Increased focus on decarbonisation has led to more shipbuilding involving state of the art technologies, such as:
- duel-fuel LNG and LPG vessels, able to burn both traditional conventional HFO bunkers;
- exhaust gas cleaning equipment – also known as scrubbers;
- modifications or new-build designs to comply with decarbonisation rules such as EEXI / CII regulations;
- ammonia-ready ships, built with the intention to be ready to switched to ammonia fuel once reliable supply becomes available. (As ammonia contains no carbon its use does not emit any CO2), and
- projects to install and retrofit sails on cargo ships to harness wind power to lessen reliance on mechanical propulsion.
Incorporation of new and innovative systems means the scope for warranty disputes is increased. There are some points that buyers should be aware of.
Warranty claims are subject to strict time limits and the courts will uphold these
A shipyard will typically provide a warranty covering defects in a newbuild vessel, machinery and equipment for 12 months from delivery.
English courts will only intervene to interpret a warranty time bar narrowly against the person relying on it (because it is an exclusion clause) if the time bar is ambiguous in the first place. If the time bar is not sufficiently ambiguous, the courts will not intervene to put a strained interpretation on a clear contractual time limit.
Yards typically limit their liability for breaches of warranty
Even where a vessel is unique and a substitute may not be available, shipbuilding contracts typically exclude liability for loss of use. E.g. the wording from the Newbuildcon form excludes liability: “in contract, tort (including negligence) breach of statutory duty or otherwise” for … any loss, damage or expenses caused as a consequence of [a guarantee defect](which shall include, but not be limited to, loss of time, loss of profit or earnings or demurrage directly or indirectly incurred by the Buyer)”.
These types of limitation clause have been upheld in favour of shipyards. The Court’s interpretation will be influenced by both the language of the clause itself and a broader interpretation of the shipbuilding contract, as to whether the yard’s express obligations under the warranty clause are exhaustive and therefore whether any additional losses or damage can be recovered over and above those stated in the warranty clause.
How can parties limit the scope for warranty disputes?
A Buyer could:
- Bring warranty claims promptly and make sure any formalities for claiming are complied with.
- Make sure it monitors construction and ensures key performance criteria are tested during sea trials.
- Conduct rigorous testing shortly after delivery, to identify any other issues well within the warranty period.
A Yard could:
- Make sure limitations on warranty scope and timing are worded clearly in the contract.
- If they have not been involved in the design, make it clear that the warranty is limited to defects in workmanship and materials only and does not cover defects in design.
This is one of the topics discussed in the third and final episode of Thor Maalouf and Sally-Ann-Underhill’s series of podcasts on shipbuilding, which is now ready to stream.
Also in the series: