A poor technical point

A ship performed a charter and was then redelivered within the normal redelivery period as agreed under the charter party.

Shortly thereafter, the owners commenced insolvency proceedings and the ship was auctioned a year later. After the auction allegations came to light that the ship had been redelivered due to alleged poor technical management.

The ship management agreement contained an arbitration clause and arbitration was commenced by the owners. Owners put forward a claim for damages against the managers for alleged breach of obligations of the management contract.

The focus of the claim was the alleged faulty/delayed repair of an auxiliary engine which caused the charterers to put the ship off-hire and then, to terminate the charter. It was further alleged that this ultimately led to the insolvency of the owners and to the judicial sale of the subject ship which resulted in sale proceeds far below market price.

The owners claimed:

1. The difference between the market value of the ship and the price achieved at the auction;
2. Costs for failed maintenance/repairs of the auxiliary engines; and
3. Costs of the ship’s voyage to the sale of the auction.

The total claim presented to the manager was US$ 5m. Arbitration proceedings were commenced. Witness examinations took place and after the evidence was heard the arbitrators gave a direction, which indicated that the evidence heard was in favour of the ship manager. There was nothing conclusive as to poor technical management in respect of the auxiliary engine.

The claimants admitted that the arbitrators’ direction could very well be interpreted that the claim would most likely be dismissed.

Consequently, the claimants made a settlement offer to withdraw their claim subject to the ship manager waiving their rights to claim a considerable proportion of their costs from them. The offer was accepted by the ship manager and a settlement agreement was concluded.

The costs for the defence proceedings amounted to US$ 190,000 which was covered by ITIC.