
been said at previous meetings. To the extent that his recollection is
reliable, I regard it as important that Mr Liu remembers Mr Dobbs as having
said that the proposed terms would have to be reduced to writing. By that he
must have meant that this would have to be done before any agreement could be
finalised. That is, of course, what happened.
469.
If one pauses at this point, it is abundantly clear that no agreement
was reached at this meeting. Whilst ZPMC had indicated that it was willing to
give a 25 year warranty, Fluor was still demanding that it be supported by a
bank guarantee - something that Mr Guan was not prepared to offer - and no
agreement had been reached as to any alternative form of security for it.
According to Mr Liu’s account Mr Guan said that he would see whether ZPMC’s
parent company would provide a guarantee in lieu of a bank guarantee. From the
account in Mr Liu’s witness statement, there is no suggestion that Mr Dobbs had
indicated that a parent company guarantee, if available, would satisfy Fluor:
on the contrary what Mr Dobbs was seeking was a bank guarantee.
470.
There was then an important event. On 7 December 2009, and with little
advance warning, Mr Guan retired as the president of ZPMC. He was replaced by
Mr Kang Xuezeng. Appreciating the importance of the relationship between ZPMC
and Fluor, Mr Kang took the opportunity to visit Mr Dobbs at Fluor’s
headquarters in Dallas the following month. This visit took place on 20 January
2010. At this time, the other major project that ZPMC shared with Fluor was
the steelwork for the San Francisco Oakland Bay Bridge (“SFOBB”). In his
witness statement Mr Kang said that the discussions in Dallas were mainly about
exploring business opportunities, rather than the two current projects. He
said that whilst there were some discussions about progress on the SFOBB
project, the Greater Gabbard project was mentioned only in passing. Perhaps
rather surprisingly, Mr Kang said that at that time he was unaware of the
problem with cracking in the welds of the monopiles. He was not briefed about
this until after his return. He was then given to understand that there was a
proposal that each party should give up its claims against other, that Fluor
would pursue GGOWL on behalf of both itself and ZPMC and that ZPMC was to
provide a 25 year warranty for the monopiles and the transition pieces. Mr
Kang understood that the only outstanding issue was the provision of a bank
guarantee to support the warranty.
471.
In the meantime, Mr Dobbs had told Mr Liu that he wished to have a
meeting with the chairman of ZPMC, Mr Jichang Zhou, and Mr Kang in China. This meeting took the form of a dinner and drinks on 2 February 2010 in Beijing. At that time Mr Kang was more concerned with problems on the SFOBB project and he
had decided not to reopen any of the discussions on the Greater Gabbard
project. Mr Dobbs was taken to the meeting by Mr Liu and on the way Mr Dobbs
asked Mr Liu if he thought that Mr Kang would stand by the agreement that had
been reached in outline with Mr Guan. Mr Liu said that he had already obtained
Mr Kang’s assurance that he would stand by any undertakings given by Mr Guan,
but in order to reassure Mr Dobbs he telephoned Mr Kang who confirmed the
position.
472.
Mr Dobbs sent an e-mail to Mr Fuller the following morning, in which he
said:
“Doug
–
It
was a very late and hard drinking night with Zhou and Kang last night.
On
bridge, . . .
For GG they do not understand
the claims assignment, but seemed willing to sign up. I will work with legal on
some wording.”
473.
This was the first occasion on which there was mention of an assignment.
Hitherto, the notes of the meetings had recorded that ZPMC would “support”
Fluor in the claim against GGOWL, but the way in which it would do so was not
spelt out. The proposal for an assignment of ZPMC’s claims to Fluor was, I
assume, one that came from Fluor’s lawyers.
474.
So by this stage, that is mid-February 2010, there was still no
concluded agreement. By then the matters known to or understood by both
parties were, I find, as follows:
(1)
Substantial problems had arisen in relation to the fabrication of the
MPs and TPs at Changxing. The major problem was the presence of cracks in many
of the welds, which GGOWL was insisting had to be rectified. To this end GGOWL
had served NCRs in respect of the first three shipments and had demanded that
Fluor carry out further NDT and repairs.
(2)
Both Fluor and ZPMC had taken the position that the additional NDT
demanded by GGOWL was more stringent than their respective contracts required
and was therefore, together with the demand to carry out repairs, unjustified.
However, ZPMC was prepared to accept some responsibility for the state of the
piles in Shipment Nos 1-3 and, as a result, had sent a large number of welders
over to Vlissingen to carry out repairs.
(3)
The investigation and repair of this cracking had resulted in enormous
losses, actual and potential, particularly to Fluor, both by way of direct
repair costs and delay.
(4)
There were other fabrication problems with the piles and transition
pieces, although they were very much less important. These included matters
such as out of roundness of the piles, a need for further stiffening and poor
quality of the paintwork to the transition pieces. All these required remedial
work.
(5)
By the end of September 2009 Fluor had concluded, having taken expert
advice, that the MPs and TPs were fit to be installed as fabricated and that
the additional NDT and repairs insisted on by GGOWL, some of which had already been
carried out, were unnecessary. At the same time ZPMC was also asserting that
its piles were fit for installation and was prepared to give a warranty that
they would last for at least 25 years (but not one that was supported by a bank
guarantee).
(6)
It was important to Fluor that not only was its position as to the
fitness for purpose of the piles justified by independent expert advice, but
also that ZPMC could be seen to have confidence in its piles by offering a 25
year warranty.
(7)
The parties had held several discussions with a view to settling their
respective claims against each other and had reached agreement in outline as to
the basis of a potential settlement agreement. In broad terms: (a) each had
said that it was prepared to waive its claims against the other in respect of
the losses sustained at Vlissingen as a result of the cracking in the welds and
the extra contractual testing imposed by GGOWL, (b) ZPMC would assign its
claims in respect of the cracking to Fluor and give Fluor every assistance in
pursuing those claims against GGOWL, (c) Fluor would share with ZPMC a
proportion of any recovery from GGOWL (after deducting its own costs), and (d)
ZPMC would provide a warranty that the unrepaired piles in Shipment Nos 1-3
would last 25 years.
(8)
The parties were not agreed about whether or not the warranty was to be
secured by a bank guarantee, or some other form of security.
(9)
A written agreement setting out the precise details of (7) and (8) above
would be prepared by Fluor (or its lawyers) for consideration and approval by
ZPMC.
475.
In addition, I find that at all material times both Fluor and ZPMC
appreciated the following:
(1)
That under a construction contract any claim for payment in respect of
additional work needs to be founded upon an instruction, either express or
implied, or a breach of contract, and thus
(2)
if the NDT adopted at both Vlissingen and Changxing from May 2009
onwards on Fluor’s/GGOWL’s instructions went beyond of the requirement of
ZPMC’s contract, ZPMC would have a potential claim against Fluor for the cost
of carrying it out. In turn, Fluor would have a similar claim against GGOWL.
This is confirmed by the evidence of Mr Dekker when he said that he wanted to
have an NCR because he could then use it as a direction from GGOWL to carry out
repairs (Day 7/6).
(3)
However, if the issue of the NCRs and the losses occasioned by Fluor in
consequence were a direct result of defects in the welds caused by breaches of
contract by ZPMC, Fluor would have a potential claim against ZPMC in respect of
the losses suffered as a result of the issue of the NCRs.
(4)
Thus if GGOWL was correct in its assertions and the welding did not
comply with the requirements as to quality in Fluor’s contract, and similarly
the requirements as to quality in ZPMC’s contract, then Fluor would have a
claim against ZPMC as a result of the presence of the cracking and the cost of
repairing it, together with any consequential losses that were not excluded by
the terms of the contract.
476.
A meeting to finalise the agreement between the parties was arranged for
20 April 2010. It was attended by Messrs Fuller, Ho and Hsieh, on behalf of
Fluor, and Messrs Cao, Gao Feng (“Ryan”) and Yan Hua for ZPMC. Mr Fuller took
two letters to the meeting. One was described by ZPMC as the “waiver letter”
and the other as the “warranty letter”. For simplicity, I will adopt this
terminology irrespective of how apt it may be to describe the contents of each
of the letters.
477.
I need to set out the text of each letter in full. First, the waiver
letter (in the form dated 19 April 2010 and reflecting the NCR numbers shown in
the Chinese translation which was also given to ZPMC at the meeting on 20 April
2010):
"Dear Mr.
Kang:
I
am very pleased that we have reached an understanding on the joint pursuit of
the substantial additional costs both Fluor and ZPMC have incurred as a
result of the MP and TP weld testing and repair protocol required by Greater
Gabbard Offshore Winds Ltd. ("GGOWL"). My understanding of the
terms of our agreement are as follows:
1.
ZPMC
will and hereby does assign to Fluor any and all rights, title and interest it
has to pursue compensation for the costs it has incurred that in any way or to
any extent arise out of, result from, or relate to the enhanced testing and
remediation of MP and TP welds it has been required to perform as a result of
the acts and omissions of GGOWL, including, but not limited to, GGOWL's
issuance of NCRs 006, 008, and 009 relating to MP welds (the "ZPMC
Claims").
2.
Further,
and as part of the assignment described above, ZPMC will refrain from
prosecution against Fluor and hereby does [will] relinquish any claim it
has or may have against Fluor for additional compensation or any other
damages arising out of or related to the enhanced testing and remediation of MP
and TP welds, as described above [upon resolution of the matter with GGOWL].
3.
In
consideration of said assignment and [prospective] release by ZPMC, Fluor
will and hereby does waive, release and relinquish any claim it has or
may have against ZPMC for the additional costs and delays it suffered as a
result of NCRs 006, 008 and 009 issued by GGOWL [upon resolution of the
matter with GGOWL].
4.
In
further consideration of said assignment and release by ZPMC, Fluor agrees
that, as [agent] owner of the ZPMC claims, it will include them with its
own claims against GGOWL arising out of or relating to NCRs 006, 008 and 009
and the resulting enhanced testing and remediation protocol required by GGOWL
(collectively, the "Weld Dispute Claims"), and pursue the Weld
Dispute Claims against GGOWL in arbitration in London, as required by
Fluor's contract with GGOWL (the "Arbitration") as described
below.
5.
In
the Arbitration:
a.
Fluor
will advance all the costs necessary to pursue the Weld Dispute Claims, including
arbitrators' fees, legal fees, expert witness fees, and [the] like.
b.
ZPMC
will cooperate fully with Fluor in the presentation and prosecution of the Weld
Dispute Claims, including providing all the information and documentation
necessary to quantify and prove ZPMC's claims and making available the
necessary witnesses to testify in support of the Weld Dispute Claims.
c.
