ICC ARBITRATION CASE NO 19784/AGF/RD...ICC ARBITRATION CASE NO. 19784/AGF/RD In the matter of an...

ICC ARBITRATION CASE NO. 19784/AGF/RD

In the matter of an arbitration under the Rules of Arbitration of the International Chamber of Commerce

in force as from 1 January 2012

between:

1. SOUTHERN CALIFORNIA EDISON COMPANY; (UNITED STATES OF AMERICA)

2. EDISON MATERIAL SUPPLY LLC;

(UNITED STATES OF AMERICA)

3. SAN DIEGO GAS & ELECTRIC COMPANY; AND (UNITED STATES OF AMERICA)

4. CITY OF RIVERSIDE

(UNITED STATES OF AMERICA) The Claimants

and

1. MITSUBISHI NUCLEAR ENERGY SYSTEMS, INC. (UNITED STATES OF AMERICA)

2. MITSUBISHI HEAVY INDUSTRIES, LTD.

(JAPAN) The Respondents

FINAL AWARD (CORRECTED 12 JUNE 2017)

Arbitral Tribunal Jonathan D. Schiller

John W. Hinchey Professor Dr. Albert Jan van den Berg (President)

10 March 2017

PUBLIC VERSION

CORRECTED VERSION ICC CASE NO. 19784/AFG/RD

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Representing the Claimants: Southern California Edison Company and Edison Material and Supply LLC Peter A. Wald Melanie M. Blunschi LATHAM & WATKINS LLP 505 Montgomery Street, Suite 2000 San Francisco, CA 94111 U.S.A. Thomas J. Heiden LATHAM & WATKINS LLP 330 North Wabash Avenue, Suite 2800 Chicago, IL 60611 U.S.A. Henry Weissmann MUNGER, TOLLES & OLSON LLP 355 South Grand Avenue, 35th Floor Los Angeles, CA 90071 San Diego Gas & Electric Company: John A. Yacovelle Neil A.F. Popovi Marisa B. Miller SHEPPARD MULLIN RICHTER & HAMPTON LLP 12275 El Camino Real, Suite 200 San Diego, CA 92130 U.S.A. City of Riverside: Howard B. Golds Scott W. Ditfurth BEST, BEST & KRIEGER LLP 3390 University Avenue, 5th Floor Riverside, CA 92501 U.S.A.

Representing the Respondents: Barbara L. Croutch Jack McKay John R. Heisse Thomas Allen PILLSBURY WINTHROP SHAW PITTMAN LLP 725 South Figueroa Street, Suite 2800 Los Angeles, CA 90017 U.S.A. Deborah S. Ballati Mark D. Petersen FARELLA BRAUN + MARTELL LLP 235 Montgomery Street, 17th Floor San Francisco, CA 94104 U.S.A.


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TABLE OF CONTENTS

LIST OF DEFINED TERMS ............................................................................................................. 28

I. INTRODUCTION .................................................................................................................. 37

II. THE PARTIES ..................................................................................................................... 39

III. THE ARBITRAL TRIBUNAL ................................................................................................ 42

IV. PROCEDURE ....................................................................................................................... 43

V. LIST OF ISSUES FOR DETERMINATION BY THE TRIBUNAL ................................................. 53

VI. ARBITRATION AGREEMENT AND APPLICABLE LAW ......................................................... 55

VII. FACTS ................................................................................................................................ 59

A. Background ............................................................................................................. 59

(a) The San Onofre Nuclear Generating Station (SONGS) ............................... 59

(b) How SONGS Worked .................................................................................. 60

(c) Steam Generator ........................................................................................... 62

(d) Steam Generator Design Basics.................................................................... 70

(e) Regulatory .................................................................................................... 77

B. The Decision to Upgrade ........................................................................................ 78

C. RSG Contract .......................................................................................................... 79

(a) Timeline of Negotiations and Contract Conclusion ..................................... 79

(b) General Terms and Conditions (Section 1 of the RSG Contract) ................. 83

(c) Non-Technical Requirements (Section 2 of the RSG Contract) ................... 91

(d) Technical Requirements (Section 3 of the RSG Contract) ........................... 92

(e) Design Basis ................................................................................................. 95

D. The Design of SONGS RSGs ................................................................................. 97

(a) Mitsubishi’s Design Experience ................................................................... 97

(b) SCE’s Involvement ....................................................................................... 99

(c) Design Software ......................................................................................... 100

(d) The Design Process .................................................................................... 105

(e) Design Issues .............................................................................................. 106 Determination of Circulation Ratio (CR) .................................................... 106 (i) Determination of Void Fraction (VF) .......................................................... 112 (ii) Determination of Velocity and Gap Velocity Error ..................................... 117 (iii)


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Determination of Stability Ratio (SR) ......................................................... 123 (iv) Tube-to-AVB Gaps ..................................................................................... 141 (v)

E. Delivery, Installation, and Acceptance of the RSGs ............................................. 154

F. The Nuclear Incident and Investigation ................................................................ 155

(a) The Nuclear Incident .................................................................................. 155

(b) Investigation ............................................................................................... 156

(c) NRC Confirmatory Action Letter (CAL) ................................................... 164

(d) NRC Augmented Inspection Team (AIT) .................................................. 167

(e) Ongoing Investigations into Unit 2 and Unit 3 ........................................... 169

