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Horacio A. Grigera Naón
Doctor en Derecho

5224 Elliott Road
Bethesda, MD, 20816, USA
Tel.: 301-229 1985/202 436 4877
Facsimile: 301-320 3136
emails: [email protected]
[email protected]

Note of Dissent

Ref: Ad-hoc UNCITRAL Arbitration Huntington Ingalls Incorporated v/ Ministerio de la
Defensa de la República Bolivariana de Venezuela

My colleagues in the Arbitral Tribunal hearing the present case are issuing by majority a Final
Award (the “Award”) in this arbitration. Since I do not agree with parts of the reasoning and
accompanying decisions regarding delay claims and the counterclaim, I am forced to dissent as
follows:

1. Delay /Extended Labor Costs Claims -Overhead Claims

The Claimant's expert on delay claims, George H. Householder, has carried out a critical path
analysis as a result of which Mr. Householder concludes that facts not attributable to the
Claimant have led to 1095 days of delay. He broke down his analysis into three periods.
According to him, the dominating delay factor in Period I was the Work Definition Conferences
(“WCSs”); in Period II the force majeure events; in Period III, for Frigate F-21 the gas turbines,
for Frigate F-22 the Dardo System.

During the hearing, in cross-examination, counsel to the Respondent attempted to undermine the
credibility of Mr. Householder’s analysis¹. But the only specific part of this cross concretely
addressing his analysis was aimed at showing that, when estimating the 90-day delay for Period
I, he failed to take into account that the first payment for the Contract price was delayed for
reasons not attributable to the Respondent ². Mr. Householder was not cross-examined on his
analysis or conclusions regarding Periods II and III.

Seemingly in part on that basis, the Award (para. 1591) accepts Mr. Householder’s delay
analysis and conclusion regarding Period II and Period III, which leads to accepting 1,005 delay

¹ Transcript at 968-1057, Vol. 5. ↩

² Transcript at 1048-1049, Vol. 5. ↩

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days. It should be noted that the force majeure reasons giving rise to Mr. Householder’s Period II
analysis are undisputed; it is only his assessment of facts and their impact on the work schedule
that is apparently subject to challenge without any expert evidence or analysis supporting such
challenge. As far as gas turbine/Dardo claims are concerned³, it should be also noted that they
have been granted under the Award as Contract Clause 59 Claims, a factor that militates in favor
of accepting Householder’s Period III analysis.

Based on Mr. Householder’s delay report, Ms.Cheryl A. Lee Van, Claimant’s damage expert,
calculated the delay damages and came up with specific figures quantifying the Claimant’s
damage entitlement.

However, the Award decides that (1) since it is impossible to identify with certainty the
percentage participation of each Party in the delay, responsibility for delay damages
corresponding to Support/Service Labor and Materials and other Costs is allocated on an
equitably determined parity basis to both Parties (resulting in granting Claimant compensation
amounting to US$ 16,755,862.50 (Award, paras. 1614, 1616)); and (2) rejects the Unabsorbed
Overhead claim and any other claim susceptible of being characterized as a claim for
compensation of consequential or indirect damages.

I disagree with both decisions.

As to (1), the Award dismisses the conclusions of Householder’s expert report on this specific
point without any contrary expert report or meaningful cross-examination challenging his
opinion in that respect, which would have permitted to determine in an informed and concrete
way if there was concurrent responsibility for delays and, if such was the case, the allocation to
each Party, on the basis of a causation analysis, of such responsibility and ensuing damages and
respective quantification. It is precisely because a rebuttal expert report has not been provided
that it is not possible to dismiss Mr. Househoder’s conclusion by determining concurring delay
and cost impact exclusively attributable to the Claimant. The absence of such specific and
particularized evidence cannot be substituted for an equitable estimate leading to such a
substantial reduction of the Claimant’s delay damages claims.

As to (2), the Award rejects the unabsorbed overhead Claimant’s claim by characterizing it as
an indirect and consequential damages and loss of profit claim.

In support of this view, the Award refers to the existence of a practice in all construction
contracts and considers that the liquidated damages provision in Clause 9 par. 7 of the Contract,
exclusively limiting the amount of delay penalties payable under the Contract pursuant to this
Clause, sets forth a general principle implicitly excluding a claim for indirect/consequential
damages/loss of profit, which would reflect such practice..

In this respect, it should be pointed out first that Clause 9 clearly and exclusively applies when
the Contractor is in default; it does not apply when the Owner (Respondent) is in default or when
the Owner is in breach of contract.

³ Rea 1, Rea 2,Rea 3, Rea 91. ↩

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Further, I disagree with the Award’s interpretation, which introduces new and non-existing
wording into the Contract in a scenario in which what is at stake is the Owner’s, not the
Contractor’s, contractual breach. On the other hand, such argument or interpretation has not been
advanced by the Respondent and, in any case, the Claimant has not had the opportunity to
address it, and the existence of the contractual practice referred to in the Award has not been
raised by any Party nor is part of the evidence in this arbitration.

Moreover, as expressed by the Respondent, the Contract meticulously governs all the details of
the legal relationship between the Parties and is a sophisticated document which is the outcome
of meticulous negotiations covering in a detailed way the different aspects pertaining to its
subject-matter⁴. It should be narrowly construed without reading in it wording the Parties have
not included in its carefully negotiated text.

