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Judge Seals Massive Paint Settlement

Tuesday, March 8, 2011

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What may be the world’s priciest botched paint job could cost hundreds of millions of dollars to repair—but the tab will not be disclosed, a Canadian judge has ruled.

The decision marks the latest chapter in a massive lawsuit filed by a Nova Scotia oil consortium against fabricators, painters and other contractors. The multi-party action stems from widespread offshore and onshore coating failure in the province’s largest construction project ever.

At issue currently is whether the amount of a partial settlement in the case should be publicly disclosed. Justice Suzanne Hood, of the Nova Scotia Supreme Court, says no.

Public Interest Cited

"I conclude that the public interest in settlements is better furthered by protecting the settlement made by the settling defendants with the plaintiffs," Hood wrote in a decision released March 3.

"If the privilege accorded to settlements is not so protected, there would be little incentive in the future in multi-party litigation for one party or a group of parties to be the first to settle."

Sable Offshore Energy Project

Government of Nova Scotia

The Sable Offshore Energy Project includes offshore and onshore facilities. The
offshore side includes a central processing facility near Sable Island that will
eventually be connected to six production platforms. Subsea pipelines transport
the gas to two onshore processing plants.

The issue involves settlements by more than a dozen companies in the suit filed by Sable Offshore Energy Project. Sable is comprised of ExxonMobil, Shell Canada, Imperial Oil, Mosbacher Operating Ltd. and Pengrowth Corp.

In 2010, the companies entered into two so-called Pierringer agreements (one for offshore defendants, one for onshore defendants) that allowed them to withdraw from the case, leaving the remaining defendants responsible only for the loss they actually caused.

Claims, Counterclaims

The case, launched in April 2004, involves widespread failure of a coating system used to paint three offshore structures and two onshore gas processing facilities in Goldboro and Point Tupper, Nova Scotia. The coatings were supplied by Ameron and Amercoat Canada. Amercoat Canada is an independent franchisee of Ameron products.

Sable also sued 12 other contractors and applicators involved in supplying, fabricating and preparing the steel and applying the coatings. The case also sparked a number of cross-claims among the defendants and, in some cases, spinoff suits and countersuits involving third parties.

In 2003, the cost of repairing the coatings was estimated at $225 million. With inflation and interest, no one is estimating what the project would cost today.

Settlement Disclosure

The remaining defendants in the case want last year’s settlement figure disclosed. They say the information is relevant to prevent “double or over recovery” by the plaintiffs as the rest of the case proceeds. They also say that the amount affects their pre-trial preparation and any settlement offer they may make.

The plaintiffs say that the settlement figure is irrelevant to the rest of the case and that disclosure would give the remaining defendants an unfair advantage.

The judge agreed, saying that divulging a confidential settlement agreement would require showing a “competing public interest” that outweighs the parties’ rights.

She added: “To decide otherwise would, in my view, undermine, if not extinguish, the possibility of settlement negotiations.  No party or parties would want to be the first to settle, knowing that the non-settling defendant or defendants would then have the benefit of knowing the amount of the settlement before continuing with the litigation or deciding to try to settle themselves.”

Risky Business

She also noted that under the Pierringer agreements, the remaining defendants would be responsible only for the proportion of damages attributable to them. Thus, “there is no possibility of over-recovery,” she wrote.

“In fact,” she added, “if the amount of the settlement with the settling defendants is, at trial, found to be deficient, there could be under-recovery by the plaintiff.  That is a risk to the plaintiff of settlement.  That is not a risk to the non-settling defendants.”

The defendants that have already settled include Barrier Ltd., Parker Brothers Contracting Ltd., RKO Steel Ltd., Cherubini Metal Works Ltd., Comstock Canada Ltd., Adam Clark Co. Ltd., A.B. Mechanical Ltd., A & G Crane Ltd., A.M.L. Painting Ltd., Argo Protective Coatings Inc., Allsteel Coating Ltd., Mills Painting & Sandblasting Ltd., Kellogg Brown & Root, Amec E & C Services Ltd. and Amec Black & McDonald Ltd.

The remaining defendants are Ameron International Corp., Ameron B.V., Allcolour Paint Ltd., Amercoat Canada, Rubyco Ltd., Danroh Inc. and Serious Business Inc.

About Sable

The Sable Offshore Energy Project (SOEP) encompasses one of the largest known natural gas deposits remaining to be developed in North America.

The Halifax-based consortium is attempting to locate and produce natural gas found near Sable Island on the edge of the Nova Scotian continental shelf in eastern Canada. SOEP produces between 400 and 500 million cubic feet of natural gas and 20,000 barrels of natural gas liquids every day.


Tagged categories: Coating failure; Contractors; Laws and litigation; Lawsuits; Offshore

Comment from Car F., (3/9/2011, 11:04 AM)

what was the nature of the paint failure? could you elaborate more on the subject, please

Comment from Ron Cross, (3/9/2011, 11:20 AM)

Could you please elaborate on the type of failure, products used, how long after the job was completed did it begin to fail. More than the legal issues, as a painting contractor I would like to know more about the cause of the failure.

