Post-delivery defects under shipbuilding contracts: The "Star Polaris" [2016] EWHC 2941 (comm)

In recent years many ships have been constructed under an SAJ form shipbuilding contract (or an amended version of the same) and found, following delivery, to have defects. The "STAR POLARIS" was a vessel which suffered a serious engine failure shortly after delivery from the yard. Her buyers sought to recover repair costs and other losses suffered as a result of the engine failure, including towage costs, agency fees, survey fees and off-hire. In addition, a claim for diminution in value of the vessel was made.

In arbitration the Tribunal found that the yard had breached its warranty of quality due to weld spatters in the vessel's pipework. However, only part of the repair costs claimed were awarded because the chief engineer was negligent in not reacting to various alarms sooner. They ruled that buyers' other claims (including diminution in value) were excluded by Article IX(4)(a) of the shipbuilding contract, which provided that:

the BUILDER shall have no liability or responsibility whatsoever or howsoever arising for or in connection with any consequential or special losses, damages or expenses unless otherwise stated herein.

Express exclusions of “consequential” or “special” losses have been construed in many cases, and they are usually held not to exclude loss which directly and naturally results in the ordinary course of events from the breach. In the present case it would be expected that the costs claimed would not be excluded if the phrase "consequential or special losses" were given its traditional meaning.

Express exclusions of “consequential” or “special” losses have been construed in many cases, and they are usually held not to exclude loss which directly and naturally results in the ordinary course of events from the breach

The Court held to the contrary. In the particular context it was found that the parties intended a different meaning. Apart from repair costs, the buyers' claims were all excluded by Article IX.4.

Article IX of the contract was an express and complete code governing the yard's liability for defects discovered following delivery. The only positive obligations assumed by the yard under that Article were to repair or replace defects and physical damage caused by such defects, or to pay the costs of repair or replacement if carried out at another yard.

This case turned on particular wording, but the similarities to Article IX of the standard form SAJ contract suggest that this case will be deployed by shipyards in many post-delivery defect disputes. The Article IX regime is known to be favourable to shipyards, and this decision appears to continue the trend of limiting post-delivery liability.

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