Case Background

In February 2022, the Vessel “SH” grounded off the coast of the Philippines. In March, the Owners asked Shipyard “C” to provide a quotation and the estimated repair duration based on the DD repair specification provided. The Shipyard provided a quotation with payment terms stipulating 50% repair cost to be paid before sailing and the remaining 50% to be paid within 30 days after the vessel departs from the Shipyard; the estimated repair period was indicated as 35 good weather days.

However, the Shipyard’s initial survey in early April suggested that the damage to the hull of “SH” had been much underestimated. On 27 April, the Shipyard provided an updated quotation to adjust the price for steel plate, but the payment terms and the estimated repair period remained unchanged.

Disputes arose during the repair as the Owners criticized the Shipyard for not providing adequate labor force, which caused a severe delay in the repair process, while the Shipyard attributed the delays to the Owners’ various alterations to the repair scope and requirements.

On 5 October, the ship repair was completed, and the Owners had already paid more than 50% of the estimated repair cost then. In this regard, the conditions for the vessel to depart stated in the quotation should have been satisfied. However, the Shipyard prevented the vessel from departing by not arranging any tugboat, insisting that the final repair fee invoice be signed prior to the departure.

After negotiations, the Owners signed the final invoice and the vessel eventually departed on 8 October, with the entire repair period lasting over five months.

After the vessel departed, the Owners only paid part of the balance repair costs. The Shipyard then filed a lawsuit to claim the remaining repair costs, while the Owners raised counterclaim, arguing that they signed the final invoice under duress and claiming losses due to the delay in ship repair.

Dispute Focuses

1. Whether the Shipyard was liable for the delay in ship repair.
2. Whether the Owners were under duress when signing the final invoice.
3. Whether the Shipyard’s detaining of the vessel unlawful.

Court Judgement

The court held that it cannot be proved that the ship repair was delayed by the Shipyard since the actual quantum of the steel plate to be renewed is much more than the initial estimation. The extension of the repair period can be justified under such circumstance.

It is not well-established that the Owners were under duress when signing the final invoice, as the Parties had negotiated the repair costs and the Shipyard had made discounts on the final repair costs.

Although the Owners argued that the Shipyard prevented the vessel from departing by not arranging any tugboat, the court deemed the evidence insufficient to substantiate the alleged as the evidence is merely a WeChat message from the local agent.

Based on the above, the court in the first instance supported the Shipyard’s claim and dismissed the Owners’ counterclaim.

The Parties eventually reached an amicable settlement during the second instance proceedings.

Our Comments

It is not uncommon that disputes occur during the process of ship repair, including those over repair period, repair costs, repair quality etc., particularly when the ship repair work is complex.

In principle, shipyards should be liable for delays in repair caused by their fault. In practice, however, discharging the burden of proof in this regard can be challenging for shipowners.

In the captioned case, the repair period indicated in the quotation seems too short since the actual workload was much more than the initial estimation. Additionally, the continuous discussions regarding the repair scope and requirements during the repair process might indeed have contributed to the delays. Although the Owners believed the repair was in fact delayed by the Shipyard due to insufficient labor input, the intricate nature of ship repair makes it rather difficult to definitively establish a reasonable repair period or assign fault to the Shipyard.

Similarly, it is difficult to establish the alleged intentional detention by the Shipyard and coercion in signing the final invoice, as the Shipyard acted discreetly and found various excuses to conceal their true purposes.

There are some tips for shipowners in ship repair projects to lower the risks:

1. Try to ascertain the specific repair scope, repair costs and repair period in the ship repair contract before commencement of the repair.
2. Specify in the contract that the shipyard should not take any measures to detain the vessel (including but not limited to refusal of arranging tugboats or other necessary assistance), except for the cases of liens, otherwise the shipyard should be liable for the shipowners’ losses thus caused.
3. Request the shipyard to periodically report the progress of ship repair and the anticipated delivery date.
4. Record properly special circumstances which may affect the repair period, such as bad weather, force majeure etc., and check with the shipyard from time to time.
5. Raise objections to the shipyard in writing and engage lawyers for assistance once there is a sign of delay in repair or other breach of contract scenarios.
   

   Author: Wang Kai