Design defects

A marine consultant was engaged to undertake the design, approval and tender process in respect of the construction of a double hulled bunker barge. The barge was intended to service the local market and to replace an existing barge which had a licence to operate with two years left to run. The customer and marine consultant signed a “Professional Services Agreement” (the “Agreement”).

The marine consultant sub-contracted the design of the barge to a naval architect.

The customer entered into an agreement with a Vietnamese shipyard for the construction of the barge. Construction commenced but the project fell behind schedule and the Professional Services Agreement was terminated by the customer. The customer alleged that there had been numerous delays caused, at least in part, by design errors.

The design defects alleged to have delayed the project included:

• Inadequate bow height
• Excessive noise (The customer said the design failed to take account of IMO prescribed noise limits
• Failure to include an aft peak bulkhead in the design.

The marine consultant’s position was that the customer was not entitled to terminate the Agreement because the delays had been due to multiple acts of disruption and interference with the naval architect’s work by the customer. In addition the marine consultant claimed that any design errors were simple to remedy.

The customer entered into an agreement with the owners of another bunker barge to charter that barge for a period of 6 years. The unfinished hull in Vietnam was sold for scrap.

The customer commenced proceedings against the marine consultant and the naval architect claiming that they had suffered losses in the amount of US$ 10m.

Experts were engaged to advise on liability. It was clear that while there were design errors
these were not as serious as alleged by the customer. Forensic accountants reviewed the quantum of the customer’s claim. Their review of the alleged losses indicated that, on one view, the customer had in fact gained a financial advantage as a result of their hiring of a substitute barge.

The matter was resolved by mediation and settled for US$ 5m.