Avoiding disputes in fabrication contracts page 34 Getting paid page 32

44 Pages·2013·6.76 MB·English

UUppddaattee
2013
Offshore Supply Industry
Avoiding disputes in
fabrication contracts
page 34
A frequent challenge:
Getting paid
page 32
Hiring of temporary agency workers
page 12
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UPDATE • 2013 Offshore Supply Industry
CONTENT
With the wrong customer, ten per cent payment on receipt of
documentation can mean ten per cent non-payment, and thereby
effectively depriving the relevant project of its profit. • PAGE 32
OFFSHORE SUPPLY INDUSTRY
4 Joint bidding: the Competition Authority signals tough line
6 Efficient dispute resolution through expert decisions under
Norwegian manufacturing contracts
9 Towards a European patent with unitary effect
WHO CARRIES
THE RISK FOR 12 Hiring of temporary agency workers
ERRORS IN THE
FEED? 16 Who carries the risk for errors in the FEED?
19 ‘Knock for knock’ clauses in offshore contracts
PAGE 16
22 Exclusion and limitation of liability for breach of contract
24 Liability for environmental damage in the Norwegian sector
of the North Sea
26 Hardship clauses and the applicable law
29 Choice of dispute resolution mechanism: Arbitrate or litigate?
32 Getting paid
34 Avoiding disputes in fabrication contracts
36 Variation Order Requests – NF 07, Article 16.1
38 Notice of patent infringement – what to consider
40 Wikborg Rein’s Litigation and Arbitration Group
43 Contacts
Publisher WIKBORG REIN JANUARY 2013 2013 • Offshore Supply Industry
Chief editor ERLEND W. HOLSTRØM
Editors OLA Ø. NISJA, MARIUS EGEBERG, KENNETH FOYN MARKENG, This Update is produced by Wikborg Rein. It provides a summary of the legal issues, but is not intended to give specific
CHRISTIAN JAMES-OLSEN legal advice. The situations described may not apply to your circumstances. If you require legal advice or have questions
Cover photo ISTOCKPHOTO or comments, please contact your usual contact person at Wikborg Rein or any of the contact persons mentioned herein.
Layout & design LISE H. RØED The information in this Update may not be reproduced without the written permission of Wikborg Rein.
Print RKGrafisk AS / 2600 COPIES
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EDITORIAL
Oil fever
Over the last 10-15 years, the Norwegian offshore supply
industry has experienced powerful growth, driven by a
combination of technological advances and vast experience
with extracting oil and gas in one of the world’s most
demanding ocean areas. The offshore supply industry is
seen by many as Norway’s new oil, with bright prospects.
T he Norwegian offshore supply industry has not only asserted itself on the
Norwegian shelf, but has also become one of the country’s leading export
industries, with a total revenue abroad of NOK 170 billion according to a
report from Menon Business Economics. Besides the production of oil and gas, the
offshore supply industry is now Norway’s decidedly most important export industry
with revenue that is more than double that of fisheries and fish farming.
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Strong growth, international success and rapid innovation create many challenges for o
di
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the industry, not least in the legal field. Considerable risks and uncertainties are often St
present in offshore surface and subsea projects. Good tools for contract management, urås /
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project completion and the settlement of disputes as well as understanding the vari- Erik
ous risks and rewards, are vital. O:
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As one of Norway’s leading law firms with a long history when it comes to the estab-
lishment of new industries in Norway and in following Norwegian industries into
new markets, we have considerable expertise and experience to draw on in order to
resolve the legal challenges that Norwegian offshore suppliers will face in the coming
years, both at home and abroad.
Our strong team of lawyers have been involved in some of the largest and most compli-
cated offshore contract and manufacturing disputes in recent years. We also have exten-
sive experience with patent-related disputes, competition law and labour law issues.
In this Update, we share some of our experiences with our clients. We have therefore
chosen to focus on a few select issues that we believe are applicable to the Norwegian
offshore supply industry today. We hope you will find this to be of interest. Happy
reading!
