A Shipman based strategic solution

A ship manager managed a ship for a very short period of time (six months) subject to a Shipman contract. The ship was over 12 years old when their management started.

A claim was made against the manager for a substantial amount of US$6m; mainly alleging that the manager should have been aware of certain issues with the ship. It was not thought that the claim was particularly strong on its own merits. However, litigating the matter would have been very expensive.

It appeared that the owner was trying to hold the ship manager liable for the failures of the previous owners/managers by constructing arguments to allege that the manager should have been aware of deficiencies and organised repairs in a better way. However, the ship manager had made various recommendations to the owners (including not to buy the ship at all) to rectify the problems that the owners ignored.

When the claim was first made, the claimant provided very little information and simply expected the managers to pay on the strength of their letter of claim. They were advised that this was insufficient and ultimately, they issued arbitration proceedings as per the Shipman contract. The claimants took another five months to properly set out their claim.

In terms of liability, the manager appeared to be in a decent position. However, with a litigation risk of at least 30%, ITIC deemed it appropriate to settle the matter at a sensible level if possible. Therefore, 30% of the claim was US$1.8m and it was expected that a further US$500,000 for costs would be incurred if the matter went to a full hearing.

The claimant offered to settle for US$3.6m. This was rejected.

The main issue was how many claim “events” there had been as  the limit of liability under the Shipman contract was capped at US$1.2m per event or series of events. The manager’s position was that there was one event and therefore one cap applied. The claimant’s position was that there were three separate and unconnected events with three caps of US$1.2mx3 = US$3.6m hence their offer.

The matter settled at mediation for US$1.55m in full and final settlement of all claims and costs. Legal costs of US$43,605 were also incurred. These sums were covered by ITIC.