G. SONGS Restart, Repair and Replacement Efforts ................................................ 188

(a) The May 2012 Repair Presentations ........................................................... 189

(b) Repair Proposals from Westinghouse, AREVA, and B&W ....................... 195 Westinghouse .............................................................................................. 195 (i) AREVA ....................................................................................................... 196 (ii) Babcock & Wilcox ...................................................................................... 198 (iii) Third-Party Review of Repair Options ........................................................ 198 (iv)

SCE Review of Repair Options ................................................................... 199 (v)(c) The June 2012 Continuing Investigation into Incident ............................... 204

AIT Hearing ................................................................................................ 205 (i) Friends of the Earth ..................................................................................... 206 (ii) Reorganization of SCE’s Repair Teams ...................................................... 206 (iii)

(d) The July 2012 Repair Proposal ................................................................... 206 MHI’s July 2012 Repair Proposal ............................................................... 207 (i) Ongoing Restart, Repair, and Investigation Efforts ..................................... 208 (ii)

(e) August 2012 ................................................................................................ 210

(f) September 2012 .......................................................................................... 216

(g) October 2012 .............................................................................................. 220

(h) November 2012 .......................................................................................... 225

(i) December 2012 ........................................................................................... 229

(j) January 2013 ............................................................................................... 232

(k) February 2013 ............................................................................................. 235

(l) March 2013 ................................................................................................. 239

(m) April 2013 ................................................................................................... 240


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(n) May 2013 .................................................................................................... 242 ASLB Panel Decision .................................................................................. 244 (i) Ongoing Design and Replacement Efforts .................................................. 246 (ii) AREVA Report ........................................................................................... 247 (iii)

(o) The June 2013 Shutdown Decision ............................................................ 249

(p) Post-Shutdown Events ................................................................................ 254

(q) SCE’s Cost Recovery ................................................................................. 258 Secret Meeting with the CPUC ................................................................... 258 (i) Recovery from Insurers ............................................................................... 259 (ii) Department of Energy Litigation ................................................................. 259 (iii) CPUC Agreement ........................................................................................ 259 (iv)

(r) Decommissioning ....................................................................................... 260

(s) Grid Reconfigurations ................................................................................ 264

VIII. SUMMARY OF THE PARTIES’ POSITIONS AND RELIEF SOUGHT ....................................... 268

A. Summary of the Claimants’ Position .................................................................... 268

B. Summary of the Respondents’ Position ................................................................ 271

C. Summary of SDG&E’s Position ........................................................................... 274

D. Summary of the Respondents’ Position Regarding SDG&E ................................ 276

E. Summary of the Respondents’ Position on Counterclaim .................................... 278

F. Summary of the Claimants’ Position on Counterclaim ........................................ 279

G. The Claimants’ Relief Sought ............................................................................... 281

H. SDG&E’s Relief Sought ....................................................................................... 286

I. The Respondents’ Relief Sought .......................................................................... 289

IX. INTRODUCTION TO TRIBUNAL’S CONSIDERATIONS ........................................................ 291

A. General Overview ................................................................................................. 291

B. List of Issues ......................................................................................................... 291

C. The Concurring and Dissenting Opinion .............................................................. 292

X. BURDEN OF PROOF (ISSUE A) .......................................................................................... 292

A. Have the Claimants carried their Burden of proof on the following Issues (Issue A.1) ............................................................................................................. 292

(a) Claimants’ breach of contract claim (Issue A.1(a)) .................................... 292 The Claimants’ Position .............................................................................. 293 (i) The Respondents’ Position .......................................................................... 294 (ii)


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Tribunal’s Determination ............................................................................ 294 (iii)(b) Claimants’ breach of warranty claim (Issue A.1(b)) .................................. 295

The Claimants’ Position .............................................................................. 296 (i) The Respondents’ Position .......................................................................... 296 (ii) Tribunal’s Determination ............................................................................ 297 (iii)

(c) That the RSG Contract’s warranty remedy failed of its essential purpose (Issue A.1(c)) .............................................................................................. 297


(d) That the RSG Contract’s liability cap should be invalidated (Issue A.1(d)) ........................................................................................................ 301


(e) That the RSG Contract’s mutual waiver of consequential damages should be invalidated (Issue A.1(e)) ........................................................... 304


(f) Claimants’ negligent misrepresentation claim (Issue A.1(f)) ..................... 307 The Claimants’ Position .............................................................................. 307 (i) The Respondents’ Position .......................................................................... 308 (ii) Tribunal’s Determination ............................................................................ 309 (iii)

(g) Claimants’ intentional fraud claim (Issue A.1(g)) ...................................... 309 The Claimants’ Position .............................................................................. 309 (i) The Respondents’ Position .......................................................................... 310 (ii) Tribunal’s Determination ............................................................................ 311 (iii)

(h) Claimants’ rescission claim (Issue A.1(h)) ................................................. 311 The Claimants’ Position .............................................................................. 312 (i) The Respondents’ Position .......................................................................... 312 (ii) Tribunal’s Determination ............................................................................ 313 (iii)

(i) Claimants’ damages (Issue A.1(i)) ............................................................. 313 The Claimants’ Position .............................................................................. 314 (i) The Respondents’ Position .......................................................................... 315 (ii)


