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The importance of causation in a shipbuilding context

News / / The importance of causation in a shipbuilding context

Saga Cruises BDF Limited and Saga Cruises Limited (formerly known as Acromas Shipping Limited) v. Fincantieri Spa (formerly Fincantieri Cantieri Navali Italiani Spa) [2016] EWHC 1875 (Comm)

A fundamental requirement of proving a party’s entitlement to recover damages is to establish, as a matter of fact, that its loss was actually caused by the other party’s breach. A recent Commercial Court decision, in which a shipowner was unsuccessful in its claim for damages despite the shipyard being in breach of its obligations, highlights the importance of proving causation. This decision also provides helpful guidance on other aspects that frequently arise in shipbuilding/repair disputes, most notably the effect of the protocol of delivery, compliance with notification requirements and an assignee’s right to claim losses. 

The background facts

The First Claimant (the “Owners”) contracted with the Defendants (the “Yard”) for the dry docking, repair and refurbishment of the Owners’ recently purchased cruise ship (the “Vessel”).

Although the repair work was due to be completed on 2 March 2012, the Vessel was not re-delivered to the Owners until 16 March 2012. On 30 March 2012, the Vessel was then delivered to the Second Claimant (the “Bareboat Charterers”), who was part of the same group as the Owners. The Vessel suffered a serious failure on the port main engine lubricating oil cooler on 12 April 2012.  

The dispute concerned two distinct claims. The first concerned the failure of the lubricating oil cooler, which the Owners alleged resulted in the inaugural cruise being cancelled and a subsequent cruise being re-arranged. This claim for damages was pursued by the Bareboat Charterers, who had been assigned the rights against the Yard. The second claim was a claim for liquidated damages in respect of the delay by the Yard in re-delivering the Vessel – this aspect of the claim is not covered in this article (but please see other article here).

The Commercial Court decision

The Court concluded that the Yard, in breach of its obligations, failed to: i) adequately clean the lubrication oil coolers; ii) perform adequate pressure tests; and iii) advise the Owners as to the condition of the coolers. However, the Court ruled that the primary cause of the failure was the long standing corrosion, probably caused by inadequate water treatment by previous owners. Therefore, the Yard’s breaches of contract were not causative of the failure or the losses relating to the inaugural cruise and the subsequent cruise – which the Court held were caused by the lubrication oil cooler failure.

Although the Court held that the Second Claimant was not entitled to the losses claimed, it took the opportunity to consider other issues regarding the claim that are of particular interest. In particular:

  1. The parties executed a protocol of completion and acceptance (the “Protocol”) and the Yard contended that the Owners’ claim for breach of contract was precluded by the execution of the Protocol and that they could only proceed under the guarantee provisions. The Owners argued that the contract did not contain any exclusion of the Owners’ right to claim damages at common law after delivery. The Court agreed with the Owners’ submissions and re-emphasised the well-established principle that clear words are required to displace the right to contractual damages and that such words did not exist in this instance. 
  2. The Owners had an alternative claim under the guarantee provisions. The Yard submitted that the Owners failed to comply with the notice requirements of the guarantee provisions. The Owners contended that their communications were sufficient to satisfy the notification requirements and that, in any case, the notices were protected from invalidity by a clause which stated, in summary, that a notice would not be invalid if its contents or method of service were incorrect, if that failure did not cause any significant loss or prejudice. Although the Court could not uphold the Owners’ claim, it agreed that adequate notice was actually given but commented that, even if that were not so, no case of significant loss or prejudice was advanced by the Yard and therefore the claim would not have failed for lack of proper notice. 
  3. The Yard argued that the cancellation losses were those of the Bareboat Charterers and they would not have been suffered by the Owners if there had been no bareboat charter, as the Owners were not cruise operators (although the Yard did acknowledge that the Owners would have suffered some losses). Citing the principle that an assignee can recover no more damages than the assignor could have recovered, the Court concluded that losses relating to the cruise business were exactly what would have been expected to flow from deficiencies in the Yard’s work and therefore would have been recoverable.

Comment 

Whilst this case serves as a useful reminder of the importance of establishing a causal link between the breach and the loss suffered, this judgment also highlights a number of issues that frequently arise in shipbuilding/repair contracts that are useful to bear in mind when negotiating a contract and during the course of a contract. 

Indeed, the question of whether an owner is precluded from claiming contractual damages as a result of signing the protocol of delivery is often raised in shipbuilding disputes and it is evident that, in the absence of clear wording, the court is unlikely to be satisfied that a party to a contract has abandoned such a valuable right. 

With regard to providing notices under a contract (particularly for the purpose of guarantee claims) the safest course of action is always to comply with the notification requirements. However, the Court has indicated that a non-compliant notice may not necessarily be deemed invalid where the contract expressly provides for this – although it is likely that this will depend on the extent and the effect of non-compliance; and it will be interesting to see how the Court would deal with such a clause in circumstances where the non-compliance (or the effect thereof) is more significant. 

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner

David Choy

David Choy Managing Associate

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