The cost of innocence

After purchasing an ageing bulk carrier, owners appointed technical managers to oversee an overdue special survey and dry docking. Based on information provided by the owners, the managers recommended a shipyard in Vietnam, which the owners approved.

Once repairs began, the ship was found to be in significantly worse condition than expected, with extensive latent defects and substantial additional steel renewals required. To reduce costs, part of the work was deferred and later completed in India, where further deterioration was uncovered.

The owners claimed approximately US$2.3m for delays, repair costs, lost earnings, and other expenses. The managers denied liability, arguing that the losses stemmed from the ship’s poor condition at delivery and defects only revealed during class surveys.

The dispute proceeded to arbitration under English law. Following a strong defence case, the claimant sought a drop hands settlement on the second day of the hearing. The matter concluded with no payment to the owner in respect of liability. However, significant legal costs were expended in defending the spurious claim. These were covered in full by ITIC.

Pre-purchase inspections are essential when acquiring older ships, and robust management agreements can provide valuable protection against claims arising from latent defects and class-driven repairs.