Fluor
will pay to ZPMC fifty percent (50%) of any award it receives on the Weld
Dispute Claims in the Arbitration, after receipt of payment and after deduction
of [Fluor’s damages arising out of the Weld Dispute Claims and reimbursement to
Fluor of] all costs incurred by Fluor in the Arbitration, including the costs
of satisfaction of any award. [If the costs exceed the award, such difference
shall be borne by Fluor.]
6.
Any
dispute that may arise under this agreement shall be resolved in the manner
provided in our Purchase Order No. 66577000-2-0001.
If this letter
accurately sets forth the terms of our understanding, please indicate your
agreement, on behalf of ZPMC, by signing the enclosed copy of this letter and
returning it to me."
478.
The warranty letter (in its original form, also dated 19 April 2010) was
not accompanied by a translation in Chinese and so at the meeting ZPMC had the
English version only. That provided as follows:
"Dear
Mr. Kang:
This
letter confirms our agreement on the close out of the Purchase Order and final
payment to ZPMC.
As
you know, Greater Gabbard Offshore Winds Ltd., the owner of the Project (the
"Owner") has claimed the welding of the monopiles (MPs) and
transition pieces (TPs) by ZPMC was defective, in that the welds contained
transverse cracks that threaten the structural integrity and design life of the
foundations supporting the wind turbine generators. Fluor and ZPMC have
disputed that claim, but the rights and liabilities of the parties have yet to
be adjudicated in arbitration or otherwise.
Under
such circumstances, Fluor's policy would be to withhold final payment on the
Purchase Order until and unless it was finally determined that Fluor had
neither liability to the Owner for the claimed defective welds, nor liability
to the Owner for any alleged service life less than 25 years.
Because
ZPMC has advised Fluor that withholding of final payment would create a
hardship for ZPMC, Fluor has agreed to pay the final sum due ZPMC on the
Purchase Order within 35 days of presentment of all detailed invoices
(including the final invoice) in good form as required by the Purchase Order.
In consideration therefore, ZPMC agrees that it will - and hereby does -
provide to Fluor a warranty of the
materials and workmanship it provided in the fabrication of the MPs and TPs
under the Purchase Order for twenty-five (25) years from the date of acceptance
of the Project by the Owner. Such warranty shall be in writing in a form to be
provided by Fluor; shall be, by its express terms, assignable to the Owner (or
its successor in interest) by Fluor in its sole discretion; and shall cover all
direct damages resulting from
any structural failure of the MPs or TPs, including, without limitation, their
repair or replacement as necessary.
Please
indicate your agreement with the terms and conditions of this letter by signing
the enclosed copy on behalf of ZPMC and returning it to me. Any dispute that
may arise under this agreement shall be resolved in the manner provided in our
Purchase Order No. 66577000-2-0001.
Thank
you for your cooperation in resolving this issue."
479.
Before the meeting Mr Fuller prepared some speaking notes, which set out
what he intended to say by way of explanation of the terms of the agreement set
out in the two letters. He said in evidence that he thought that he had
prepared these notes in Australia, where he had been immediately before the
meeting. These notes included the following comments:
“3. The
centre piece of these discussions had 3 elements:
·
We agreed not to pursue claims
against each other
·
Fluor would take a claim for
against the Owners and ZPMC would support that claim
·
ZPMC would provide a 25 year
guarantee for the installed product
4. As I recall, we agreed on all issues, but the form of the 25 year
guarantee. We could not agree on the form of guarantee.
. . .
6. We
have brought 2 letters today to discuss. You will find many similarities between these letters and our previous discussions.
7. It is important we complete the agreement on both letters before end of
Thursday.
8. The first letter deals with how we proceed with the significant issue of
the weld quality. This letter has 6 points which we have translated to Chinese
so we can discuss.
1. Same
as we had discussed before. ZPMC will assign ownership to Fluor for all its
claims and Fluor will pursue this issue with the Owner.
2. ZPMC
agrees not to submit any claim against Fluor.
3. Fluor
agrees not to submit any claim against ZPMC.
. . .”
480.
In cross-examination Mr Fuller was, not surprisingly, pressed as to what
he meant by the reference to “any claim” in the last two extracts from his
speaking note quoted above. In his witness statement, at page 463, he said
this:
“In each case, my notes were
shorthand for the claim that we and ZPMC believed we had for extra contractual
work directed by GGOWL. At the meeting, that was the only claim we were discussing:
we were not suddenly switching from discussing assigning claims for extra
contractual work directed by GGOWL to abandoning that concept and simply waiving
any and all claims . . .”
481.
When that passage was put to him by Mr White, and he was asked what
claims, leaving aside claims in relation to out of roundness and painting,
Fluor thought it was waiving, he said:
“I do not know that I gave it
thought, to be honest with you. I mean, the letters, I intended them to be
itself-explanatory. Yet, if they had questions, if ZPMC had questions, I was
going to take those back to our attorneys, have them answer it, and go forward.”
Then there was the
following exchange, at Day 8/108:
“Q.
And if your objective had been to preserve the right to bring ZPMC - bring
proceedings against ZPMC for the cost and delay that you now claim against
them, if you lost against Gabbard, you would have said so?
A. No. The letters were prepared by our attorneys. I
was not going to go through there and start putting words in the mouth of our
attorneys. Like I said, I expected ZPMC to go through there and read those
very carefully and ask any questions they have. But I was not going to go
through there and interpret them for them. I wasn’t going to do that.”
482.
Although Mr Fuller did not strike me as a particularly impressive
witness when he first began to give evidence, he was closely cross examined at
considerable length and by the end of it I had come to the clear view that he
was a man of integrity who had high respect for his opposite numbers in ZPMC. I
am quite satisfied that he would have done nothing intentionally to mislead
them. However, by the time of the meeting on 20 April 2010 Mr Fuller had been
away from the project for some time and he was having to put himself back into
the position in which he had been a few months earlier. In general, I accept
his evidence except where I specifically indicate otherwise.
483.
I doubt very much whether it had occurred to him that there might be
potential claims against ZPMC that would not fall within the waiver that Fluor
was proposing to give. What I am sure would have been at the forefront of his
mind was that Fluor’s claim against GGOWL was for the costs that flowed from
the additional NDT and repair work that had been carried out at Vlissingen (and
at Shanghai) at GGOWL’s insistence and which both Fluor and ZPMC were saying
was outside the scope of their contractual obligations. After all, he had been
the author of the draft “White Paper” which reached that conclusion.
484.
Mr Cao’s note of the meeting, in translation, is as follows:
“Some
issues concerning the project:
1.
Waive claim against each other,
but ZPMC must support Fluor in its claim against the Owner. However, because of
the defects, ZPMC shall give a 25-year warranty.
2.
Achieve a good settlement with
ZPMC on the commercial contract. There are two letters which can be used to
close the relevant issues. Hope that the letters can be signed by Thursday this
week.
(1)
Both parties waive claim against
each other;
(2)
ZPMC to support Fluor in its claim
against the Owner;
(3)
ZPMC to provide a 25-year
warranty.
Commission
Fluor to make claims against the Owner? No guarantee to win.
Relevant
documents support (relevant to ZPMC)
If
Fluor wins the case, Fluor will share the proceeds on a 50/50 basis with ZPMC
after deducting relevant costs.
The
above-mentioned discussion is similar to the principles previously discussed.
2.
Final settlement of the commercial contract with ZPMC.
.
. .
The warranty can only be
provided in the name of ZPMC itself. It is impossible to provide a bank
guarantee.”
485.
It looks from these notes that the first part (before the underlined
sentence) was recording Mr Fuller’s opening remarks, because the paragraphs
numbered (1), (2), and (3) follow exactly the same order as in the third item
of Mr Fuller’s note. The reference to “Relevant documents support” is, I am
sure, a reference to the waiver and warranty letters, which were dealt with at
Mr Fuller’s items 6 to 8.
486.
Mr Cao’s notes of what Mr Fuller said about the two letters appears to
record that their contents were similar to what had been discussed before - but
they go into no detail. Mr Fuller’s speaking note records that each of ZPMC
and Fluor were agreeing “not to submit any claim against” the other.
However, taken literally this is obviously not correct because it has never
been either party’s case that Fluor and ZPMC intended to settle all claims
against each other whether or not connected with the welding defects that were
discovered at Vlissingen and Shanghai in the summer of 2009. For the reasons
that I have already given, apart from anything else, there would be little
point obtaining a warranty from ZPMC if Fluor was agreeing not to make a claim
under it. This suggests that these notes were a prompt of the points that he
had to cover, rather than an attempt to explain the individual paragraphs in
the letter.
487.
When considering the effect of whatever was said by Mr Fuller at the
meeting on 20 April 2010, I think that it is necessary to bear in mind, as I
was reminded by Fluor, that Mr Cao had a limited grasp of English (Mr Cao said
in his witness statement that Mr Gao translated for him at the meeting). As
subsequent events demonstrated, Mr Gao had a different understanding from
others within ZPMC as to the extent of the waiver of claims by Fluor. He had
attended the meetings on 30 September, 1 and 2 October 2009 and said in his first
witness statement (at paragraph 2.9) that it was very clear to both parties
that “we were talking about claims relating to the weld cracks problem in
shipments 1 to 3”.
488.
However, during the meetings to discuss the final account Mr Gao was
presented with various heads of claim, such as a deduction to reflect the
reduction in the weight of the steel, secondary steel repairs and the roundness
issue. In a letter to Mr Kang, dated 21 February 2011, Mr Gao said that ZPMC
could not accept the deductions proposed by Fluor (apart from that in relation
to the weight of the steel) because the agreement reached between ZPMC and
Fluor at an earlier stage was that both Fluor and ZPMC would “bear their own
part of the cost, respectively”, whereas Fluor was saying that this cost
was merely limited to the cost relating to the welding repair.
489.
Mr Cao’s evidence was that his understanding was that Fluor and ZPMC had
agreed that they would not claim against each other for the costs and losses
that they had respectively incurred in relation to the weld cracks problem. He
said that at the meeting on 20 April 2010 this was confirmed by Mr Fuller
because he had said that the letter was prepared in accordance with the
principles discussed previously, by which Mr Cao understood him to mean
meetings that took place in September/October 2009 (paragraph 8.7.1).
490.
In these circumstances I find it difficult to draw any clear conclusions
as to what Mr Cao understood Mr Fuller to have said at the meeting on 20 April
2010, given that not only was it having to be translated but also that the
translator appears to have had a different understanding about the scope of the
waiver to that discussed at previous meetings. Matters cannot have been
assisted by the fact that only the waiver letter was available in translation.
A copy of the warranty letter translated into Chinese was provided to ZPMC
following the meeting.
491.