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Tribunal’s Determination ............................................................................ 315 (iii)

B. Have the Respondents carried their burden of proof on the following Issues (Issue A.2) ............................................................................................................. 316

(a) That the Respondents were excused from further performance of the RSG Contract because of Claimants’ conduct (Issue A.2(a)) .................... 316


(b) That the Claimants failed to mitigate their damages (Issue A.2(b)) ........... 318 The Claimants’ Position .............................................................................. 318 (i) The Respondents’ Position .......................................................................... 319 (ii) Tribunal’s Determination ............................................................................ 320 (iii)

(c) The Respondents’ entitlements to offsets to Claimants’ damages, if any (Issue A.2(c)) .............................................................................................. 320


(d) The Respondents’ breach of contract counterclaim (Issue A.2(d)) ............ 329 The Claimants’ Position .............................................................................. 329 (i) The Respondents’ Position .......................................................................... 330 (ii) Tribunal’s Determination ............................................................................ 330 (iii)

C. Who bears the burden to prove (Issue A.3) .......................................................... 331

(a) Whether or not the California Commercial Code applies (Issue A.3(a)) ... 331 The Claimants’ Position .............................................................................. 331 (i) The Respondents’ Position .......................................................................... 332 (ii) Tribunal’s Determination ............................................................................ 332 (iii)

(b) Whether or not the economic loss rule bars Claimants’ claims for negligent misrepresentation and intentional fraud (Issue A.3(b)) .............. 333


XI. ALLEGED DESIGN ERRORS .............................................................................................. 335

A. Alleged SSPC Errors............................................................................................. 337

(a) Alleged Friction Error ................................................................................ 340 The Parties’ Positions .................................................................................. 340 (i)


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The Tribunal’s Determination ..................................................................... 345 (ii)(b) Alleged Pressure Losses in Contractions Error .......................................... 346

The Parties’ Positions .................................................................................. 347 (i) The Tribunal’s Determination ..................................................................... 351 (ii)

(c) Alleged Downcomer Turn Error ................................................................. 356 The Parties’ Positions .................................................................................. 357 (i) The Tribunal’s Determination ..................................................................... 360 (ii)

(d) Effect of Alleged SSPC Design Errors ....................................................... 361 The Parties’ Positions .................................................................................. 361 (i) The Tribunal’s Determination ..................................................................... 362 (ii)

B. Alleged FIT-III Errors........................................................................................... 365

(a) Alleged Two-Phase Pressure Drop Error ................................................... 366 The Parties’ Positions .................................................................................. 367 (i) The Tribunal’s Determination ..................................................................... 369 (ii)

(b) Alleged Drift Flux Gradient Error .............................................................. 372 The Parties’ Positions .................................................................................. 373 (i) The Tribunal’s Determination ..................................................................... 374 (ii)

(c) Alleged Porosity Error ................................................................................ 375 The Parties’ Positions .................................................................................. 376 (i) The Tribunal’s Determination ..................................................................... 377 (ii)

(d) Conclusion Regarding Alleged FIT-III Errors ........................................... 378

C. Alleged FIT-III Post-Processor Errors .................................................................. 378

(a) Gap Velocity Error ..................................................................................... 379

(b) Alleged Suzuta Interfacial Velocity Error .................................................. 381 The Parties’ Positions .................................................................................. 381 (i) Tribunal’s Determination ............................................................................ 383 (ii)

(c) Alleged Velocity Directional Error ............................................................ 384 The Parties’ Positions .................................................................................. 385 (i) The Tribunal’s Determination ..................................................................... 386 (ii)

D. The Tribunal’s Determination on the Alleged Nine Design Errors ...................... 388

XII. OTHER ALLEGED DESIGN AND MANUFACTURING ISSUES .............................................. 390

A. Use of FIT-III Outside Validated Range............................................................... 390

(a) The Parties’ Positions ................................................................................. 391


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(b) The Tribunal’s Determination .................................................................... 392

B. High Velocities ..................................................................................................... 400



C. Additional Alleged Design Errors ........................................................................ 406

(a) Selection of Stability Ratio Criteria ............................................................ 407 The Parties’ Positions .................................................................................. 407 (i) The Tribunal’s Determination ..................................................................... 408 (ii)

(b) Assumption that Out-of-Plane FEI Bounds In-Plane FEI .......................... 412

(c) Exponent’s Corrected Stability Ratio Calculations .................................... 412 The Parties’ Positions .................................................................................. 412 (i) The Tribunal’s Determination ..................................................................... 413 (ii)

(d) Significance of the Difference in Void Fractions Calculated Using ATHOS and FIT-III .................................................................................... 416

The Parties’ Positions .................................................................................. 416 (i) The Tribunal’s Determination ..................................................................... 417 (ii)

(e) Validation of FIVATS ................................................................................ 418 The Parties’ Positions .................................................................................. 418 (i) The Tribunal’s Determination ..................................................................... 419 (ii)

(f) Validation of IVHET .................................................................................. 419 The Parties’ Positions .................................................................................. 419 (i) The Tribunal’s Determination ..................................................................... 420 (ii)

D. Tube Gaps and Manufacturing Errors ................................................................... 421



XIII. BREACH OF CONTRACT (ISSUE B) ................................................................................... 429

