Fluor Ltd v Shanghai Zhenhua Heavy Industries Ltd

A contractor supplying fabricated structures must achieve the contractual standard of workmanship, not merely exercise reasonable skill and care in following an inadequate process. Where repair welding involves materially different conditions, including high restraint and thick plate, an appropriate repair welding procedure and suitable preheat must be adopted.

Where frequent repairs reveal that an agreed inspection technique cannot detect relevant defects, the contractor must increase testing or propose an appropriate alternative procedure, subject to the contractual framework. Goods are not fit for purpose on delivery where defects mean that a reasonable buyer cannot install them without further investigation, testing and remediation.

A contractual waiver is construed by reference to the category of costs identified in its language. Estoppel may prevent a party contradicting a shared assumption about the effect of an agreed testing regime.

Fluor engaged ZPMC to fabricate monopiles and transition pieces for an offshore wind farm. The project contracts required specified welding procedures, non-destructive testing and goods of good quality, fit for purpose and satisfactory workmanship.

Transverse hydrogen cracking was discovered after the first three shipments had arrived or were being inspected. The employer issued NCRs requiring enhanced testing and repairs. Fluor and ZPMC later exchanged waiver, assignment and warranty letters concerning the resulting costs and the condition of unrepaired structures.

The trial concerned liability only. The principal issues were whether ZPMC had breached its contractual obligations, whether the structures were fit for purpose on delivery, the effect of the NCRs and the construction of the waiver and warranty arrangements.

1. Liability for welding defects. ZPMC was required to select preheat temperatures appropriate to the particular welding conditions, including the consumable, steel, restraint and ambient conditions. Repair welds in thick plate under high restraint required a separate or appropriately revised WPS and a preheat temperature of 150°C. The failure to devise and implement an appropriate repair procedure, together with inadequate and uneven preheating, constituted breaches of the Purchase Order.
2. The use of Supercored 71H was not itself a breach, but its hydrogen and boron characteristics made proper temperature control especially important. The August 2015 tests did not establish that properly applied preheating to 150°C would have been insufficient.
3. NDT obligations. Under DNV-C401, increasing the extent of NDT could include adding D scanning to E scanning where this was necessary to discover relevant defects. Once ZPMC knew that D scanning detected transverse cracks missed by E scanning, it was required to report the matter internally, bring it to Fluor’s attention and propose suitable amended procedures. Its failure to do so breached its workmanship obligations.
4. The piles were not fit for purpose on delivery. The cracking meant that a reasonable purchaser could not install them without further examination, testing and repair, or a satisfactory Engineering Critical Assessment showing that installation was safe and the required service life would be achieved.
5. Waiver and estoppel. The waiver letter concerned the additional costs and delays resulting from the NCRs and enhanced testing and remediation required by them. Costs incurred before the relevant NCR were not within the waiver. Fluor was estopped from asserting that post-NCR testing was undertaken solely by its independent decision rather than because of the NCR. The position differed for Shipment No 2 before NCR 008, when Fluor had acted on its own initiative.
6. Disposition. Judgment was entered for Fluor. Damages were to be assessed in light of the findings, with the question of any costs relating to transition pieces left for further argument.