Further, as the course of evidence in this case demonstrated more than
once, there are always difficulties when things said or documents prepared in
English are heard or read by the recipient in translation. The understanding of
the recipient is dependent on what is heard or written in his or her native
tongue and the meaning that it conveys. That is something that
the Court can seldom discover. In the circumstances it seems to me that the
most important feature of the meeting is not so much what was said (or was
thought to have been said) but that ZPMC was provided with copies of the
letters and was given time to consider them at its leisure.
492.
Indeed, following the meeting over a month elapsed before the two
letters, with some modifications, were signed by ZPMC in June 2010. I infer
that ZPMC must have given them considerable and careful attention in the
meantime. So far as the waiver letter is concerned, the only amendment, in
addition to the correction of the erroneous NCR numbers, was the addition of
the following words to paragraph 5c: “If the costs exceed the award, such
difference shall be borne by Fluor”. In my view, this amendment does not have
any impact on what would have been understood at the discussions on 20 April
2010.
493.
In relation to the warranty letter, there were two significant
alterations. The first was that the warranty was limited to all those MPs and
TPs in Shipment Nos 1-3 that had not been repaired in Vlissingen. The second
was that the words “and indirect” were deleted so that the warranty was limited
to direct damages only resulting from any structural failure of the MPs or
TPs. However, again I do not think that these affect the discussions that took
place on 20 April 2010.
494.
In January 2012 some amendments were made to the waiver letter,
principally concerning the form of the assignment. The revised version of the
letter was presented to Mr Kang with the explanation that Fluor had said that
the English version of the letter was slightly inconsistent with the Chinese
translation provided at the time. Accordingly, Fluor said that it had
retranslated the letter so that it accorded with the Chinese version. Neither
party relied on these amendments in themselves, but I have included them in the
version of the letter set out above. The point of significance, relied on by
Fluor, is that ZPMC was still prepared to sign the letter, which it did on 30
January 2012 in spite of having received Fluor’s letter of 14 October 2011 (see
paragraph 509 and 510 below).
495.
Before I consider the submissions of the parties, the following points
about the waiver letter are to be noted:
(1) the subject
of the “understanding” was the “joint pursuit of the substantial additional
costs that both Fluor and ZPMC have incurred as a result of the MP and TP weld
testing and repair protocol required by [GGOWL]”.
(2) ZPMC was
agreeing to assign its claim for the costs resulting from the enhanced testing
and remediation that it had to perform as a result of the acts and omissions of
GGOWL, including but not limited to the issue of NCRs 006, 008 and 009. Thus,
by this assignment, ZPMC was irrevocably forgoing any right to claim these
costs from Fluor in the future. The costs in question were those consequent
upon acts or omissions of GGOWL. Clearly ZPMC could have no claim against
Fluor in respect of defects in its welding that were the result of its own
breaches of the terms of the Purchase Order.
(3) Fluor was
relinquishing any claim it may have against ZPMC for “the additional costs
and delays it suffered as a result of NCRs 006, 008 and 009 issued by GGOWL”.
(4) Thus there
was a potentially important distinction between the waiver letter and the
discussions that had preceded it. The waiver letter was concerned with claims
for a certain category of costs. By contrast, the previous discussions - at
least according to ZPMC’s account - concerned the mutual waiver of claims arising
from a particular cause of action, namely defective welding. However, as
already discussed, an unqualified waiver of claims in relation to welding
defects could well deprive the warranty of any content, since the most likely
cause of any failure of the unrepaired MPs and TPs would be defects in the
welding.
(5) So,
whatever ZPMC may have thought, a blanket waiver of all claims past or future
in relation to welding defects was inconsistent with the undertaking to give a
warranty in relation to the life of the piles. Viewed objectively, that cannot
have been the honest intention of either party. Accordingly, if there was to
be a waiver of claims in respect of welding defects it had to be limited in
some way so that it would not undermine the warranty. I anticipate that this
point might have been appreciated by Fluor’s lawyers who therefore made the
waiver referable to categories of costs rather than to a cause of action, but
whether or not that was in fact the case does not matter.
(6) Thus the
assignment to Fluor of ZPMC’s claims could only have practical effect if the
additional testing and repairs required by GGOWL, and hence by Fluor of ZPMC,
amounted to a variation of the contract between ZPMC and Fluor or a breach of
it. Absent such a variation or breach, ZPMC would have no entitlement to
payment.
(7) By
contrast, the waiver of the claim by Fluor could only have practical effect if
the testing and repairs required by GGOWL, and the additional costs incurred by
Fluor as a result, were not a variation or breach of contract by GGOWL
but were instead the consequence of a breach of contract by ZPMC: in the
absence of a breach of contract by ZPMC, Fluor would have no claim to waive or
relinquish.
496.
It is therefore not quite correct for Fluor to submit, as it did, that
the waiver letter (or, as Fluor called it, “the joint claims letter”) involved
claims being passed up the line and the warranty letter was concerned with
claims being passed down the line. The waiver by Fluor in the waiver letter
was of a claim down the line.
497.
On any analysis of the language used in the letter, taken in isolation,
Fluor was not waiving any claim that it might have against ZPMC for
breach of contract. What was being waived was the claim for the additional
costs and delays suffered by Fluor as a result of the issue of the NCRs, albeit
that the only basis for such a claim would be a breach of contract by ZPMC.
The important point was that the extent of the waiver was by reference to a
type of cost, not to a type of cause of action.
498.
However, it is correct, as Fluor contends, that numbered paragraph 3 of
the waiver letter refers to costs and delays suffered “as a result of”
the issue of NCRs 006, 008 and 009. This suggests that if those costs and
delays would have been incurred in any event irrespective of the actions taken
by GGOWL, the waiver and release would not bite. This is obviously an
available meaning of the words, but the question is whether - viewed
objectively and applying the well recognised principles - it is one that the
parties can be taken to have intended.
499.
The premise underlying the agreement set out in the letters was that
GGOWL had imposed an NDT regime, and consequent need for weld repair, that went
beyond ZPMC’s and Fluor’s contractual obligations.
If that could have been the subject of any doubt, it is made clear in the
warranty letter. That (assumed) state of affairs gave Fluor a claim against
GGOWL and ZPMC a claim against Fluor. That is clear from the words of the
opening paragraph of the waiver letter. The intention was that both claims
should be pursued against GGOWL.
500.
Thus the claim by Fluor against GGOWL was a claim for the cost of
complying with an instruction to carry out additional or varied work (or by way
of mitigating its loss caused by GGOWL’s breach of contract): that instruction
was given by the issue of the NCRs (or, alternatively, the issue of the NCRs
constituted a breach of contract). That was the basis that underlay the
agreement set out in the waiver letter. Costs incurred by Fluor prior to the issue
of the relevant NCR could not be the subject of the claim against GGOWL since
the only costs being waived were those incurred as a result of the
NCRs.
501.
In my judgment, the waiver letter must be read in the light of the
parties’ mutual understanding of the position, namely that the claims that were
to be pursued against GGOWL were for the additional costs incurred in respect
of the extra contractual work instructed by GGOWL. Those are the costs that
form the subject matter of the assignment by ZPMC to Fluor and which were the
subject of Fluor’s release and waiver at numbered paragraph 3 of the waiver
letter.
502.
The corollary of this is that costs which did not arise out of or
were not incurred in respect of enhanced testing and consequent
remediation of the MPs and TPs required by GGOWL are not costs the claim for
which was being assigned by ZPMC to Fluor. Similarly, such costs would not be
included in the waiver given by Fluor.
503.
Fluor characterises ZPMC’s case as being that there was a common
understanding that the words used in the waiver letter should not mean what
they say, but instead mean “the costs Fluor has incurred as a result of weld
defects”.
504.
Fluor has pointed out, correctly, that Mr Gao’s understanding of the
agreement that had been reached between the parties before the waiver letter
was signed was different from the understanding shared by Mr Cao and Mr Huang.
As I have mentioned, the former thought that all claims were being waived,
whereas the latter thought that it was claims in respect of weld defects.
505.
Further, Fluor submits that the board of ZPMC, who took the final
decision, knew nothing of the previous discussions between the parties, having
been provided only with copies of the two letters and a proposal dated 20 June
2010. I do not recall being told who had prepared the proposal.
506.
The text of the proposal provided to the board was as follows:
"Proposal
in relation to providing 25 years warranty and other matters for FLUOR UK Great Gabbard offshore wind power project
All board
members:
The UK Great
Gabbard offshore wind power project was generally contracted by the US FLUOR
company (hereinafter: FLUOR), among all our company subcontracted the detailed
design, material procurement, fabrication and transportation (total 8 shipments
to Holland) of 140 MPs and TPs, the contract price is approximately 234 million
Euros. The MPs and TPs of shipment 1 arrived Holland in May 09, afterwards
FLUOR used the extra contractual inspection method under the request of the
owner to inspect the welds of the MPs, and the result was the discovery of
transverse cracks. From July 09, our company has sent more than 100 management
technical personnel and workers rushing to the Holland site to perform the
welds repair work.
Currently the
owner of the Great Gabbard offshore wind power project filed claims for the
weld defects of the MPs and TPs provided by ZPMC. These welds contain the
transverse cracks which will threaten the structure integrity and the design
usage life of wind turbine electricity generator foundation. FLUOR and ZPMC
raised questions to this claim, however, the rights and liabilities of each
party will need to be decided through arbitration or other methods, FLUOR's
strategy will withhold the balance of the Purchase Order, until final
conformation [that] FLUOR would not need to take responsibility for the weld
defects that the owner claimed, nor take responsibility for the usage life less
than 25 years as alleged by the owner.
In the beginning
of October 2009, FLUOR met and discussed with Mr Guan, requesting our company
to provide a 25 years warranty to the MPs and TPs, this warranty includes all
direct and indirect losses, and provides corresponding amount of bank guarantee
as a guarantee. Mr Guan mentioned that can only provide the written guarantee
of the company, at most provide an additional parent company Zhong Jiao Shares
guarantee.
In April 2010,
Fluor sent two letters, requesting our company to entrust FLUOR to claim
against the owner, and provide a 25 years warranty (including all direct and
indirect losses), and requesting ZPMC's parent company Zhong Jiao shares to
provide a guarantee.
In June 2010,
FLUOR sent two letters again, did not insist on indirect losses and the guarantee
of Zhong Jiao shares company.
Letter one
(please see attachment 1) requests our company to confirm entrusting FLUOR to
claim against the owner, FLUOR will pay ZPMC 50% of any compensation received
in its welding dispute claim in the arbitration, payable after receiving the
payment and deducting FLUOR's losses incurred from the welding dispute claim
and reimbursement of all costs incurred by FLUOR in the arbitration.