A. What Documents Constitute the RSG Contract (Issue B.1) ................................. 429 The Claimants’ Position .............................................................................. 430 (i) The Respondents’ Position .......................................................................... 431 (ii) The Tribunal’s Determination ..................................................................... 432 (iii)

(a) At the Time of Execution of the RSG Contract and its Revisions (Issue B.1(a)) ......................................................................................................... 437

The Claimants’ Position .............................................................................. 437 (i) The Respondents’ Position .......................................................................... 438 (ii)


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The Tribunal’s Determination ..................................................................... 438 (iii)(b) Subsequent to the Execution of the RSG Contract and its Revisions

(Issue B.1(b)) .............................................................................................. 439 The Claimants’ Position .............................................................................. 439 (i) The Respondents’ Position .......................................................................... 440 (ii) The Tribunal’s Determination ..................................................................... 441 (iii)

(c) Has the Performance Analysis Report Become Part of the RSG Contract Such that the Design Parameters Stated in the PAR have Become Binding Contractual Obligations (Issue B.1(c)) ......................................... 443

The Claimants’ Position .............................................................................. 443 (i) The Respondents’ Position .......................................................................... 444 (ii) The Tribunal’s Determination ..................................................................... 446 (iii)

(d) Have the Documents Referenced at Page 80 of the PAR Become Binding Contractual Obligations (Issue B.1(c)(i)) ..................................... 449

B. Are the Breaches of Contract Alleged by Claimants Aubsumed in, and Governed by, the RSG Contract’s warranties and Remedies, as is Contended by Respondents? If so, What is the Consequence, if Any? (Issue B.2) ................ 450


(a) Or, are there covenants in the RSG Contract that are separate and independent of Respondents’ warranty obligations, as Claimants contend? If so, what is the consequence, if any? (Issue B.2(a)) ................. 452


C. Which party or parties had design responsibility under the RSG Contract? (Issue B.3) ............................................................................................................. 454


D. If and to the extent that Mitsubishi was responsible for the design, did it commit design errors as alleged by Claimants? (Issue B.4) ................................. 458



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(a) Did Mitsubishi fail properly to analyse the key design features of its RSG design? (Issue B.4(a)) ........................................................................ 460


(b) Did Mitsubishi under-predict the thermal-hydraulic conditions, potential for tube vibration, and potential for tube wear in its RSG design? (Issue B.4(b)) ................................................................................. 477


(c) Did Mitsubishi fail properly to analyze for out-of-plane fluid elastic instability? (Issue B.4(c)) ........................................................................... 490


(d) Did Mitsubishi have a sufficient basis for not analysing in-plane fluid elastic instability, independently or otherwise? (Issue B.4(d)) ................... 507


(e) Did Mitsubishi fail to properly analyze for wear due to random vibration? (Issue B.4(e)) ............................................................................. 516


(f) Did Mitsubishi fail to execute an effective quality assurance program to catch and correct the alleged design errors, as alleged by Claimants? (Issue B.4(f)) ............................................................................................... 525


(g) As Respondents contend, can a quality assurance program be effectively implemented and not identify the design errors alleged by Claimants? (Issue B.4(f)(i)) ........................................................................ 538

The Claimants’ Position .............................................................................. 538 (i) The Respondents’ Position .......................................................................... 539 (ii)


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The Tribunal’s Determination ..................................................................... 540 (iii)(h) Did Mitsubishi fail to execute an adequate design review to catch and

correct the alleged design errors, as alleged by Claimants? (Issue B.4(g)) ........................................................................................................ 541


(i) If Claimants have shown the failures in (a), (b), (c), (d), (e), (f) and/or (g), did extreme thermal-hydraulic conditions, vibration, and/or tube wear occur? (Issue B.4(h)) .......................................................................... 547


(j) If Claimants have shown the failures in (a), (b), (c), (d), (e), (f), (g) and/or (h), does such failure or failures, individually or in combination, provide evidence of Claimants’ breach of contract claim? (Issue B.4(i)) If so. what is the consequence, if any? (Issue B.4(i)(i)) ............................. 556


E. Did Mitsubishi have knowledge of any of the alleged design errors in Issue B.4? (Issue B.5) .................................................................................................... 562


(b) If so, did Mitsubishi improperly withhold such knowledge from Claimants? (Issue B.5(a)) If Mitsubishi had knowledge of any alleged design errors in Issue B.4 and improperly withheld that knowledge from Claimants, did Mitsubishi fail to act to correct the allege design errors? (Issue B.5(b)) If so, what is the consequence, if any? (Issue B.5(c)) ......... 568

F. Did Mitsubishi fail to deliver RSGs that conformed to the RSG Contract? (Issue B.6) ............................................................................................................. 569


(a) Did Mitsubishi fail to supply RSGs that complied with RSG Contract Section 3.7.1.1? (Issue B.6(a)) ................................................................... 570

The Claimants’ Position .............................................................................. 570 (i)


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The Respondents’ Position .......................................................................... 570 (ii) Tribunal’s Determination ............................................................................ 571 (iii)

(b) In this connection, should the RSGs have a service life of 40 calendar years, as Claimants contend, or have been designed using a 40-year service life, as Respondents contend? (Issue B.6(a)(i)) .............................. 571


(c) Did Mitsubishi fail to supply RSGs that did not require parts or components to be replaced for their full service life (RSG Contract Section 3.7.1.2)? (Issue B.6(b)) .................................................................. 576