Erlend W. Holstrøm
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UPDATE • 2013 Offshore Supply Industry
JOINT BIDDING
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JOINT BIDDING:
the Competition Authority signals a tough line

In June 2012 the Norwegian Competition Authority published a draft guidance
paper on project cooperation, a subject of equal importance to large and small
players in the offshore supply industry. As made clear in our comments to the
authority in September 2012, we are of the opinion that, on significant points,
the draft guidance paper reflects an inaccurate application of competition rules.
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C overt coordination between permitted. In such case, cooperation will a more competitive bid. If there is no
bidders for a project – bid rig- strengthen competition, since by joining improvement of competitiveness, there
ging – is a serious antitrust forces the parties are able to bid for a would normally be no reason not to bid
offence. As is known from the media, project that they otherwise would not for the entire project alone.
the Norwegian Competition Authority have bid for.
(the NCA) is currently handling a case SEVERAL BIDS
of alleged bid rigging in the asphalt THE USE OF SUBCONTRACTORS Players that are unable to carry out a
market of unparalleled magnitude in In the draft guidance, the NCA states project alone are of course free to coop-
Norwegian decisional practice. However, that it is normally illegal for two or erate in submitting bids. In the draft
the draft guidance pertains to a different more players to cooperate if ‘one or guidance, however, the NCA sets out a
subject, namely project cooperation, in rather surprising exception. Such partic-
which two or more players cooperate in ipants are free to cooperate on a single
submitting a bid for a project. The draft bid, but cooperation that results in more
covers both formalised tender processes than one bid involves, in the NCA’s view,
Cooperation that leads
and less formalised requests for bids. a significant antitrust risk for the par-
Project cooperation may give rise to one or more bids from ties. This position is not easy to follow.
to competition law issues if it results The starting point for the assessment
parties that would not
in fewer bids being submitted for a of the legality of project cooperation is
otherwise have been
project. If two bidders expect to be the determining what the situation would
best placed to win a contract, it may able to compete for the have been without such cooperation.
be a profitable strategy to cooperate on Cooperation that leads to one or more
project cannot reasonably
one bid and share the contract between bids from parties that would not other-
be considered as anti-
them, rather than competing fiercely on wise have been able to compete for the
price. This would normally be illegal, competitive. project cannot reasonably be considered
since the reduction of bids will reduce as anti-competitive.
competition. More generally, it is not One exceptional scenario can, how-
permitted for two players to submit a ever, be imagined. If the cooperating
joint bid if each of them, individually, parties submit their separate bids in a
would have been able to perform the more’ of them would have been able competitive bidding process without
entire work under the contract, unless to carry out the project alone. In our disclosing the fact that they are coop-
the cooperation can be demonstrated to assessment, this statement is question- erating, the intention could potentially
result in efficiency gains that outweigh able. The NCA’s position would appar- be to give the impression of several
any effects of the loss of competition. ently imply that a player that would be fully independent competing bids. Such
If two players could not have per- able to carry out the project on its own a scheme could for instance reduce
formed the work under the contract cannot involve a subcontractor even if the risk of a cancellation of the tender
separately, project cooperation will be the subcontractor could not have carried process if no other bidders participate.
out the project alone. An example may While such misleading conduct may
be to include a specialist on an impor- potentially be illegal, it does not nec-
tant part of a complex delivery. essarily follow that the cooperation as
A player that would not be able to such can be said to reduce competition.