Letter two
(please [see] attachment 2) requests our company to provide a 25 years warranty
for the materials and fabrication quality in the MP and TP fabrication process
under the contract of all MPs and TPs that were not repaired in Vlissingen
Holland and were shipped in the first 3 shipments. The commencement date of the
warranty will be calculated from the owner's acceptance of this project. This
warranty can be solely decided by FLUOR to assign to the owner or the owner's
successor, and shall include all direct losses arisen from any structural
defects of the MPs and TPs, including without limitation to repair or necessary
replacement etc. Under the circumstances that the above is confirmed by ZPMC,
FLUOR agrees to pay the balance within 35 days after ZPMC provides the invoice
of all final settlement amounts under the contract.
Because of the
dispute of the crack issue, the project progress was delayed, FLUOR alleged
that the losses for waiting for work of the assembly crane ships and the other
costs to rush work in the severe weather in winter in order to keep up the
progress and avoid the strict penalty of the owner have exceeded our company's
contract price, FLUOR states that if our company does not provide this kind
of guarantee, will claim against our company for the losses they suffered from
this.
After repeated
thinking over and cautious studies, the company management level suggest to
agree to FLUOR's requests, ie. Agreeing to confirm and sign the attached letter
one and letter two sent by FLUOR on 4th June 2010.
The board
authorises the management level to adjust and handle the specific matters in
relation to this project based on the actual circumstances under the principle
of striving for the maximum interests of the company.
Hereby submit to
the board meeting for review.
Shanghai Zhenhua
Heavy Industries Co Limited
28th
June 2010"
(My
emphasis)
507.
It seems to me that the relevant passage in this report is the one that
I have underlined, which refers to Fluor’s intention to claim against ZPMC for
the losses “they suffered from this” if ZPMC does not provide the
requested guarantee. The difficulty is understanding what is meant by “this”.
It appears to refer back to the reference to the losses in relation to delay
referred to earlier in the same paragraph. This does not really assist ZPMC:
on the contrary, it appears to suggest that the losses that Fluor was agreeing
not to pursue were losses in respect of delay caused by the dispute relating to
the crack issue. However, the members of the board were provided with the two
letters and had the opportunity to read them for themselves.
508.
Further, I accept the submission by ZPMC, based on the evidence of Mr
Liu (at Day 9/103), that the authority of the board was required to enable ZPMC
to give the 25 year warranty, which Mr Liu described as “abnormal” -
which I take to mean an act that lay outside the day to day powers of the
directors individually. By contrast, Mr Liu said that an agreement to waive
claims was not something that required approval from the board. I therefore
reject Fluor’s submission that ZPMC’s estoppel claim must fail because the board
was not aware of any common assumptions that might have been relevant to a
consideration of the waiver letter.
509.
On 14 October 2011 Fluor sent ZPMC a copy of a Notice of Defects issued
by GGOWL and, in its covering letter, said, amongst other things:
“In
the Notice of Defects letter, GGOWL claims that, based on the results of
ultrasonic inspection and testing of welds in certain identified TPs, “the
welding in the MPs and TPs in shipments 1 to 3 is defective and/or otherwise
not in accordance with the Contract”.
. .
.
The intent of this letter is
to advise ZPMC that Fluor has received the subject notice from GGOWL, and that
Fluor is in the process of investigating GGOWL’s allegations. It is our
expectation that the testing will [show] that the quality of the product meets
the contractual requirements, however should Fluor’s investigations validate
GGOWL’s allegations, then Fluor will look to ZPMC to indemnify and hold
harmless Fluor from any and all such liability and damages in accordance with
the terms of: (1) the Purchase Order: and (2) the Letter Agreement.”
510.
Fluor pointed out in its closing submissions that the waiver letter, in
its revised form, was signed in the following January, at a time when ZPMC
could have been expected to have this letter well in mind. Fluor’s letter of
14 October 2011 was transmitted to Mr Kang by e-mail by Mr Gao a few days
later, although when giving evidence Mr Kang said that he had never seen it
before (Day 15/140). Fluor submits that it is very surprising that ZPMC signed
the waiver letter in its revised form - which, to all intents and purposes, was
in the same form as the previous version - if it had the understanding of the
effect of the waiver letter for which it now contends.
511.
I do not regard this as a good point. The fact is that ZPMC had already
signed the waiver letter, and so it was already bound by its terms. The
revised version that was presented in January 2012 did not materially affect
ZPMC’s existing rights: it seems that the alterations were being suggested in
order to forestall any “no loss” argument that might be advanced by GGOWL in
the arbitration on the basis of the letter in its original form.
512.
However, Fluor’s real case is one of causation based on what it says is
a correct reading of the waiver letter. Very simply, it submits that what it
agreed to waive were the costs and delays it suffered as a result of the
NCRs. Fluor’s case now, which is directly contrary to the case put forward in
the arbitration, is that the actions that it took in relation to the discovery
of the cracking at Vlissingen had nothing to do with the issue of the NCRs by
GGOWL, but were caused by its own belief that cracking in welds such as these
was unacceptable and that accordingly all the cracks should be discovered and
repaired.
513.
Fluor submits that this is demonstrated by what happened in relation to
Shipment No 2: that shipment was tested by Fluor in Vlissingen using D scans
from the moment that it arrived on 29 June 2009 and well before GGOWL got round
to issuing NCR 008 at the end of July. In fact, that submission is not quite
correct because, as I have already mentioned, a note by Mr Ayres suggests that
the testing did not begin until 9 July 2009.
514.
This raises three issues. The first concerns the true construction of
the waiver letter and whether or not it is to be read in the manner contended
for by Fluor. The second, which only arises if Fluor is right on its
construction of the letter, is whether or not some or all of the losses in
respect of which it claims were the result of the NCRs or the result of its own
independent decision to carry out the testing and repairs that were in fact
done. The third issue is whether Fluor is estopped from relying on its
construction of the letter. I shall deal with the first issue in this part of
the judgment and the other two issues separately.
515.
ZPMC’s fundamental submission is that if Fluor were to be permitted to
contend now that none (or very few) of the costs incurred in relation to the
additional NDT and remediation measures at Vlissingen resulted from anything
done by GGOWL, that would fly in the face of the premise underlying the waiver
letter. In fact, ZPMC goes further and says that if Fluor’s position in these
proceedings “really does represent the true position, and its construction
of the Waiver Letter is accepted, then ZPMC has been thoroughly and completely
misled” (paragraph 336.3 of its closing submissions). In my view, there is
some force in that point.
516.
ZPMC relied on Mr Cao’s evidence of what was said at the meeting on 20
April 2010. In cross-examination (at Day 10/23-24) he said this:
“Q.
I'm looking at 20902, but of course you can look at the Chinese. Under
paragraph 2 there is a sub-paragraph (i) that says:
"Both parties waive claim against each other".
A.
(Interpreted). Yes.
Q.
To the best of your recollection, is that what Mr Fuller said?
A.
(Interpreted). I remember that there were two aspects to both parties waive
claim against each other, ie Fluor would not claim against us. And, secondly,
we do not claim against them. And that's how both parties waive claim against
each other. That's what he means.
Further to that, he actually went into great details about waiving claim
against each other. and I remember, very specifically, that he said Fluor would
not claim against us in relation to any issues to do with welding.
Q.
That's not what the –
A.
(Interpreted). In addition to that, ZPMC also waive all claims against Fluor
in relation to any additional cost incurred as a result of the crack issues.
Q.
Well, that's not what your note says, is it? It certainly doesn't contain that
detail.
A.
(Interpreted). I remember it very clear –
THE
INTERPRETER: Sorry. I will start again.
A.
(Interpreted). It doesn't mean that I didn't hear that he said these things.
And he actually said it in -- with a lot of details. And I can recall the
meeting quite distinctly in my mind. Before the meeting in September/October
there was lots of discussions.
So,
therefore, you can see in my note it actually said that:
"The above-mentioned
discussion is similar to the principles previously discussed".”
517.
ZPMC submitted that Mr Cao was a careful and palpably honest witness and
that his evidence of this meeting should be accepted. Since Mr Cao gave
evidence through an interpreter my ability to form an impression of him as a
witness was inevitably limited. He had a significant role in that he was
ZPMC’s vice president in charge of production planning and manufacturing from
2006 to 2013.
518.
As a matter of general impression, I thought that Mr Cao was a little
inclined to distance himself from the events of late 2008 and early 2009. Of
course, it may be that he was as remote from these events as he indicated in
evidence - but either way I did not regard his evidence about the events up to
mid 2009 as of much assistance. In relation to the meeting of 20 April 2010, I
have serious reservations as to how much he could really recollect
independently of his note. This is not in any sense a criticism of him: I have
a similar reservation about the evidence of every witness who was being asked
to give an account of a meeting which took place some six or seven years ago.
519.
ZPMC submitted that it was the cost incurred as a result of following
the “MP and TP weld testing and repair protocol” imposed by GGOWL that
was being addressed by the waiver letter. It submits that whether or not Fluor
would have followed that course in any event is irrelevant: the course was
followed and additional costs were incurred. However, ZPMC then goes on to say
that the “substantial additional costs” referred to in the waiver letter
must be taken to have included all the costs relating to the transverse
cracking issue that were incurred at Vlissingen.
520.
ZPMC submits that there was only one “pot” of costs at Vlissingen that,
in previous discussions, had never been subdivided. This is true, but as ZPMC
also submits, the waiver is directed towards a particular package of costs and
liabilities, namely “the additional costs and delays [Fluor] suffered as a
result of NCR 006, 008 and 009”. ZPMC is therefore accepting that there
has to be a causal link between the costs being waived and the issue of the
NCRs. However, ZPMC goes on to submit that the meaning of those words must be
determined having regard to the background to the formation of the agreement.
521.
ZPMC makes the point that at no stage prior to this litigation did Fluor
suggest that the costs representing the “extra contractual testing”
would have been incurred in any event, irrespective of the view taken by GGOWL,
because such a testing regime was necessary in order to ensure that all cracks
in the welds were repaired. The common assumption, submits ZPMC, was that
Fluor and ZPMC had no option but to implement the enhanced testing regime once
the NCRs had been issued. The only question was who was liable to pay for
them. If the NCRs were properly issued, then the risk lay with ZPMC and
Fluor. If the NCRs were not justified, as both Fluor and ZPMC said at the
time, then GGOWL would be liable to pay for the enhanced testing and consequent
repairs.
522.