(d) Did Mitsubishi fail to supply RSGs equipped with tube supports that adequately supported the tube bundle, minimized tube wear, and precluded tube damage caused by flow-induced and turbulence-induced vibration of the tubes and tube supports (RSG Contract Sections 3.9.3.7, 3.8.2)? (Issue B.6(c)) .................................................................................. 579


(e) Did Mitsubishi fail to comply with the provisions of U.S. legal and professional codes, referenced by the parties, including 10 C.F.R. Part 50 Appendix B and the ASME Boiler and Pressure Vessel Code section III (RSG Contract Sections 2.0, 2.6.5, 2.8.2, 2.8.5, 3.15, 3.4, 3.5, 3.6, 3.9.6.1)? (Issue B.6(d)) ............................................................................... 588


(f) Did Mitsubishi fail to supply RSGs that experienced no primary-to-secondary leakage under normal operating conditions (RSG Contract Sections 1.16.5.7, 3.20.2.4)? (Issue B.6(e)) ................................................ 592



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(g) If Claimants have shown the failures in (a), (b), (c), (d) and/or (e), did extreme thermal-hydraulic conditions, vibration, and/or tube wear occur? (Issue B.6(f)) ................................................................................... 593


(h) If Claimants have shown the failures in (a), (b), (c), (d) and/or (e), does such failure or failures, individually or in combination, provide evidence of Claimants’ breach of contract claim? (Issue B.6(g)) If so, what is the consequence, if any (Issue B.6(g)(i)) ....................................... 595


G. Did Mitsubishi timely pay Edison’s invoices back-charging Mitsubishi for expenses that are Mitsubishi’s responsibility (RSG Contract sections 1.17.1.3; 1.9.4; 1.12.2; 1.17.6)? (Issue B.7) ......................................................................... 599


(a) If not, was Edison’s documentation supporting the charges inadequate, such that Mitsubishi was excused from paying any such invoices due to Edison’s inadequate documentation supporting the changes? (Issue B.7(a)) ......................................................................................................... 606


H. Did the RSG Contract (Section 1.9.6) obligate Mitsubishi to allow Claimants to examine relevant documents and records? (Issue B.8) ..................................... 622


(a) If so, did Mitsubishi breach that obligation? (Issue B.8(a)) ....................... 628 The Claimants’ Position .............................................................................. 628 (i) The Respondents’ Position .......................................................................... 629 (ii) Tribunal’s Determination ............................................................................ 630 (iii)

(b) If so, does that obligation include source codes? (Issue B.8(b)). If so, did Mitsubishi breach that obligation? (Issue B.8(b)(i))............................. 630


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I. Have Claimants established that any or all of the alleged failures, individually or in combination, constitute a material breach of contract through any or all of the provisions of the RSG Contract? (Issue B.9) .............................................. 633


J. Summary of Issue B .............................................................................................. 636

XIV. REPAIR AND REPLACEMENT BACKGROUND ................................................................... 637

A. Repair and Replacement Options .......................................................................... 637

(a) Repair Process ............................................................................................ 638

(b) Testing of the Repair .................................................................................. 641

(c) RSG Replacement Proposals ...................................................................... 653

(d) Evaluation of the Claimants’ Repair Criteria ............................................. 654

B. Effectiveness of the Proposed Thicker AVB Repair ............................................ 659

(a) Repair Implementation Video and Site Visit .............................................. 661

(b) Repair Proposal and Criticism .................................................................... 665 MHI’s Proposed Repair ............................................................................... 665 (i) SCE’s Comments on the U-Bend Repair Report ......................................... 667 (ii) AREVA’s Evaluation .................................................................................. 668 (iii) MHI’s Response .......................................................................................... 669 (iv)

The Claimants’ Criticism of the Proposed Repair Report ........................... 670 (v) The Respondents’ Response to the Claimants’ Criticism ............................ 672 (vi) The Tribunal’s Determination ..................................................................... 672 (vii)

C. NRC Evaluation of the Proposed Repair .............................................................. 672

(a) Regulatory Process ..................................................................................... 674 Modification According to 10 CFR 50.59 ................................................... 676 (i) 10 CFR 50.59(c) Screening ......................................................................... 678 (ii) 10 CFR 50.59(c) Assessment ...................................................................... 682 (iii) No Significant Hazards Determination ........................................................ 684 (iv)

Discretionary Hearing Risk ......................................................................... 686 (v)(b) Likelihood of a Public Hearing................................................................... 686


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(c) Regulatory Timelines ................................................................................. 688

D. Replacement Under the RSG Contract ................................................................. 691

E. Shutdown Decision ............................................................................................... 692

XV. WARRANTY & REPAIR/REPLACEMENT (ISSUE C) ........................................................... 693

A. Did Mitsubishi deliver RSGs that were free from Defects, as defined in the RSG Contract? (Issue C.1) .................................................................................... 693


(b) If not, is such failure a breach of the RSG Contract’s warranty? (Issue C.1(a)) ......................................................................................................... 703


B. Did Mitsubishi fail to repair or replace the RSGs in a mutually agreeable manner with due diligence and dispatch? (Issue C.2) If so, is such failure a breach of the RSG Contract’s Warranty? (Issue C.2(a))....................................... 705


