Repairs in the wrong name

Scandinavian ship managers were appointed as technical managers of a tanker owned by a K/S limited partnership. The management agreement was originally between the ship managers and the shipowning company but was subsequently replaced by an agreement with the bareboat charterers, another K/S limited partnership. The manager placed an order for various repairs with a German shipyard, but erroneously did so in the name of the shipowning company. The total repair cost was US$ 4.5 million, of which US$1.3 million was paid by the bareboat charterers before the ship left the repair yard. When the next installment of US$1 million was not made, the yard, believing it had contracted with the owners, arrested the ship and obtained security of US$1 million. The bareboat charterers went into liquidation. The owners rejected the claim on the grounds that they had not authorised the managers to contract in their name. The technical managers were faced with claims from the repair yard for the balance of the repair bill (US$3.2 million) and from the shipowners for warranting that they had authority to order repairs on their behalf. Although German lawyers confirmed that the repair yard was entitled under German law to look to the ship managers for payment, there was no doubt that the repairs to the ship had
benefited the owners. The ship manager eventually contributed US$300,000 to the settlement.