In their letter sent as ZPMC’s response to Fluor’s letter setting out
its claim as part of the pre-action protocol procedure, ZPMC’s solicitors,
Pinsent Masons, summarised the waiver that had been given by each party in the
following terms:
“Fluor
and ZPMC agreed that they would each waive their claims against the other in
respect of all of the costs that had arisen as a result of the testing regime
imposed on Fluor by GGOWL and thus by Fluor on ZPMC and in respect of the
additional work that was carried out as a result of the testing. As part of
the waiver agreement, ZPMC agreed to provide assistance to Fluor in its
arbitration against GGOWL. ZPMC also agreed to provide an additional warranty
for the goods that had not been the subject of GGOWL unnecessary enhanced
testing regime as part of that agreement.
The
final account was agreed on the express understanding that the claims for additional
work required as a result of the D scanning and other GGOWL testing
requirements had been settled by the waiver agreement. ZPMC provided
continued assistance to Fluor in the arbitration on the basis and because of
continued and repeated assurances by Fluor that the claims being advanced
against GGOWL had been settled as between ZPMC and Fluor.”
(My
emphasis)
523.
Fluor’s case is that the MPs and TPs were not of good quality or “fit
and sufficient for the purposes for which they are intended as evidenced by
this Purchase Order”. The PO was for the supply of “materials, labour and
services described under the heading ‘Description of Purchase’”.
524.
The Description of Purchase was as follows:
“Mono Pile Foundations &
Transition Pieces Total Purchase Order Value,Export Packed, Delivered CFR
(INCOTERMS 2000) Vlissingen, The Netherlands – €234,097,500.”
There were some changes to the price, but otherwise this
description remained unchanged.
525.
Section 8 of the PO provided that:
“Material will be delivered
CFR Vlissingen 9 months from receipt by Seller of design documentation . . .”
526.
It was clear from the terms of the PO that the MPs and TPs were being
supplied to Fluor for onward supply to GGOWL and installation at its offshore
wind farm off the Suffolk coast.
527.
It is Fluor’s case that the MPs and TPs had to meet the contractual
requirements at the time of delivery at Vlissingen. This is not disputed. It is
also Fluor’s case that, on delivery, the MPs and TPs had to be:
(1) in a condition such
that a reasonable buyer in the position of Fluor could load them out and
install them in the seabed without further examination or remediation; and
(2) suitable for
installation in the seabed and thereafter to perform in service satisfactorily
for 25 years.
528.
ZPMC’s case is that the test of fitness for purpose is objective. It
submits that the purpose for which the MPs and TPs were intended was to act as
foundations for offshore wind turbines with a service life of 25 years. Once
this purpose is identified, the only question is whether the goods supplied were
reasonably fit for it - namely, whether they were capable of supporting the
wind turbines for 25 years. The point made by ZPMC is that whether or not the
buyer thinks that the goods are fit for their purpose is irrelevant: either
they are or they are not. At trial Fluor did not advance any positive case
that the MPs and TPs were not capable of achieving a 25 year service life.
529.
There is, surprisingly, so far as I can tell, no authority on this
point. When I asked counsel if they knew of any, ZPMC were able to refer me to
two authorities only. These were Frost v The Aylesbury Dairy Company
[1905] KB 608, and the well known decision of the House of Lords in Henry
Kendall & Sons v William Lillico & Sons [1969] 2 AC 31, at pages
75, 96, 108, 118 and 126. However, these two cases were of fairly limited
assistance in resolving the issue here. In Henry Kendall two members of
the House of Lords accepted the proposition that, when considering whether or
not goods were of merchantable quality, some knowledge acquired later should be
brought in otherwise it would never be possible to hold that goods were
unmerchantable by reason of a latent defect (per Lord Reid, at page 75; Lord
Guest, at pages 108-109). However, Lord Pearce took a rather more circumspect
view (at page 119).
530.
In these circumstances, one must begin at the beginning. In Grant v
Australian Knitting Mills Ltd [1936] AC 85, the Privy Council approved the
test of merchantability formulated by Dixon J in the High Court of Australia, a
course followed by the House of Lords in Henry Kendall, in the following
terms:
“The condition that goods are
of merchantable quality requires that they should be in such an actual state
that a buyer fully acquainted with the facts and, therefore, knowing what
hidden defects exist and not being limited to their apparent condition would
buy them without abatement of the price obtainable for such goods if in
reasonably sound order and condition and without special terms.”
531.
Assuming that there is only one use for the type of goods in question
(so that fitness for purpose and merchantability elide), what is the position
if the buyer knows of their true condition but is unable to discover, without
lengthy investigation, whether or not that condition affects that use? The
answer, it seems to me, would be that he would impose a condition that the
necessary investigation is carried out before agreeing to buy the goods. That,
therefore, would amount to the imposition of a special term, namely the
satisfactory outcome of the investigation.
532.
In this case the experts agreed in their joint statement that the
indications identified at Vlissingen reasonably justified a further
investigation. In evidence, Dr Morgan agreed that there were features in the
welds that would have been revealed on testing by D scan and, that being the
case, it was right to go ahead and test the monopiles at Vlissingen (Day
16/89). I have already mentioned that Mr Teale agreed in cross examination
that Fluor could not just go ahead and install the piles without carrying out a
detailed ultrasonic investigation and then repairing what had to be repaired
(Day 17/163-165). Dr Gordon said much the same (Day 18/204). So the evidence
given by ZPMC’s experts was consistent with the agreement recorded in the joint
statement.
533.
In my view, this evidence clearly establishes that, as a result of the
cracking that had been found in the piles at Vlissingen, the only reasonable
option available to Fluor was to carry out an investigation into the true
condition of the piles and to establish the extent (if any) to which this might
affect their performance in service.
534.
There is no doubt in my mind that, so far as Fluor was concerned, the
MPs and TPs had to be in a condition on delivery at Vlissingen such that any
reasonable purchaser in Fluor’s position could, without further inquiry or
investigation, load them out onto the installation vessels and install them in
the seabed. They were not delivered in such a condition and so in my judgment
they were not fit for their purpose.
535.
It is now trite law that agreements must be construed objectively: the classic
statement of the law is still that by Lord Hoffmann in Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896,
at 912, which is that a document must be given
“the meaning
which the document would convey to a reasonable person having all the
background knowledge which would reasonably have been available to the parties
in the situation in which they were at the time of the contract.”
536.
I was referred also to the recent statement by Lewison LJ in Honda
Motor Europe Ltd v Tony Powell [2014] EWCA Civ 437, at paragraph 24:
“The task is to determine
what the words of the instrument, read against the relevant background, would
have meant to a reasonable reader. It is an iterative process in which possible
meanings are checked against their likely consequences and the background
facts. If the language is reasonably susceptible of two or more meanings, the
court should choose that which best serves the object or purpose of the
transaction, objectively ascertained. Any interpretation must, so far as
possible, be one that is not impractical or over-restrictive or technical in
practice. But three further points are of importance in this case. First, the
question is not what the parties meant to say; but what is the meaning of what
they did say. Second, the language that they used is likely to be the most
important factor, unless the court can conclude that something has gone wrong
with the language. Third, where the parties have themselves defined their own
terms, the court must give effect to those definitions.”
537.
However, what the parties said in their pre contractual negotiations are
matters to which the court can pay only very limited regard and in certain
limited circumstances. This is often referred to as “the exclusionary rule”.
Again, one of the classic statements of the rule comes from Lord Hoffmann in Chartbrook
Ltd v Persimmon Homes Ltd [2009] UKHL 38, at paragraph 28 and onwards:
“28. The rule that
pre-contractual negotiations are inadmissible was clearly reaffirmed by this
House in Prenn v Simmonds [1971] 1 WLR 1381, where Lord Wilberforce said
(at p 1384) that earlier authorities “contain little to encourage, and much to
discourage, evidence of negotiation or of the parties’ subjective intentions.”
It is clear that the rule of inadmissibility has been established for a very
long time. In Inglis v John Buttery & Co (1878) 3 App Cas 552, 577
Lord Blackburn said that Lord Justice Clerk Moncreiff (at (1877) 4 R 58, 64)
had laid down a principle which was nearly accurate but not quite when he said
that in all mercantile contracts “whether they be clear and distinct or the
reverse, the Court is entitled to be placed in the position in which the
parties stood before they signed". The only qualification Lord Blackburn
made was to reject Lord Moncreiff’s view that the Court was entitled to look at
the pre-contractual negotiations because unless one did so, one could not be
fully in the position in which the parties had been.
29. Instead,
Lord Blackburn preferred (at p. 577) the opinion of Lord Gifford ((1877) 4 R
58, 69-70):
“Now,
I think it is quite fixed - and no more wholesome or salutary rule relative to
written contracts can be devised - that where parties agree to embody, and do
actually embody, their contract in a formal written deed, then in determining
what the contract really was and really meant, a Court must look to the formal
deed and to that deed alone. This is only carrying out the will of the parties.
The only meaning of adjusting a formal contract is, that the formal contract
shall supersede all loose and preliminary negotiations - that there shall be no
room for misunderstandings which may often arise, and which do constantly arise,
in the course of long, and it may be desultory conversations, or in the course
of correspondence or negotiations during which the parties are often widely at
issue as to what they will insist on and what they will concede. The very
purpose of a formal contract is to put an end to the disputes which would
inevitably arise if the matter were left upon verbal negotiations or upon mixed
communings partly consisting of letters and partly of conversations. The
written contract is that which is to be appealed to by both parties, however
different it may be from their previous demands or stipulations, whether
contained in letters or in verbal conversation. There can be no doubt that this
is the general rule, and I think the general rule, strictly and with peculiar
appropriateness applies to the present case.”
. .
.
38.
Like Lord Bingham, I rather doubt whether the ICS case produced a dramatic
increase in the amount of material produced by way of background for the
purposes of contractual interpretation. But pre-contractual negotiations seem
to me capable of raising practical questions different from those created by
other forms of background. Whereas the surrounding circumstances are, by
definition, objective facts, which will usually be uncontroversial, statements
in the course of pre-contractual negotiations will be drenched in subjectivity
and may, if oral, be very much in dispute. It is often not easy to distinguish
between those statements which (if they were made at all) merely reflect the
aspirations of one or other of the parties and those which embody at least a
provisional consensus which may throw light on the meaning of the contract
which was eventually concluded. But the imprecision of the line between
negotiation and provisional agreement is the very reason why in every case of
dispute over interpretation, one or other of the parties is likely to require a
court or arbitrator to take the course of negotiations into account. Your
Lordships’ experience in the analogous case of resort to statements in Hansard
under the rule in Pepper v Hart [1993] AC 593 suggests that such evidence will be
produced in any case in which there is the remotest chance that it may be
accepted and that even these cases will be only the tip of a mountain of
discarded but expensive investigation. Pepper v Hart has also
encouraged ministers and others to make statements in the hope of influencing
the construction which the courts will give to a statute and it is possible
that negotiating parties will be encouraged to improve the bundle of
correspondence with similar statements.