C. Regarding Mitsubishi’s proposed repair: (Issue C.3) ........................................... 709

(a) Was Mitsubishi obligated to undertake a technical analysis of the problem and demonstrate that its proposed repair corrects the “root cause” of the Defect or alternatively, demonstrate that the problem(s) would not recur, as required in RSG Contract Section 1.17.1.3(c)? (Issue C.3(a)) .............................................................................................. 709


(b) If so, did Mitsubishi undertake a technical analysis of the problem and demonstrate that its proposed repair corrects the “root cause” of the Defect or demonstrate that the problem(s) would not recur? (Issue C.3(a)(i)) ..................................................................................................... 711

The Claimants’ Position .............................................................................. 711 (i) The Respondents’ Position .......................................................................... 728 (ii) The Tribunals’ Determination ..................................................................... 742 (iii)


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(c) If Mitsubishi was obligated but failed to undertake a technical analysis of the problem and demonstrate that its proposed repair corrects the “root cause” or demonstrate that the problem(s) would not recur, was Mitsubishi excused from its obligation due to Claimants’ actions? (Issue C.3(a)(ii)); and If Mitsubishi was obligated but failed to undertake a technical analysis of the problem and demonstrate that its proposed repair corrects the “root cause” or demonstrate that the problem(s) would not recur, and Mitsubishi was not excused due to Claimants’ actions, what are the consequences of that failure? (Issue C.3(a)(iii)) ................................................................................................... 775

(d) Did the RSG Contract obligate Mitsubishi to demonstrate that its proposed repair would not cause other modes of failure? (Issue C.3(b)) ... 776


(e) If so, did Mitsubishi demonstrate that its proposed repair would not cause other modes of failure? (Issue C.3(b)(i)) .......................................... 778


(f) If Mitsubishi was obligated but failed to demonstrate that its proposed repair would not cause other modes of failure, was Mitsubishi excused from its obligation due to Claimants’ actions? (Issue C.3(b)(ii)) ............... 802


(g) If Mitsubishi was obligated but failed to demonstrate that its proposed repair would not cause other modes of failure, and Mitsubishi’s failure was not excused due to Claimants’ actions, what are the consequences of that failure? (Issue C.3(b)(iii)) ............................................................... 804

(h) Did the RSG Contract obligate Mitsubishi to demonstrate that its proposed repair would be either licensable through a license amendment or implementable under 10 C.F.R. § 50.59? (Issue C.3(c)) ........................ 804


(i) If so, did Mitsubishi demonstrate its proposed repair would either be licensable through a license amendment or implementable under 10 C.F.R. § 50.59? (Issue C.3(c)(i)) ................................................................ 808


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(j) If Mitsubishi was obligated but failed to demonstrate that its proposed repair would be either licensable through a license amendment or implementable under 10 C.F.R. § 50.59, was Mitsubishi excused from its obligation due to Claimants’ actions? (Issue C.3(c)(ii)) and if Mitsubishi was obligated but failed to demonstrate that its proposed repair would be either licensable through a license amendment or implementable under 10 C.F.R. § 50.59, and Mitsubishi was not excused due to Claimants’ actions, what are the consequences of that failure? (Issue C.3(c)(iii)) ........................................................................... 831

(k) Which party bears the risk, contractually or otherwise, of the length of time it would take to secure any required regulatory approval? (Issue C.3(d)) ........................................................................................................ 831


D. Regarding Mitsubishi’s proposed replacement (Issue C.4) .................................. 835

(a) Did Mitsubishi raise or preserve the issue of a proposed replacement in its Memorials? (Issue C.4(a)) ..................................................................... 835


(b) Has Mitsubishi raised the issue of replacement in its Counter-Memorial and Rejoinder Memorial? (Issue C.4(a)(i)) ................................................ 836


(c) Did Mitsubishi show that it notified Edison that replacement was a viable option to correct the root cause of the tube-to-tube wear? (Issue C.4(a)(ii)) .................................................................................................... 838


(d) If so, was Mitsubishi then excused by virtue of Edison’s actions? (Issue C.4(a)(iii)) ................................................................................................... 841



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The Respondents’ Position .......................................................................... 843 (ii) The Tribunal’s Determination ..................................................................... 845 (iii)

(e) If not, has Mitsubishi waived any right to claim that it offered replacement? (Issue C.4(a)(iv)) .................................................................. 845

(f) If Mitsubishi has preserved a replacement claim: (Issue C.4(b)) ............... 845

(g) Did Mitsubishi offer to replace the RSGs in a manner consistent with Mitsubishi’s obligations under RSG Contract Section 1.17.1.3? (Issue C.4(b)(i)) ..................................................................................................... 845


(h) Did Mitsubishi’s proposed replacement of the RSGs correct the “root cause” of the Defect or demonstrate that the problem(s) would not recur as set forth in RSG Contract § 1.17.1.3(c)? (Issue C.4(b)(ii)) .................... 848


(i) Did Mitsubishi withdraw any offer to replace the RSGs, when Edison stated that Mitsubishi would be obligated to pay the full costs of the RSGs? (Issue C.4(b)(iii)) ............................................................................ 851


(j) Was Mitsubishi excused from pursuing its proposal to replace the RSGs due to Claimants’ responses and actions? (Issue C.4(b)(iv)) ...................... 853