CONTACTS /
carry out a project alone cannot rea- Wikborg Rein submitted its com-
Jonn Ola Sørensen sonably be considered a competing ments on the draft guidance paper to the
[email protected] bidder. Accordingly, cooperation with NCA early September 2012 (available
such player will normally not result in in the Norwegian language on the NCA
fewer bids being submitted. A player website). No date has been set for the
Simen Klevstrand
[email protected] that chooses to include a subcontractor NCA’s publication of its final guidance
will generally do so in order to submit paper. •
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UPDATE • 2013 Offshore Supply Industry
DISPUTE RESOLUTION
Efficient
dispute resolution

through expert decisions under
Norwegian manufacturing contracts
Under the Norwegian total contracts and fabrication contracts disputes often
arise between contractor and company related to variation claims. In this article
we will focus on a classic scenario where company disputes a variation claim
submitted by contractor, on the basis that a variation to the work does not exist.
A dispute concerning a variation THE DISPUTE SCENARIO
claim may impair the coopera- Disputes as to whether a variation to the work exists are regu-
tion between the parties and lated in article 16 of the Norwegian Total Contract 2007 (NTK
may further adversely affect the con- 07) and the Norwegian Fabrication Contract 2007 (NF 07). The
tractor’s liquidity. Expert decisions are same goes for article 16 of the modification contract NTK 07
used as possible quick fixes to strained MOD, which is identical to article 16 of NTK 07. Both contracts’
situations. article 16.1 sets out the contractor’s right to submit a variation
order request (VOR) if he considers a work instruction to fall
outside of his scope of work. If he chooses not to, or fails to,
submit a VOR without undue delay, his claim is lost. A VOR
will normally set out a claim for additional payment and often
CONTACTS / also a claim for extension of time for completion of the work
scope.
Sven Eriksrud
Under NF 07, a VOR claim under article 16 does not have to
[email protected]
be related to a work instruction, but may also concern a delay,
extra measure or other change resulting from a breach of con-
Erlend W. Holstrøm tract by company, cf. article 16.6. The expert decision system
[email protected] applies to these kinds of VORs as well.
On receiving a VOR, company is under a duty to process the
VOR within reasonable time and respond to it by way of a vari-
Johannes Meyer-Myklestad
[email protected] ation order (VO) or a disputed variation order (DVO), cf. NTK
07 and NF 07 article 16.2. If company issues a VO, there is no
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longer a conflict as to whether the relevant work constitutes a has the option of challenging the expert
variation or whether the VOR has been presented by contrac- decision by way of negotiations or arbi-
tor without undue delay, cf. article 16.1. However, there may tration. However, it is uncommon that
still be a dispute over the consequences of such a VO, cf. arti- expert decisions are contested and chal-
cle 15. If company is of the opinion that the work in question lenged. In fact, Knut Kaasen, an authority
falls within contractor’s existing scope of work a DVO shall be on Norwegian manufacturing law, has
issued. If company claims that contractor’s request is submit- noted in several books and articles that
ted too late, this must be stated in the DVO. expert decisions are almost never chal-
When provided with a DVO, contractor must either request lenged, e.g. Kaasen, Petroleumskontrakter
an expert decision within 30 days or commence court or arbi- med kommentarer til NF 05 og NTK 05
tration proceedings against company with regard to the DVO (2006), page 57.
within 8 months. Otherwise, contractor loses his claim and the After six months, an expert decision
relevant work is considered part of contractor’s scope of work, becomes final if it has not been chal-
cf. article 16.5. lenged. In the meantime, if the expert
has found in favor of contractor, com-
EXPERT DECISIONS pany’s DVO shall be treated as a VO in
NTK 07 and NF 07 article 16.3 provide the parties with a mech- accordance with article 15, and if the
anism to consult an independent expert on the two issues men- expert has found in favor of company,
tioned above: (1) whether a particular piece of work is part of the work described in company’s DVO
contractor’s scope of work, and/or (2) whether contractor has shall be considered part of contractor’s
submitted his VOR without undue delay. The regulation differs original scope of work.
