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."
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.
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.
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.”
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.
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.