E. Regarding whether Mitsubishi was excused from further performance: (Issue C.5) 854

(a) Was Edison obligated to agree to the repair proposed by Mitsubishi, under Section 1.17 of the RSG Contract? (Issue C.5(a)) ............................ 854


(b) Did Edison act in good faith in seeking a mutually agreeable repair or replacement under section 1.17 of the RSG Contract? (Issue C.5(b)) ........ 855


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(c) As contended by Respondents, was Edison required to refrain from taking any actions that would interfere with Mitsubishi’s ability to perform its obligations under Section 1.17 of the RSG Contract? (Issue C.5(c)) ......................................................................................................... 857


(d) Did Edison provide Mitsubishi with a reasonable opportunity to perform its obligations under the Warranty? (Issue C.5(d)) ....................... 859


(e) Was Edison obligated to hire another vendor to repair or replace any Defect and backcharge Mitsubishi under Section 1.17.1.3(b), as alleged by Respondents? (Issue C.5(e)) .................................................................. 861


(f) Was Mitsubishi excused from further performance under Section 1.17 because of Edison’s conduct in (b) and (c) above? (Issue C.5(f)) .............. 863


F. Have Claimants established that any or all of the alleged failures, individually or in combination, constitute a material breach of contract through any or all of the warranty provisions of the RSG Contract? (Issue C.6)............................... 864


G. What are the consequences of any finding regarding repair or replacement for Claimants’ breach of warranty claim? (Issue C.7) ................................................ 867



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XVI. MISREPRESENTATION, FRAUD, AND TORT CLAIMS (ISSUE D) ........................................ 868 The Claimants’ Position .............................................................................. 868 (i) The Respondents’ Position .......................................................................... 868 (ii) Tribunal’s Determination ............................................................................ 869 (iii)

A. Regarding Claimants’ fraudulent inducement claims (Issue D.1) ........................ 869

(a) Did Mitsubishi procure the RSG Contract through false representations? (Issue D.1(a)) .............................................................................................. 870


(b) Have Claimants established each of the elements of fraud under Cal. Civ. Code § 1572? (Issue D.1(b)) ............................................................... 882


B. Do Claimants have a separate claim for negligent misrepresentation? (Issue D.2) 888

(a) Introduction ................................................................................................ 889 The Claimants’ Position .............................................................................. 889 (i) The Respondents’ Position .......................................................................... 889 (ii) The Tribunal’s Determination ..................................................................... 889 (iii)

(b) If Claimants have a separate claim for negligent misrepresentation, have they established the elements of that claim? (Issue D.2(a)) ....................... 889


C. Do Claimants have a separate claim for intentional fraud? (Issue D.3) ................ 899

(a) Have Claimants established each of the elements of intentional fraud? (Issue D.3(a)) .............................................................................................. 899


D. Are Claimants’ tort claims barred by the economic loss rule under California law? (Issue D.4) .................................................................................................... 902



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The Respondents’ Position .......................................................................... 904 (ii) Tribunal’s Determination ............................................................................ 905 (iii)

E. What are the consequences of any finding regarding Claimants’ alleged misrepresentation, fraud and tort claims? (Issue D.5)........................................... 906

F. In connection with Issue E above, are the following sub-issues relevant, as contended by Respondents, but denied by Claimants, and if so, what are the answers and the consequences, if any: (Issue D.6) ............................................... 907

(a) If the Tribunal determines that any of the aforementioned conduct constituted negligent misrepresentations, intentional fraud, or fraudulent inducement, was such conduct the cause of damages Claimants allege? (Issue D.6(a)) .............................................................................................. 907

(b) If the Tribunal determines that any of the aforementioned conduct constituted negligent misrepresentations, have Claimants proven that negligent misrepresentation is equivalent to fraud for the purposes of setting aside the liability cap? (Issue D.6(b)) ............................................. 907

(c) If the Tribunal determines that any of the aforementioned conduct constituted negligent misrepresentations, have Claimants proven that negligent misrepresentation is equivalent to fraudulent inducement? (Issue D.6(c)) .............................................................................................. 907

XVII. REMEDY (ISSUE E) .......................................................................................................... 908

A. If it is determined that Mitsubishi breached the RSG Contract (see Issues B-C above), are Claimants’ remedies limited by Section 1.17 (governing contractual warranties), Section 1.21 (governing consequential damages and limitation of liability), and Section 1.29 (governing liquidated damages) of the RSG Contract? (Issue E.1) .................................................................................... 908


(a) Are the provisions of Section 1.29 (governing liquidated damages) and Section 1.17.2 (the “Performance Warranty”) of the RSG Contract in lieu of, or in addition to, the limited remedies set forth in Section 1.17.1.3 (the “Defect Warranty”)? (Issue E.1(a)) ....................................... 911


B. What are the consequences of such findings for the parties’ positions regarding the enforceability of the limitations of liability (Section 1.21.2) and waiver of consequential damages (Section 1.21.1) provisions of the RSG Contract? (Issue E.2) ............................................................................................. 914


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XVIII. LIMITATION OF LIABILITY (ISSUE F) ..................................................................... 916

A. Does Cal. Comm. Code § 2719 apply to the RSG Contract in this case? (Issue F.1) 916

B. Regarding the application of the California Commercial Code to the RSG Contract in the present case (Issue F.2) ................................................................ 918

