Superyacht refit overspend dispute illustrates danger of acting outside contract

International Transport Intermediaries Club (ITIC) has warned against the dangers of marine service providers informally offering advice which falls outside the scope of their contracts.

ITIC cites the case of a yacht manager contracted to provide crew management and ISM consultancy for a superyacht. Although the manager was not contracted to provide technical management, the owner sought its advice on two refits. The manager reviewed the scope of works and the budgets from the refit yards as a favour to its client.

Unfortunately, both refit budgets overran and the owner claimed that the manager had been in breach of its duty of care by failing to recommend suitable repair yards, failing to budget properly and failing to properly supervise the refits. The owner alleged that, while the management contracts had said that the manager was not providing technical management, it had in fact done so.

The owner made a formal claim against the manager for EUR900,000 and a sole arbitrator was appointed by the parties. The manager denied that it had accepted any responsibility for the refits, maintaining that the owner’s own staff had chosen the yards. The manager had commented on the scope of works and the budgets provided and, far from managing the refits, had simply been kept in the loop in correspondence, despite the owner’s claim that it had expected the manager to take an active role.

The arbitrator found that the majority of overspend was due to the works which were required by the yacht’s classification society. The owner had not suffered a loss due to the alleged negligence of its manager, and the owner was obliged to pay the costs to keep the yacht in class. Ultimately, ITIC agreed to the payment of $25,000 in settlement, much less than the owner claimed it had incurred in legal costs. ITIC also paid the cost of defending the claim of over $110,000.

ITIC says, “Although the owner’s allegations lacked merit, the claim is an illustration of the dangers of informally providing advice outside the scope of the contract.”

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com


For more information:
Charlotte Kirk
ITIC
Tel. +44 (0)20 7338 0150
Fax. +44 (0)20 7338 0151
charlotte.kirk@thomasmiller.com

ITIC negotiates settlement for naval architect in hull cracking dispute

International Transport Intermediaries Club (ITIC) has highlighted the level of exposure to liability which naval architects can face, especially in today’s financially troubled shipping industry.

In the latest edition of its newsletter, The Wire, ITIC cites the case of a firm of naval architects instructed to design a vessel to be used for a new ferry service. When the vessel was completed, the owners alleged that it suffered from structural inadequacies, which included continued cracking of the hull. As a result, they claimed, it could not perform in certain weather conditions as they had requested it should do, even following repeated repairs.

At one point, the local maritime authority had to reduce the number of passengers which the vessel could safely carry. Eventually, the ferry service was completely suspended and the owners started legal action against the naval architects in the sum of $600,000. This covered the cost of repairs, loss of use, loss of profits and diminution of value of the vessel. Expert evidence was obtained on behalf of the naval architects, but it was not particularly helpful to the defence.

It became apparent that the owners were suffering from financial difficulties, in part due to the fact that the ferry service could not run. On this basis, ITIC instructed lawyers to make an application for security - to cover the defence costs incurred in the event that the owners became bankrupt - in the sum of £75,000. Legal costs and expert witness fees had already exceeded £40,000 and were estimated to go above £100,000 if the matter progressed to a full trial.

The application for security was granted in ITIC’s favour, but only in the sum of £25,000, as the judge had some sympathy with the claimants’ argument that they were in dire financial straits, allegedly as a result of the mistake made by the naval architect. Despite pleading poverty, however, the owners did manage to obtain the funds and pay them into court.

The naval architects were left in an awkward situation whereby, if the matter progressed to full trial, even if they were successful in defending the claim in its entirety (which was very unlikely in light of the expert evidence received) the costs alone could have been in excess of £100,000, and there was only £25,000 security.

The judge suggested that the parties would benefit if they could reach agreement between themselves, which ultimately resulted in a negotiated settlement whereby the original claim of $600,000 plus costs was settled for $30,000, plus costs of a further $100,000.

Elsewhere in The Wire, ITIC discusses, among other things, what naval architects can do to limit their potential exposure to liability and to substantial legal fees, and how they should respond to the new perils associated with acting as an expert witness. It also examines the defence of claims made against naval architects involving errors in transposing design specifications, and inadequate preparation of technical specifications.


ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com

For more information:
Charlotte Kirk
ITIC
Tel. +44 (0)20 7338 0150
Fax. +44 (0)20 7338 0151
charlotte.kirk@thomasmiller.com