In a complex case highlighting the risks ship managers face from legacy vessel issues, International Transport Intermediaries Club (ITIC) has successfully resolved a US$6 million claim against a ship manager for only a fraction of the original demand. The ship manager took charge of a ship over 12 years old under a SHIPMAN contract, albeit for just a short six-month duration. Despite the brief tenure, the manager faced a substantial claim alleging failure to identify and address pre-existing defects dating from previous owners and managers.
Although the allegations lacked a strong legal basis, with a litigation risk of at least 30%, ITIC considered it prudent to settle the matter at a reasonable level if possible. The high cost of litigation was estimated to exceed US$500,000. The manager, supported by ITIC, consistently maintained that they had acted responsibly by warning the shipowners not to proceed with the purchase, and by recommending necessary repairs which the shipowners ultimately disregarded.
The claimants initially provided minimal detail, instead relying on a demand letter to pursue a settlement. It was only after ITIC pushed back that they initiated arbitration and, five months later, finally submitted a formal claim.
Mark Brattman, Claims Director at ITIC, remarked, “This claim was built on weak foundations. We stood firm, supported our member, and delivered a commercially sound outcome without compromising on principle.”
Central to the dispute was the interpretation of the liability cap under the SHIPMAN agreement. While the claimants argued that there were three separate “events” triggering a triple cap of US$3.6 million, the manager rightly maintained that there was only a single event and, therefore, a single cap of US$1.2 million.
Despite the claimant’s rejection of a settlement offer of US$3.6 million, ITIC successfully negotiated a resolution during mediation. The matter was settled for US$1.55 million, which was significantly lower than the potential litigation costs and claimant's demand. Additionally, ITIC covered legal costs amounting to US$43,605.
“This case is a stark reminder of the exposure ship managers can face from legacy issues outside their control,” said Brattman. “We are pleased to have reached a pragmatic and favourable outcome for our assured, avoiding prolonged arbitration while firmly protecting their legal position.”
