Shipowner’s hull and machinery insurer’s claim

In 2016, a bulk carrier suffered a stern shaft breakage during a voyage, causing the engine room to be flooded with seawater and leaving the ship out of control. The shipowner immediately arranged for emergency rescue and repairs, incurring significant repair costs, time charter hire losses and fuel losses, which exceeded US$7m in total.

After paying the insurance claim and related expenses to the ship owner under the insurance contract, the ship’s hull and machinery insurer filed a recovery action for defects of marine products against both the manufacturer of the broken stern shaft and the classification society of the ship, claiming joint and several liability of the manufacturer and the classification society.

The court of first instance held that:

1. the stern shaft was a product that had been produced and processed for sale, and therefore disputes over its quality should be subject to product quality law, and
2. the classification society was only required to carry out the tests and survey in accordance with their published classification rules, and to exercise due diligence in the course of the classification survey. Since the classification society was not able to monitor the whole manufacturing and processing stage, and since the defects on the equipment could not be detected by the scope of inspection methods
   available and the inspection methods specified in the rules, the classification society could be considered to have exercised due diligence and not to be at fault.

Accordingly, they should not be liable for the losses incurred. This judgement was then upheld on appeal.