slightly between the two contract models, but for the most part NF 07 differs only slightly in its reg-
it is the same. ulation of expert decisions. Most impor-
For NTK 07 and NTK 07 MOD (the modification contract), tantly, only the contractor may request
both company and contractor may request an expert decision. an expert decision on whether a given
The request must be made within 30 days after the issue of piece of work is part of his scope of
company’s DVO. The parties then have 14 days to agree on an work. However, if contractor makes such
expert, otherwise one will be appointed from a list of agreed a request, company may request that
experts set out in appendix D to NTK 07. the expert also decides whether contrac-
When an expert has been appointed, there is a seven day tor’s VOR was submitted without undue
deadline for both parties to submit their documentation and delay, cf. article 16.3. Such a request
written arguments to the expert. This is followed by another from company must be made within
seven day deadline for each party to submit one further written seven days from receipt of contractor’s
presentation, at the parties’ discretion. The expert has 30 days request for an expert decision.
to provide the parties with his decision along with his reasons
for reaching it. Each party carries their own costs in relation to BENEFITS OF EXPERT DECISIONS
the expert decision, but the party whose view is not accepted by Contractually, contractor’s access to
the expert must carry the costs of hiring the expert. expert decisions in NTK 07 and NF 07
Effectively, this regulation provides a full dispute resolution may work as a countermeasure to com-
process within a maximum of 74 days from a DVO, or 44 days pany’s right to instruct contractor to
from the day the expert was appointed. For practical reasons, implement work without prior settle-
these deadlines are often extended and the procedure with con- ment of contractor’s VOR, cf. article 15.1.
temporary submissions is often deviated from. In any event the If the expert finds in favor of contractor,
contract provides both parties with an efficient tool for settling company’s DVO shall be treated as a VO
DVO disputes, which is both cheaper and faster than dispute until the dispute has been resolved, cf.
resolution through litigation or arbitration. article 16.4. This entitles contractor to
The consequences of an expert decision are set out in arti- provisional payment under article 15.
cle 16.4: The party whose view was not accepted by the expert With expert decisions, a contractor can
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UPDATE • 2013 Offshore Supply Industry
DISPUTE RESOLUTION
therefore be relieved of potential long- claims may have originated years ago. This makes it difficult to
term liquidity constraints. In addition, get a clear picture of what happened, and evidence may have
the burden of filing a lawsuit or arbitra- disappeared. With expert decisions, the parties can benefit from
tion request to contest the expert’s deci- the prior adversarial process, as relevant documentation was
sion is transferred to the company. gathered and brought before an expert shortly after the dispute
There are additional benefits to expert originated.
decisions. First of all, they might just be
the solution to a strained situation as LIMITATIONS TO THE BENEFITS OF EXPERT
they provide an expedient way to resolve DECISIONS
a variation dispute. Usually, when the The expert procedure and its narrow mandate results in certain
parties cannot resolve such a dispute limitations to the benefits of expert decisions.
themselves, they will seek to position The preparation and collection of the parties’ arguments
within a period of only 14 days may sometimes leave too little
time to properly prepare for the expert decision. However, this
can be remedied by the parties agreeing to deviate from the
standard procedure.
With expert decisions, a contractor can
Another limitation is that the expert does not have a man-
therefore be relieved of potential long-lasting date to decide on all of the consequences of a variation. The
expert only considers whether a variation exists and whether
liquidity constraints, and the burden of
the VOR has been presented without undue delay. To which
filing a lawsuit or arbitration request to
extent a variation entitles contractor to additional payments
contest the expert’s decision is transferred to and/or extensions of time falls outside the scope of the expert
the company. decision. These issues will have to be resolved between the par-
ties through negotiations, a lawsuit or arbitration. Yet, this is a
necessary limitation to the expert system, as the expert process
would require much more time if it were to include the conse-
quences of a VOR.
themselves for a later arbitration or law A third limitation is that the expert decision is not final and
suit, in effect making a strained situation binding. However, in practice the decisions are seldom con-
even worse. With expert decisions, there tested, cf. above.