Comment from Mary Chollet, (3/9/2011, 11:24 AM)

Unfortunately, PaintSquare News has been unable yet to determine those details. They may be contained in the original court files from the early 2000s, and we will continue to look. But with a case of this magnitude and complexity, it may take time to unearth those details. Thanks for your interest.

Comment from Brian Mac Gregor, (3/10/2011, 7:40 AM)

PSX 700 over Organic Zinc (Ameron 132)

Comment from Jerry LeCompte, (3/11/2011, 12:00 PM)

"Deja vieux all over again.” I’ll keep it brief. In 1970 The Chief Corrosion Engineer for Shell Offshore requested that I survey some maintenance painting projects since Shell’s maintenance painting costs were going out of sight. Fifty percent failure to bare steel in three to five years after the initial coating system of Zinc rich epoxy primer and two seven mil high build epoxy top coats were applied in the fab yards. About five years prior Shell changed its coating specs from a post cured inorganic zinc primer and vinyl topcoats. On the older offshore platforms none had required maintenance painting after ten or more years in service. Since Shell was very big in the epoxy business at the time I knew they wouldn’t like the news. So in confidence I suggested that Shell conduct their own survey. The results were overwhelming in that the old system was substantially out performing the zinc rich epoxy primer and epoxy topcoats. The consensus was the epoxy primer was encapsulating the zinc and not affording sufficient cathodic protection. In addition the epoxy topcoats were very intolerant to UV rays. As a result I had to provide them with a compromise system which was post cured inorganic zinc primer, epoxy intermediate coat, and vinyl acrylic topcoat. I am amazed that zinc rich epoxy primers are still used today.

Comment from Simon Hope, (3/14/2011, 7:02 AM)

This comment does not surprise me in the slightest. Zinc rich epoxies have always suffered severe cohesive failure but have been used in preference to Inorganic Zinc Silicates due to their comparative ease of application and less tricky curing mechanisms; also, the overcoating/adhesion fiascos that occur when tie coats are not used. Certainly the zinc rich epoxies don't seem to give the protection they were bulled up to supposedly give due to the lack of metal-metal contact because of the total encapsulation of the zinc particles. The higher the zinc loading, the better the corrosion protection but the worse the cohesive strength, basically a no-win situation!! As the comment fom Jerry rightly states, old IZS systems with simple Vinyl and Chlor Rubber finish coats have successfully survived for huge periods offshore, unlike the more 'modern' 2 pack systems. Just a shame we can't use them anymore due to awkward application, high surface prep standards needed, toxicity and VOC emissions!

Comment from Simon Hope, (3/14/2011, 7:41 AM)

With specific regards to the failure on Sable Island, this was more due to over-exuberant application of both the Zinc Rich and the Polysiloxane. Extra 'cosmetic coats' were applied over the original to keep the job looking smart. People were not aware of the potential shear stresses generated that effectively caused the coating system to tear itself apart, poor fettling of sharp edges exacerbated and nucleated the problem as the cure progressed and the stress built up leading to the premature failure.

Comment from Alfredo Claussen, (4/29/2014, 12:02 PM)

On ORGANIC zinc rich primers: We have never been a fan of those highly promoted products. Back in 1996, we ran some tests at Amercoat Mexicana here in Mexico City; their Organic primer failed both in adhesion and a complete lack of flexibility that made the ASTM D 522 test laughable, the primer almost bursted apart at the largest radius, taking the complete system apart (it was Organic Zinc Rich primer, Hi-build epoxy mid coat and polyurethane finish). As Granular zinc content is critical (too little means the zinc granules won't touch each other, resulting in poor electrical conductivity and poor cathodic action, and too high zinc content will prevent enough epoxy matrix too keep the composite material cohesive enough, the resulting "ideal" zinc dust content has to be EXTREMELY narrow... this is an excellent example of a "wishful thinking" coating designer that happens to "desire" to use epoxy to encapsulate the zinc, possibly because his/her company already produces epoxies, maybe. As difficult or clumsy as the old Inorganic Zinc primers, those never failed as catastrophically as the organic "zinc rich" coatings. Me too: I simply cannot understan why paint manufacturers promote their use so heavily. Maybe after this problem they will reevaluate their selling and promotional strategies. Amclaussen, Mexico City.

Comment from Alfredo Claussen, (4/29/2014, 1:16 PM)

On Residual Stress of polimeric coatings: This is a problem waiting to happen everytime a polymer is used to encapsulate the pigments in a paint system. As Residual Stresses are an unavoidable result of chemical curing where there is a degree of volumetric shrinking, the polymer matrix will be stressed as it cures. This becomes specially critical at edges, welds, crevices where the paint tries to pull itself from the metal surface, causing failure initiation points. The only way to overcome this phenomena is to either place a comparatively large radius (more than 1/8") at the metallic edge (costly and time consuming) or lessen the stress level by applying a reinforcing "Stripe Coat" at every edge, beam edges, weld fillets, and at the joint between the beam's web and flanges. For this, there are special cartridges and rollers, brushes and related application devices that facilitate the painting of narrow (less than 2" wide) Stripe coats. The Stripe Coat must be specified in a slightly different color to facilitate the painter where to add the stripe, therefore the usual color is "BUFF" to distinguish it easily form the gray colored primer, and goes easily under the (poor) hiding yellow of our offshore platforms (PEMEX). Amclaussen.

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