New technologies in shipbuilding: Reed Smith advises on warranty claims

Thor Maalouf and Sally-Ann Underhill, transportation partners at global law firm Reed Smith have observed in an article that an increased focus on decarbonization had led to more shipbuilding involving state of the art technologies, such as:

  • dual-fuel LNG and LPG vessels, able to burn both traditional conventional HFO bunkers;
  • 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.
  • projects to install and retrofit sails on cargo ships to harness wind power to lessen reliance on mechanical propulsion.

Reed Smith warned that the incorporation of new and innovative systems meant that the scope for warranty disputes increased. It said that there were 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. These types of limitation clause had 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”, Reed Smith said.

To limit the scope for warranty disputes, buyers 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.

Meanwhile, 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.

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