.
. .
40. In
his judgment in the present case, Briggs J thought that the most powerful argument
against admitting evidence of pre-contractual negotiations was that it would be
unfair to a third party who took an assignment of the contract or advanced
money on its security. Such a person would not have been privy to the
negotiations and may have taken the terms of the contract at face value. There
is clearly strength in this argument, but it is fair to say that the same point
can be made (and has been made, notably by Saville LJ in National Bank of
Sharjah v Dellborg [1997] EWCA Civ 2070, which is unreported, but the
relevant passage is cited in Lord Bingham’s paper in the Edinburgh Law Review)
in respect of the admissibility of any form of background. The law sometimes
deals with the problem by restricting the admissible background to that which would
be available not merely to the contracting parties but also to others to whom
the document is treated as having been addressed. Thus in Bratton Seymour
Service Co Ltd v Oxborough [1992] BCLC 693 the Court of Appeal decided that
in construing the articles of association of the management company of a
building divided into flats, background facts which would have been known to
all the signatories were inadmissible because the articles should be regarded
as addressed to anyone who read the register of companies, including persons
who would have known nothing of the facts in question. In The “Starsin”
(Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715) the House of Lords construed words
which identified the carrier on the front of a bill of lading without reference
to what it said on the back, on the ground that the bankers to whom the bill
would be tendered could not be expected to read the small print. Ordinarily,
however, a contract is treated as addressed to the parties alone and an
assignee must either inquire as to any relevant background or take his chance
on how that might affect the meaning a court will give to the document. The law
has sometimes to compromise between protecting the interests of the contracting
parties and those of third parties. But an extension of the admissible
background will, at any rate in theory, increase the risk that a third party
will find that the contract does not mean what he thought. How often this is
likely to be a practical problem is hard to say. In the present case, the
construction of the agreement does not involve reliance upon any background
which would not have been equally available to any prospective assignee or
lender.
41. The
conclusion I would reach is that there is no clearly established case for
departing from the exclusionary rule. The rule may well mean, as Lord Nicholls
has argued, that parties are sometimes held bound by a contract in terms which,
upon a full investigation of the course of negotiations, a reasonable observer
would not have taken them to have intended. But a system which sometimes allows
this to happen may be justified in the more general interest of economy and predictability
in obtaining advice and adjudicating disputes. It is, after all, usually
possible to avoid surprises by carefully reading the documents before signing
them and there are the safety nets of rectification and estoppel by convention.
Your Lordships do not have the material on which to form a view. It is possible
that empirical study (for example, by the Law Commission) may show that the
alleged disadvantages of admissibility are not in practice very significant or
that they are outweighed by the advantages of doing more precise justice in
exceptional cases or falling into line with international conventions. But the
determination of where the balance of advantage lies is not in my opinion
suitable for judicial decision. Your Lordships are being asked to depart from a
rule which has been in existence for many years and several times affirmed by
the House. There is power to do so under the Practice Statement (Judicial
Precedent) [1966] 1 WLR 1234. But that power was intended, as Lord Reid said in
R v National Insurance Comrs, Ex p Hudson [1972] AC 944, 966, to be
applied only in a small number of cases in which previous decisions of the
House were “thought to be impeding the proper development of the law or to have
led to results which were unjust or contrary to public policy". I do not
think that anyone can be confident that this is true of the exclusionary rule.
42. The
rule excludes evidence of what was said or done during the course of
negotiating the agreement for the purpose of drawing inferences about what the
contract meant. It does not exclude the use of such evidence for other
purposes: for example, to establish that a fact which may be relevant as
background was known to the parties, or to support a claim for rectification or
estoppel. These are not exceptions to the rule. They operate outside it.”
538.
A little later, the approach to the exclusionary rule was restated by
the Supreme Court in Oceanbulk Shipping & Trading SA v TMT Asia Limited
[2010] UKSC 44, where Lord Clarke said, at paragraphs 37-39:
“37. As Lord Hoffmann
himself put it in para 14 of his speech in Chartbrook Ltd v Persimmon Homes
Ltd [2009] UKHL 38, [2009] AC 1101, in every case in which the
interpretation of the language used in the contract is in issue, the question
is what a reasonable person having all the background knowledge which would
have been available to the parties would have understood them to be using the
language in the contract to mean. In Chartbrook the House of Lords
considered and rejected the submission that what at para 42 Lord Hoffmann
called the exclusionary rule, which excludes evidence of what was said or done
in the course of negotiating an agreement for the purpose of drawing inferences
about what the contract means, should now be abolished. It accordingly remains
part of English law. The exclusionary rule does not exclude such evidence for
all purposes. Lord Hoffmann put it thus in para 42:
"It
does not exclude the use of such evidence for other purposes: for example, to
establish that a fact which may be relevant was known to the parties, or to support
a claim for rectification or estoppel. These are not exceptions to the rule.
They operate outside it."
38. It
is not in dispute that, where negotiations which culminate in an agreement are
not without prejudice, the exclusionary rule applies to the correct approach to
the construction of the agreement. Nor is it in dispute that in those
circumstances evidence of the factual matrix is admissible as an aid to
interpretation even where the evidence formed part of the negotiations. The
distinction between objective facts and other statements made in the course of
negotiations was clearly stated by Lord Hoffmann in para 38 of Chartbrook:
"Whereas
the surrounding circumstances are, by definition, objective facts, which will
usually be uncontroversial, statements in the course of pre-contractual
negotiations will be drenched in subjectivity and may, if oral, be very much in
dispute."
39. Trial
judges frequently have to distinguish between material which forms part of the
pre-contractual negotiations which is part of the factual matrix and therefore
admissible as an aid to interpretation and material which forms part of the
pre-contractual negotiations but which is not part of the factual matrix and is
not therefore admissible. This is often a straightforward task but sometimes it
is not. In my opinion this problem is not relevant to the question whether,
where the pre-contractual negotiations that form part of the factual matrix are
without prejudice, evidence of those negotiations is admissible as an aid to
construction of the settlement agreement. The two questions are, as I see it,
entirely distinct.”
539.
In the recent decision of Arnold v Britton [2015] UKSC 36 the Supreme Court took a rather harder approach to the
construction of contracts. Lord Neuberger, with whom Lords Sumption and Hughes
agreed, said, at paragraphs 14-23:
“14. Over
the past 45 years, the House of Lords and Supreme Court have discussed the
correct approach to be adopted to the interpretation, or construction, of
contracts in a number of cases starting with Prenn v Simmonds [1971] 1
WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900.
15. When interpreting a written contract, the court is
concerned to identify the intention of the parties by reference to "what a
reasonable person having all the background knowledge which would have been
available to the parties would have understood them to be using the language in
the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd v
Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the
relevant words, in this case clause 3(2) of each of the 25 leases, in their
documentary, factual and commercial context. That meaning has to be assessed in
the light of (i) the natural and ordinary meaning of the clause, (ii) any other
relevant provisions of the lease, (iii) the overall purpose of the clause and
the lease, (iv) the facts and circumstances known or assumed by the parties at
the time that the document was executed, and (v) commercial common sense, but
(vi) disregarding subjective evidence of any party's intentions. In this
connection, see Prenn at pp 1384-1386 and Reardon Smith Line Ltd v
Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989,
995-997 per Lord Wilberforce, Bank of Credit and Commerce International SA
(in liquidation) v Ali [2002] 1 AC 251, para 8, per Lord Bingham, and the survey of more recent
authorities in Rainy Sky, per Lord Clarke at paras 21-30.
16. For present purposes, I think it is important to
emphasise seven factors.
17. First, the reliance placed in some cases on commercial
common sense and surrounding circumstances (eg in Chartbrook, paras
16-26) should not be invoked to undervalue the importance of the language of
the provision which is to be construed. The exercise of interpreting a
provision involves identifying what the parties meant through the eyes of a
reasonable reader, and, save perhaps in a very unusual case, that meaning is
most obviously to be gleaned from the language of the provision. Unlike
commercial common sense and the surrounding circumstances, the parties have
control over the language they use in a contract. And, again save perhaps in a
very unusual case, the parties must have been specifically focussing on the
issue covered by the provision when agreeing the wording of that provision.
18. Secondly, when it comes to considering the centrally
relevant words to be interpreted, I accept that the less clear they are, or, to
put it another way, the worse their drafting, the more ready the court can
properly be to depart from their natural meaning. That is simply the obverse of
the sensible proposition that the clearer the natural meaning the more
difficult it is to justify departing from it. However, that does not justify
the court embarking on an exercise of searching for, let alone constructing,
drafting infelicities in order to facilitate a departure from the natural
meaning. If there is a specific error in the drafting, it may often have no
relevance to the issue of interpretation which the court has to resolve.
19. The third point I should mention is that commercial
common sense is not to be invoked retrospectively. The mere fact that a
contractual arrangement, if interpreted according to its natural language, has
worked out badly, or even disastrously, for one of the parties is not a reason
for departing from the natural language. Commercial common sense is only
relevant to the extent of how matters would or could have been perceived by the
parties, or by reasonable people in the position of the parties, as at the date
that the contract was made. Judicial observations such as those of Lord Reid in
Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235,
251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The
Antaios) [1985] AC 191, 201, quoted by Lord Carnwath at para 110, have to
be read and applied bearing that important point in mind.
20. Fourthly, while commercial common sense is a very
important factor to take into account when interpreting a contract, a court
should be very slow to reject the natural meaning of a provision as correct
simply because it appears to be a very imprudent term for one of the parties to
have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of
interpretation is to identify what the parties have agreed, not what the court
thinks that they should have agreed. Experience shows that it is by no means
unknown for people to enter into arrangements which are ill-advised, even
ignoring the benefit of wisdom of hindsight, and it is not the function of a
court when interpreting an agreement to relieve a party from the consequences
of his imprudence or poor advice. Accordingly, when interpreting a contract a
judge should avoid re-writing it in an attempt to assist an unwise party or to
penalise an astute party.
21. The fifth point concerns the facts known to the parties.
When interpreting a contractual provision, one can only take into account facts
or circumstances which existed at the time that the contract was made, and
which were known or reasonably available to both parties. Given that a contract
is a bilateral, or synallagmatic, arrangement involving both parties, it cannot
be right, when interpreting a contractual provision, to take into account a
fact or circumstance known only to one of the parties.
22. Sixthly, in some cases, an event subsequently occurs
which was plainly not intended or contemplated by the parties, judging from the
language of their contract. In such a case, if it is clear what the parties
would have intended, the court will give effect to that intention. An example
of such a case is Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56, 2012 SCLR 114,
where the court concluded that "any … approach" other than that which
was adopted "would defeat the parties' clear objectives", but the
conclusion was based on what the parties "had in mind when they entered
into" the contract (see paras 17 and 22).