As the Award properly finds, Ms. Lee Van’s expert reports are reliable. In her first report⁵ - as
the Award accepts – the daily cost delay rate (for every single day of the frigate program delay)
is US$ 33,345.00, which multiplied by 1005 days yields a compensation for delay costs
corresponding to Support, Service, Labor and Materials and other Costs equal to US$
33,511,725.00 that should be granted to the Claimant.

I do not see any argument to deny the Claimant compensation for its overhead claim
proportionate to the delay costs. Ms. Lee Van has in Table 12 of her 6 March Report
persuasively established a daily overhead for the Claimant of US$ 28.26, which multiplied by
1005 days of delay yields an unabsorbed delay overhead of US$ 29,004,300.00, that should be
also granted to the Claimant (the criticism of Ms. Lee Van basis for calculating delay overhead
by Mr. Bello is unconvincing).

However, I do not find sufficient support for the Claimant’s claims regarding disrupted and
inefficiency/impacted contract lost opportunity and acceleration premium costs, also calculated
by this expert.

2. Counterclaims

In his Supplemental Report, an expert witness on Venezuelan law, Mr. Luis A. Ortiz Alvarez,
gave an opinion in support of the Claimant’s allegation that the statute of limitations had run out
in respect of the counterclaims. In cross-examination in the hearing this expert was not
meaningfully cross-examined on his testimony in this respect, nor evidence was examined in the
hearing to rebut his testimony in such regard⁶.

⁴ Respondent’s Answer and Counterclaim Memorial of 4 July 2014, pars.22, page 6; 49, page.15. ↩

⁵ 6 March 2014 Report, at 36. ↩

⁶ Transcript day 5, at 884 & fol. ↩

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Further:

1. It is undisputed that the applicable statute of limitations is 10 years (Article 1977
   Venezuelan Civil Code). Undoubtedly, statute of limitation provisions are mandatory
   (public policy).
2. The Respondent alleges that it was tolled as a result of service of process on the
   Claimant’s attorneys-in-fact of a Venezuelan court order to compel the Claimant to
   arbitrate pursuant to the Contract. The Respondent’s position is that it was unclear that
   such individuals had ceased to be Ingalls’s representatives with the concomitant
   implication that by serving process on those persons, process was properly served on the
   Claimant and, therefore, that the statute of limitations period was tolled.
3. However, even assuming that a claim to compel the Claimant to arbitrate can be equated
   with the filing of an arbitration request actually fleshing out the Respondent’s
   counterclaims (which is very doubtful), unchallenged evidence shows that the order was
   issued on 28 April 2005 and served on the Claimant’s presumptive representatives on 14
   June 2005. Unchallenged evidence also shows that on 9 June 2004, as registered by a
   Notary public in Venezuela, the said mandate had been waived⁷.
4. Thus, by the time process was served on these individuals, they no longer represented the
   Claimant and process served on them could not have had the effect of interrupting the
   statute of limitations period. It should be noted that the above are public documents, with
   full effects erga omnes, in respect of which there is no evidence that they were
   challenged or successfully attacked as to their form or substance.
5. Also, according to the Respondent’s statements, the ten year statute of limitations period
   in connection with the different counterclaims that according to the Claimant would be
   time-barred started to run, as the case may be, as from 16 May 2002, 25 October 2002, 16
   May 2003 and 25 October 2003⁸. But it is undisputed that by the time the Respondent
   filed its counterclaim of 4 July 2014, the ten year statute of limitations had already ran
   out if computed, as the Respondent claims, from such dates. The Respondent’s argument
   that this is not the case because one should take into account the date of the filing of the
   arbitration request in 2011 by the Claimant, and not of the counterclaim, filed by the
   Respondent in 2014, is unwarranted⁹.
6. In any case, the right of the Respondent to benefit from a reduction or allocation of
   penalty payments based on an interpretation of Venezuelan law regarding Clause 9 of the

⁷ Exhibits J-1903 and J-1910. ↩

⁸ Réplica a la Constestación a la Reconvención, paras. 430-432. ↩

⁹ Ibidem, at para 433. ↩

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Contract (as set forth in the Award paras.1667 & fol.) has not been raised in the
arbitration, and the Claimant has not had the opportunity to address it.

7. Moreover, if both Parties are deemed responsible for delays (as the Award posits), no
   delays can be the source of penalties on the Contractor since Contract Clause 9
   exclusively applies to situations in which the Contractor is solely responsible for the
   delay. As already expressed, the Respondent has not discharged its burden of proof in
   such regard. It is on that exclusive basis (all delays are attributable to the Claimant) that
   the Counterclaim has been pleaded by the Respondent. If there is shared responsibility for
   the delay, Clause 9 does not apply. As already said (and recognized by the Respondent),
   the Contract is sophisticated and has been carefully negotiated by the Parties. There is
   then no room for creative interpretations of Clause 9 not originated in any Party and not
   raised in the arbitration.
8. For the above reasons the Counterclaim should be rejected.
9. Since the Claimant has prevailed on a substantial part of its claims, the Respondent
   should pay for 80 % of the Claimant’s arbitration and legal representation cost and fees.
   Since the Respondent had to resort to arbitration to assert its rights and paid for most of
   the costs and fees of the arbitrators without the contribution of the Respondent, including
   those pertaining to the Counterclaim, the Respondent should reimburse the Claimant all
   sums paid by the Claimant for arbitrators’ fees and costs and the administrative charges
   of the ICC.

19 February 2018.

Signature