The fulfillment of the contract between China Petroleum Corp. [hereinafter referred to as "CPC"] and Jui Hua Marine Engineering Co. ["Jui Hua"] for maintenance work of offshore oil-unloading equipment

Chinese Taipei

Case:

The fulfillment of the contract between China Petroleum Corp. [hereinafter referred to as "CPC"] and Jui Hua Marine Engineering Co. ["Jui Hua"] for maintenance work of offshore oil-unloading equipment

Key Words:

contract disputes, civil relief, agency procurement, bid bonds, performance bonds

Reference:

Fair Trade Commission Decision of November 1, 1995 (the 212nd Commission Meeting); Disposition (84) Kung Rh Tzu No. 08893

Industry:

Other construction industry (3090); oil refining industry (2310)

Relevant Laws:

Article 19(2) of the Fair Trade Law

Summary:

1. CPC imports 99% of its crude oil from abroad. As oil tankers are large vessels, they must berth offshore, and crude oil is transported to oil storage tanks on shore through offshore oil-unloading buoys and undersea pipelines. CPC's Kaohsiung plant has set up four buoys off the shore of Ta Lin Pu; each costs billions of NT dollars and is capable of storing hundreds of thousands of metric tons of oil. As Ta Lin Pu is located at the gateway through which 75% of Chinese Taipei's imported crude oil comes into the island, the maintenance of the offshore buoys is particularly important. In this case, CPC invited bidding for the maintenance work on oil-unloading buoys. Thereafter, Jui Hua, the winner of the bid, had disputes with CPC with regard to problem of "how to apportion the price in the contract," "whether the bid bond can be used as a payment bond," "whether the ship towing fees should be paid," "refusal to provide radios equipment," "the payment of construction fees," etc. After the contract was signed and Jui Hua started conducting the maintenance work, CPC decided to terminate the contract entered with Jui Hua.

2. The investigation on the issue of "unresolved dispute between CPC and Jui Hua over the price apportionment of the contract" showed that since 1982 Jui Hua has been participating in bidding for the maintenance work on CPC's offshore oil-unloading equipment near Ta Lin Pu. Though Jui Hua has never won the bidding for the project in question in the past, the bidding rules have been utilized for a long time and should be well known to Jui Hua. The calculation of "total bid price" and the price apportionment of work items in the contract have been specified in the bidding rules , which were published in advance, therefore any defects in the aforesaid items should have been brought up before submission of a bid for the project or resolved through civil dispute resolution measures. Jui Hua, nonetheless, after having won the bidding and signed the contract, claimed that the contract was not valid, and accused CPC of violating the Fair Trade Law by engaging in such obviously unfair acts as intentionally suppressing Jui Hua. Such accusations are far-fetched. The validity of the contract between CPC and Jui Hua should be resolved through civil relief measures. In addition, Jui Hua reported that "CPC's employees were involved in misconducts of overpaying the previous contractor's periodical maintenance work conducted on a monthly basis while refusing to pay any of the ship towing fees Jui Hua asked for," "refusal to provide Jui Hua with radio equipment," "alteration of the bottom-line prices of work items," and "unlawful deductions of payable payments". These disputes should also be dealt with through channels providing civil remedy.

3. Jui Hua also accused CPC of violating the provisions of Article 19(ii) of the Fair Trade Law because the latter while inviting bidding for the maintenance work of the fourth buoy specified that the incumbent contractor, Jui Hua in this case, would not be allowed to participate in the bidding. For CPC, the Ta Lin Pu offshore buoys are the lifeline of its operation, determining the transportation and storage of oil throughout the province, and the oil source in refineries. Therefore, the contractor's capability, work quality and ability to cooperate with CPC can substantially affect the operation of CPC. Before CPC invited bidding for the maintenance work of the fourth buoy, Jui Hua had been guilty of failing to fulfill the contract by not dispatching vessels to render assistance more than once, which forced CPC to take emergency measures, resulting in delayed unloading of oil and losses sustained by CPC for having to pay a huge sum of extra money due to the oil tanker's prolonged stay offshore. Accordingly, CPC's decision to exclude Jui Hua from making bids for the specific project serves to spread its risks, thus giving it proper or justifiable cause for the acts of discriminatory treatment.

4. CPC requested the Commission to explain "whether CPC's act of including in the contract entered with Jui Hua an article about termination and specifying that CPC may refrain Jui Hua from bidding for CPC's projects depending on the circumstances constituted a violation of the Fair Trade Law". It is widely known that legal disputes arise for various reasons; they do not necessarily have to do with the construction itself, and even where they do, still the reasons for the disputes may not necessarily have to do with the quality of the work or the contractor's ability to fulfill the contract. Therefore, the validity of each case must be reviewed. In this case, CPC did not specify the deadline when Jui Hua was no longer allowed to submit a bid. If this decision is based on the considerations given to work quality or the winning bidder's ability to fulfill the contract, CPC should be allowed to terminate the winning bidder's right to participate in [future] biddings. Furthermore, pursuant to the fact that Jui Hua has been fined many times, and the payments Jui Hua received were those left after deductions were made for the aforesaid fines, CPC's act of depriving Jui Hua of the right to participate in the bidding still falls within the scope of civil contract fulfillment. Under such circumstances, Jui Hua should take civil relief measures to resolve disputes between it and CPC. It is difficult to prove that CPC has violated the Fair Trade Law.

　

Summarized by Huang, Chung-chieh
Supervised by Yu, Su-su

Appendix:
China Petroleum Corp.'s Uniform Invoice No.: 03707901

＊＊: For information of translation, click here

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