23.
Seventhly, reference was made in
argument to service charge clauses being construed "restrictively". I
am unconvinced by the notion that service charge clauses are to be subject to
any special rule of interpretation. Even if (which it is unnecessary to
decide) a landlord may have simpler remedies than a tenant to enforce service
charge provisions, that is not relevant to the issue of how one interprets the
contractual machinery for assessing the tenant's contribution. The origin of
the adverb was in a judgment of Rix LJ in McHale v Earl Cadogan [2010] EWCA Civ 14,[2010] 1 EGLR 51, para 17. What he was saying, quite correctly, was that the court
should not "bring within the general words of a service charge clause
anything which does not clearly belong there". However, that does not help
resolve the sort of issue of interpretation raised in this case.”
540.
Lord Hodge, who also agreed with Lord Neuberger, said this, at
paragraphs 76-77:
“76. This
conclusion is not a matter of reaching a clear view on the natural meaning of
the words and then seeing if there are circumstances which displace that
meaning. I accept Lord Clarke's formulation of the unitary process of
construction, in Rainy Sky SA
v Kookmin Bank [2011] 1 WLR 2900, para 21:
"[T]he
exercise of construction is essentially one unitary exercise in which the court
must consider the language used and ascertain what a reasonable person, that is
a person who has all the background knowledge which would reasonably have been
available to the parties in the situation in which they were at the time of the
contract, would have understood the parties to have meant. In doing so the
court must have regard to all the relevant surrounding circumstances. If there
are two possible constructions, the court is entitled to prefer the
construction which is consistent with business common sense and to reject the
other."
77.
This unitary exercise involves an
iterative process by which each of the rival meanings is checked against the
provisions of the contract and its commercial consequences are investigated (Re
Sigma Finance Corp ([2009] UKSC 2) [2010] 1 All ER 571, para 12 per Lord Mance). But there must be a basis in the
words used and the factual matrix for identifying a rival meaning. The role of
the construct, the reasonable person, is to ascertain objectively, and with the
benefit of the relevant background knowledge, the meaning of the words which
the parties used. The construct is not there to re-write the parties' agreement
because it was unwise to gamble on future economic circumstances in a long term
contract or because subsequent events have shown that the natural meaning of
the words has produced a bad bargain for one side. The question for the court
is not whether a reasonable and properly informed tenant would enter into such
an undertaking. That would involve the possibility of re-writing the parties'
bargain in the name of commercial good sense. In my view, Mr Morshead's
formulation (para 67 above), on which his case depends, asks the court to
re-write the parties' leases on this illegitimate basis.”
541.
A proposition from which neither side dissents is that a claim by Fluor
for the costs of “additional work required as a result of the D scanning and
other GGOWL testing requirements” could only be made successfully if it
could show that GGOWL had instructed Fluor - either expressly or by necessary
implication - to carry out the work and the work was outside the scope of its
contractual obligations. Or, alternatively, that the additional work was
necessary as a result of a breach of contract by GGOWL.
542.
In my view it follows from this that ordinarily Fluor would not be
entitled to make a claim for work that it had carried out in anticipation of
such an instruction or in order to avoid such an instruction being given. As I
have already mentioned, this was the view of Mr Dekker when he was seeking to
provoke GGOWL into issuing NCR 008 in respect of Shipment 2. That is because
the NCR would be the instruction that would justify the claim.
543.
So, as a matter of contractual allocation, there was not one indivisible
“pot” of costs, as ZPMC put it, because Fluor and ZPMC would always have had to
identify the costs that they claimed were caused by the relevant instructions.
In my view, it is those costs that are the “substantial additional costs”
referred to in the opening paragraph of the waiver letter. I therefore reject
ZPMC’s case that, on a true construction of the waiver letter, the waiver given
by Fluor extended to all costs attributable to enhanced testing and consequent
repairs as a result of allegedly defective welding even if they were not the
result of the issue of the NCRs (or a breach of contract).
544.
Although it is true that, at the various meetings, there were broad
statements about neither side making claims against the other, it was always
understood that there would be no binding agreement unless and until its terms
had been reduced to writing and approved by both parties. Following the
meeting of 2 October 2009 Fluor made it quite clear to ZPMC that no agreement
was in place. It was not until early 2010 that the concept of an assignment of
ZPMC’s claims to Fluor was introduced into the dialogue.
545.
However, it was in my view equally the case that both parties were
acting on the assumption that the enhanced testing regime and consequent
repairs to each shipment were made necessary by the issue of the relevant NCR.
ZPMC made it clear from an early stage that it did not accept that the enhanced
testing was required by the contract: for example, by its letter of 16 June
2009. At no stage thereafter could Fluor have thought otherwise.
546.
As for Fluor, its stated position was the same: see its letter to GGOWL
dated 1 October 2009 (extracts from which I have set out above). Mr Dekker
said that he had arrived at that conclusion by mid-July 2009, evidence that I
accept.
547.
Accordingly, I find that it was the common understanding of the parties
in June 2010 that the enhanced testing and remediation of each shipment required
by the NCR for that shipment was to be regarded as the result of the relevant
NCR. Whether or not Fluor privately took the view that it would have carried
out the enhanced testing and remediation in any event is, for the purposes of
the construction of the waiver letter, irrelevant.
548.
It seems to me that this case demonstrates vividly the wisdom of Lord
Hoffmann’s observations in Chartbrook, particularly at paragraph 38. It
is very difficult to distinguish between things said at meetings by way of
aspiration and those said by way of provisional agreement. The important fact
is that both parties always intended that any agreement should be set out in
writing, and that is what happened. The writing in this case is the waiver
letter and the warranty letter. That was the contractual bed that the parties
made. In my judgment they must now lie on it - for better or worse, richer or
poorer.
549.
I can now deal with this shortly. The evidence of Mr Hovermale to which
I have already referred left me in no doubt that the enhanced testing using D
scans on the welds at Vlissingen, together with the consequent repairs, was the
result of the issue of NCR 006. It is hardly surprising that the NCR followed
the discovery of some cracks, because had they not been discovered the NCR
would not have been issued.
550.
The evidence of Mr Hovermale made it clear that the issue of NCR 006 was
“the driver” for the testing and remediation of Shipment No 1 MPs and
therefore the cause of it. Accordingly, Fluor’s claim in relation to the
enhanced testing and remediation at Vlissingen for Shipment No 1 MPs which was
required by NCR 006 has been waived by the agreement in the waiver letter.
551.
The position here is different. Shipment No 2 arrived at Vlissingen on 29 June 2009. It must be the case that any enhanced testing and remediation
that was implemented in relation to Shipment No 2 following its arrival must
have been on Fluor’s instructions because the NCR in relation to Shipment No 2,
NCR 008, was not issued for another month.
552.
Fluor implemented this regime because it felt, understandably and
reasonably, that that such testing might well reveal a similar degree of
cracking to that found in the Shipment No 1 and, if it did not, GGOWL would
carry out similar testing itself and that the results will be similar to those
found in Shipment No 1. So, whilst it may be that, in one sense, the enhanced
testing of Shipment No 2 was prompted by the issue of NCR 006 - in that Fluor
feared a repetition in the case of the second shipment also, the fact is that
NCR 006 was expressly limited to the “1st shipment”. Fluor could not have
made a claim against GGOWL on the basis that NCR 006 constituted an instruction
to carry out enhanced testing and remediation in relation to Shipment No 2 for
the simple reason that it was not such an instruction.
553.
The reality was that, in implementing a similar testing and remediation
regime in relation to Shipment No 2, Fluor was mitigating its loss in the event
that the need for this work was the result of ZPMC’s breach of contract. It
must have known that it was most unlikely that GGOWL would agree to the MPs and
TPs in Shipment No 2 being installed without having been tested by inspectors
appointed by GGOWL - as proved with the case when Mr Dekker tried to call
GGOWL’s bluff in mid July 2009.
554.
I find therefore that the additional testing and remediation that was
applied to Shipment No 2 between 29 June and 29 July 2009 was the result of
ZPMC’s breaches of contract in failing to achieve the standard of workmanship
that the contract required. It was not the result of issue NCR 008 (or,
indeed, NCR 006).
555.
However, on 29 July 2009 GGOWL issued NCR 008. Thereafter there were
two causes of the enhanced testing and remediation of Shipment No 2 MPs:
Fluor’s initial decision to carry it out and GGOWL’s instruction to do so in
the form of NCR 008. It was only the costs that followed the issue of the
latter that could form the basis of a claim against GGOWL (as Mr Dekker
understood only too well).
556.
Accordingly, subject to any argument based on estoppel, Fluor is
entitled to recover from ZPMC (and subject to any contractual limitation or
exemption) the costs of or consequent on the testing and remediation of
Shipment No 2 that it incurred prior to 29 July 2009. The costs incurred after
29 July and required by NCR 008 fall within the terms of the waiver letter and
therefore Fluor cannot recover them from ZPMC.
557.
Shipment No 3 arrived in Vlissingen on 1 August 2009. On 4 August 2009
GGOWL arranged for tests to be carried out on the MPs of Shipment No 3. These
were carried out by Sonovation, another independent tester appointed by GGOWL,
and the results were reported to Fluor the following day, 5 August 2009.
Defects were found on ground welds using D scan - a procedure that fell within
the testing procedures agreed between Fluor and ZPMC.
558.
On 7 August 2009 GGOWL issued NCR 009. The reasons that I have already
given in relation to the first two NCRs apply equally to this one. Mr Dekker
made it clear in evidence that he wanted to provoke GGOWL into issuing an NCR
for Shipment No 2 so that Fluor would have a contractual basis for a claim
against GGOWL in relation to the costs of the enhanced testing and
remediation. The same reasoning must apply to NCR 009: without it, Fluor
would have no basis for making a claim against GGOWL in respect of the same
costs for Shipment No 3.
559.
Accordingly, I find that the costs of the enhanced testing and
remediation in relation to Shipment No 3 MPs after the issue of NCR 009 on 7
August 2009 fall within the terms of the waiver letter and are therefore not
costs that Fluor can recover from ZPMC. The costs that Fluor incurred in
relation to additional testing and repair of Shipment No 3 prior to 7 August
2009 - whether in Shanghai or Vlissingen - can, subject to any estoppel, form
the subject of a claim against ZPMC.
560.