(a) Should Cal. Com. Code Section 2719’s analysis be applied as Claimants contend, namely by answering the following (Issue F.2(a)) ..... 919


(b) Are the Warranty (Section 1.17), Waiver of Consequential Damages and Limitation of Liability provisions (Sections 1.21.1 and 1.21.2) a “unitary package of risk-allocation” as Claimants contend? (Issue F.2(a)(i)) ..................................................................................................... 926


(c) Have the warranty remedies (Section 1.17) failed their essential purpose? (Issue F.2(a)(ii)) .......................................................................... 933

The Claimants’ Position .............................................................................. 933 (i) The Respondents’ Position .......................................................................... 942 (ii) The Tribunal’s Determination ..................................................................... 948 (iii) Considerations on Concurring and Dissenting Opinion .............................. 957 (iv)

(d) If so, was that failure so total and fundamental that the exclusion of consequential damages must be expunged from the RSG Contract, as alleged by Claimants? Alternatively, has enforcement of the consequential damages waiver become oppressive by change of circumstances, such that it must be expunged from the RSG Contract? (Issue F.2(a)(iii)) ......................................................................................... 962


(e) Does Section 2719(2) of the California Commercial Code require a showing of unconscionability in order to support a finding that the exclusion of consequential damages is unenforceable? (Issue F.2(a)(iv)) . 969


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(f) If so, is the waiver of consequential damages (Section 1.21) both procedurally and substantively unconscionable? (Issue F.2(a)(iv)(a)) ....... 975


(g) Should Cal. Com. Code 2719’s analysis be applied as Respondents contend, namely by answering the following: (Issue F.2(b)) ..................... 978

The Tribunal’s Determination ..................................................................... 978 (i)

C. Does Section 1668 of the California Civil Code invalidate the exclusion of consequential damages (Section 1.21.1) and liability cap (Section 1.21.2), as alleged by Claimants? (Issue F.3) ......................................................................... 980


D. Regarding the exclusions to the Liability Cap set forth in Section 1.21.2 of the RSG Contract: (Issue F.4) ..................................................................................... 985

(a) Have Claimants met their burden of proving gross negligence under California law? (Issue F.4(i)) ...................................................................... 985


(b) Have Claimants proven that Mitsubishi’s conduct was an extreme departure from the standard of care required? (Issue F.4(i)(a)) .................. 986


(c) Have Claimants proven the other elements of negligence, as required for a finding of gross negligence? (Issue F.4(i)(b)) .................................... 991


(d) Have Claimants met their burden of proving fraud? (Issue F.4(ii) ............. 994 The Claimants’ Position .............................................................................. 995 (i)


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The Respondents’ Position .......................................................................... 995 (ii) The Tribunal’s Determination ..................................................................... 995 (iii)

(e) Have Claimants met their burden of proving Mitsubishi acted with willful misconduct? (Issue F.4(iii)) ............................................................ 996


(f) Have Claimants met their burden of proving Mitsubishi committed illegal or unlawful acts? (Issue F.4(iv)) ...................................................... 997


XIX. RESCISSION (ISSUE G) ................................................................................................... 1001

A. In the alternative, are Claimants entitled to rescind the RSG Contract (Issue G.1) 1001

The Claimants’ Position ............................................................................ 1001 (i) The Respondents’ Position ........................................................................ 1001 (ii) Tribunal’s Determination .......................................................................... 1002 (iii)

(a) Have Claimants proven a ground for rescission on the basis of failure of consideration? (Issue G.1(a)) .................................................................... 1002

The Claimants’ Position ............................................................................ 1002 (i) The Respondents’ Position ........................................................................ 1003 (ii) Tribunal’s Determination .......................................................................... 1006 (iii)

(b) Was there a failure of consideration, in whole or in part, as alleged by Claimants? (Issue G.1(a)(i)) ..................................................................... 1009

The Claimants’ Position ............................................................................ 1010 (i) The Respondents’ Position ........................................................................ 1014 (ii) The Tribunal’s Determination ................................................................... 1014 (iii)

B. Other Rescission Issues....................................................................................... 1017

XX. DAMAGES (ISSUE H)...................................................................................................... 1018

A. Damages in General ............................................................................................ 1018

B. Pre-Award Interest .............................................................................................. 1023

XXI. COUNTERCLAIM (ISSUE I) ............................................................................................. 1025

A. Should Claimants’ damages, if any, be reduced by (i) the amount advanced by Mitsubishi against Edison’s claim for reimbursement of Steam Generator


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Inspection and Repair costs, (ii) the amount of liquidated damages amounts already paid to Edison by Mitsubishi, if any, and/or (iii) the amount expended by Mitsubishi in fulfilling its warranty obligations? (Issue I.1).......................... 1025

The Respondents’ Position ........................................................................ 1026 (i) The Claimants’ Position ............................................................................ 1026 (ii) The Tribunal’s Determination ................................................................... 1027 (iii)

B. Is Mitsubishi entitled to a refund of any of its $45 million advance against Edison’s claimed Steam Generator Inspection and Repair cost due to Edison’s failure to substantiate its expenditures? If so, how much of a refund is Mitsubishi due? (Issue I.2) .................................................................................. 1030

The Respondents’ Posit

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