is a chance that such an effect can be
avoided. CONCLUSION
Furthermore, if the parties get rapid Expert decisions under NTK 07 and NF 07 are practical tools
decisions shortly after disputes occur, for solving emerging conflicts related to VORs and should be
this leaves fewer issues to resolve when part of any manufacturing company’s tool box when it comes
the time comes for settling the final to contract administration. Not only can they provide a rapid
account. Not only could this lead to eas- answer to the question of which party should carry the liquid-
ier and more cost effective settlements, ity effects, but they may also facilitate a faster and more cost
but it could also reduce the amount of efficient final settlement. •
law suits and arbitrations to follow. Also,
even if a law suit or arbitration is initi- Wikborg, Rein & Co often provides expert decisions under NF 07,
ated, the parties will have access to their NTK 07 and NTK 07 MOD. For further information, please contact
written presentations and the expert’s Sven Eriksrud ([email protected]) or Erlend W. Holstrøm ([email protected]).
preliminary decision, making it less bur-
densome to argue the case again.
This could solve a typical problem
in manufacturing disputes. When a
case goes to trial, some of the disputed
9
EUROPEAN PATENT WITH UNITARY EFFECT
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Towards a
European patent
with Unitary Effect
For more than 50 years, attempts have been made to create a unified
European patent system. The first draft convention dates back to 1962.
In 1975, the Community Patent Convention (CPC) was signed by the
then nine member states of the EEC. It was, however, never ratified by a
sufficient number of countries.
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UPDATE • 2013 Offshore Supply Industry
EUROPEAN PATENT WITH UNITARY EFFECT
S ince then, several initiatives part of the European Patent System as
have been taken, so far with- long as it is not a member of the EU. The
out success. Now the true system will include the 25 out of the 27
‘European patent’ may become a real- EU member-states; Spain and Italy have
ity at last. Norway will not become a chosen not to join.
part of the system. It will, however, be By virtue of the UPR, a granted
something that Norwegian industry will European patent will benefit from uni-
have to take into account, either when tary effect in the participating member
seeking patent protection in Europe or states, on the request of the patentee.
manoeuvring in a landscape of third This means that the applicant has the
party patents. option either to stick with a ‘classic’
The so-called ‘European patent with European patent (and corresponding
Unitary Effect’ is not the same thing as validation into national European pat-
a patent awarded under the European ents), or to opt for a European patent
Patent Convention (EPC). By virtue of with European unitary effect – the ‘uni-
this convention, the European Patent tary patent’.
Office (EPO) is responsible for the The hurdles related to the transla-
examination and grant of patents in tion arrangements have been difficult to
the EPC member states. Though often overcome. The present draft builds on
referred to as a ‘European patent’, pat- the EPO language regime with its three
ents awarded under the EPC constitute official languages: English, German and
a bundle of ‘national European patents’. French. If the European patent is granted
Enforcement will accordingly take place in the German or French language, then
in each jurisdiction. This is in contrast a full English translation is needed when
to the proposed ‘European patent with a request for unitary effect is made. If
Unitary Effect’. the patent is granted in English, then a
The proposed structure for a full translation into one other language
European patent system consists of a of the member states is required. This
Unitary Patent Regulation (UPR) and implies that there will always be an
a treaty establishing a Unified Patent English version and one other version.
Court (UPC). The system would only be In addition, it is envisaged that the uni-
open to member states of the European tary patents will be translated into all
Union; Norway will thus not become official EU languages by the use of high
quality EPO machine translations. Such
machine translations will however have
no legal effect.
As to the judicial system, the present
CONTACTS /
proposal envisages the establishment of
Gunnar Meyer a ‘Unified Patent Court’ (UPC). This will
[email protected] be a specialised patent court common to
the aforesaid EU member states dealing
Ingvild Hanssen-Bauer with disputes both relating to classical
[email protected] European patents and European patents
with unitary effect (unitary patents).
The Court of First Instance will have
Lars Erik Steinkjer
[email protected] a Central Division based in Paris, with
sub-divisions in London (for chemistry,