Both parties referred me to a helpful recent summary of the law relating
to estoppel by convention by Akenhead J in Mears Limited v Shoreline Housing
Partnership Limited [2015] EWCH 1396, where he said:
“49. From the cases, one can conclude
that the relevant law on estoppel by convention is:
(a) An estoppel by convention can arise
when parties to a contract act on an assumed state of facts or law. A concluded
agreement is not required but a concluded agreement can be a
"convention".
(b) The assumption must be shared by
them or at least it must be an assumption made by one party and acquiesced in
by the other. The assumption must be communicated between the parties in
question.
(c) At least the party claiming the
benefit of the convention must have relied upon the common assumption, albeit it
will almost invariably be the case that both parties will have relied upon it.
There is nothing prescriptive in the use of "reliance" in this
context: acting upon or being influenced by would do equally well.
(d) A key element of an effective
estoppel by convention will be unconscionability or unjustness on the part of
the person said to be estopped to assert the true legal or factual position. I
am not convinced that "detrimental reliance" represents an exhaustive
or limiting requirement of estoppel by convention although it will almost
invariably be the case that where there is detrimental reliance by the party
claiming the benefit of the convention it will be unconscionable and unjust on
the other party to seek to go behind the convention. In my view, it is enough
that the party claiming benefit of the convention has been materially
influenced by the convention; in that context, Goff J at first instance in the Texas
Bank case described that this is what is needed and Lord Denning talks in
these terms.
(e) Whilst estoppel cannot be used as a
sword as opposed to a shield, analysis is required to ascertain whether it is
being used as a sword. In this context, the position of the party claiming the
benefit of the estoppel as claimant or indeed as defendant is not determinative
or does not even raise some sort of presumption one way or the other. While a
party cannot in terms found a cause of action on an estoppel, it may, as a
result of being able to rely on an estoppel, succeed on a cause of action on
which, without being able to rely on the estoppel, it would necessarily have
failed.
(f) The estoppel by convention can come to an end and
will not apply to future dealings once the common assumption is revealed to be
erroneous.
I accept this as a correct statement of the law and I do
not consider it necessary or helpful to cite any further authority in relation
to the general principle.
561.
It is, I think, well established that for an estoppel to arise the
promise or assumption must be clear and unequivocal: see Woodhouse AC Israel
Cocoa v Nigerian Produce Marketing Co [1972] AC 741, at 755-6, 761, 762
and 771. The passages that I have already cited from the speech of Lord
Hoffmann in Chartbrook show that representations made during
negotiations can be relied upon to found an estoppel. That is one of the two
exceptions to the exclusionary rule.
562.
At the meeting held on 1 October 2009 Mr Fuller told ZPMC that “Fluor
will not look to ZPMC for liquidated damages or any of the other costs we
have incurred because of this issue”. The “other costs” referred to
were, as he explained in cross-examination, the costs of the extra contractual
testing - being the testing and repair programme that was going on in Vlissingen and, as he thought, in Shanghai also (Day 8/54). A little later in his
evidence Mr Fuller amplified this explanation: he said that what he meant by
“extra contractual testing” was the use of D scanning on top of unground welds
at a higher sensitivity “and everything else that was associated with that”
(Day 8/68).
563.
On any view it is clear from this that the costs incurred by Fluor to
which Mr Fuller was referring were the costs that resulted from the testing
protocol - including the cost of the consequent repairs of cracks revealed by
the testing - that was imposed on Fluor by GGOWL. There was never any
suggestion by Fluor - at that meeting or subsequently - that its offer to waive
these costs was dependent on its own belief as to the true reason for carrying
out the extra contractual testing: or, to put it another way, that if Fluor
would have implemented the extra contractual testing irrespective of anything
said or done by GGOWL, then the waiver would not apply.
564.
Thus in my judgment the costs that Fluor incurred in respect of the
extra contractual testing required by an NCR for the relevant shipment were
costs that it had promised to waive, and that both parties proceeded on the
assumption that that was the basis on which they would go forward. That was
not only what Fluor said to ZPMC but also what it, according to Mr Fuller’s
evidence, believed to be the case.
565.
It is, I accept, quite possible that ZPMC treated the promised waiver as
extending to all the costs incurred by Fluor at Vlissingen, and at Changxing
also, that were a consequence of the welding defects, regardless of whether or
not they were the consequence of the issue of an NCR or some other conduct by
GGOWL. However, that is a view, if held, that cannot survive the clear wording
of the waiver letter. What Fluor agreed to waive in the letter was any claim it
may have against ZPMC “for the additional costs and delays it suffered as a
result of the NCRs”. In my view that cannot be read as including costs
that it suffered which were not required by or could not be linked directly to
the issue of an NCR.
566.
What in my view Fluor is estopped from contending is that its conduct in
carrying out the extra contractual testing of a particular shipment that was
required by an NCR for that shipment was not caused by the NCR but by its own
independent decision to carry out that testing. As it happens, I have already
found that, in relation to Shipment Nos 1 and 3 all, or almost all, of the
extra contractual testing and remedial work to the MPs was, as a matter of
fact, the result of the issue of the NCR and not of any independent decision by
Fluor.
567.
However, Shipment No 2 falls to be treated differently because that is a
case where Fluor had embarked on the extra contractual testing of the shipment
without there being an NCR for that shipment in place. In my view, the
doctrine of estoppel cannot be invoked to prevent Fluor from asserting,
correctly I find as a matter of fact, that the extra contractual testing for
that shipment that was carried out until 29 July 2009 was not the result of the
issue of an NCR. By contrast, Fluor is in my view estopped from contending
that the extra contractual testing required by NCR 008 that it carried out on
Shipment No 2 after 29 July 2009 was not caused by NCR 008.
568.
In these circumstances I consider that ZPMC has made out its case for
estoppel by convention to the extent that I have indicated.
569.
Akenhead J also considered estoppel by representation in Mears
Limited v Shoreline Housing Partnership Limited [2015] EWCH 1396, at
paragraph 50, where he said:
“Estoppel by representation may in some cases overlap
with estoppel by convention but it is, in legal terms, distinct. Wilken and
Ghaly (The Law of Waiver, Variation, and Estoppel 3rd Ed)
summarise the elements of this estoppel at Paragraph 9.01 by reference to two
parties A and B as follows:
"First, A makes a false
representation of fact to B . . . Second, in making the representation, A
intended or knew that it was likely to be acted upon . . ., B, believing the representation,
acts to its detriment in reliance on the representation. Fourth, A subsequently
seeks to deny the truth of the representation. Fifth, no defence to the
estoppel can be raised by A".
They go on to say at Paragraph 9.04 that the
"weight of authority favours the view that estoppel by representation is a
rule of evidence rather than of substantive law". The doctrine does not,
in itself, amount to a cause of action. The authors consider that
representations of present intention can give rise to estoppel by
representation but that representations of future intention in simple terms
will not at least usually give rise to such estoppel due to running foul of the
contractual doctrine of consideration (see for instance Paragraph 9.26). They
accept that representations of mixed fact and law may give rise to an estoppel
by representation. The editors of Spencer Bower on The Law Relating to
Estoppel by Representation (4th Ed) go somewhat further and
suggest that an estoppel by representation of law may now be raised, quoting Kleinwort
Benson Ltd v Lincoln CC [1999] 2 AC 349 and [1999] 2 Lloyd's Rep 159.”
570.
In this case I do not consider that the representation made by Fluor,
namely that the costs that it was proposing to waive were those incurred as a
result of the extra contractual testing imposed by GGOWL, was false - rather it
was a representation that was inconsistent with the position that it now seeks
to adopt. But I do not consider that that prevents ZPMC from asserting that
there has been a valid estoppel by representation.
571.
Since I have concluded that this is a case where ZPMC can rely on the
doctrine of estoppel by convention, the question of estoppel by representation
does not arise. Nevertheless, essentially for the same reasons, I consider
that ZPMC can rely on this doctrine also in order to prevent Fluor from
contending to the same extent that the extra contractual testing that was
carried out at Vlissingen was done on its own initiative and not as a result of
the issue of any of the NCRs.
572.
The extensive cracking in weld repairs discovered at Vlissingen was the
result of breaches by ZPMC of its obligations under the PO.
573.
As a result of the presence of this cracking the MPs and TPs on delivery
at Vlissingen were not fit for the purpose of being installed forthwith without
either further examination, testing and repair or a satisfactory Engineering
Critical Assessment indicating that repairs were not necessary and that the MPs
and TPs would, from a structural point of view, perform satisfactorily in
service for 25 years. That was a purpose for which they were required by
Fluor.
574.
The testing and repair of the welds in each of Shipment Nos 1-3 that was
required by the issue of an NCR for that shipment was carried out as a result
of that NCR.
575.
The testing and repair of the MPs (and TPs, if any) in Shipment No 2
that was carried out by Fluor prior to 29 July 2009 was carried out at its own
initiative and was not the result of the issue of an NCR. The same is the case
in relation to Shipment Nos 1 and 3 if and to the extent that testing and/or
repair was carried out before the issue of the NCR for that shipment.
576.
In any event, Fluor has waived its claim against ZPMC in respect of the
costs of the testing and repair of the MPs and TPs of each of Shipment Nos 1-3
at Vlissingen to the extent that such testing and repair was required by an NCR
issued in respect of that shipment. Alternatively, Fluor is now estopped from
contending the contrary.
577.
Fluor has not waived its claim in respect of the testing and repair of
the MPs and TPs in Shipment No 2 that were carried out prior to 29 July 2009
(and similarly in relation to any testing and/or repair carried out to MPs and
TPs of the other two shipments that was carried out prior to the issue of the
NCR for that shipment).
578.
NCRs 006, 008 and 009, on their face, referred only to the welding of
the MPs. Fluor’s letter of 25 June 2009 indicating an intention to backcharge
ZPMC for the reworking required at Vlissingen referred only to the MPs of
Shipment No 1: there was no reference to work to any TPs, although Fluor
reserved the right to make further claims. I have heard no evidence as to the
extent, if at all, to which any of the NCRs required, either expressly or by
implication, testing or repair of TPs. The opening paragraph of the waiver
letter referred to the “weld testing and repair protocol required by [GGOWL]”
(see paragraph 477 above).
579.
I must therefore leave open for further argument the issue of whether
costs of testing or repairing any TPs was required - either expressly or by
necessary implication - by any of the three NCRs and, if so, to what extent. This
includes the question of whether or not it is open to Fluor to take this point.
580.
For ease of reference, a summary of my findings of fact is set out in
Appendix B to this judgment. In the event of any apparent conflict between the
summary set out in Appendix B and the principal judgment, the latter is to
prevail.
581.
There must be judgment for Fluor, with damages to be assessed in the
light of the findings set out in this judgment and any further findings which
it may be necessary to make in order to dispose finally of all questions of
damages.
Appendix A
Appendix B
