Justice Cook considers the meaning of ‘consequential or special losses’ in the context of an amended SAJ form ship building contract

The Star Polaris was built by the defendant yard and delivered to the buyers on 14 November 2011.  The vessel suffered a serious engine failure on 29 June 2012 and was towed to South Korea for repairs.

The buyers commenced arbitration against the yard, contending that the engine failure was caused by the defendant’s breaches of contract and claiming the cost of repairs to the vessel, plus towage fees, survey fees, agency fees, off-hire and off-hire bunkers caused by the engine failure.  In addition, the claimant also claimed for diminution in value of the vessel.

Article IX.1 of the contract contained a guarantee of materials and workmanship, and provided that the defendant guaranteed that the vessel was free of defects for a period of 12 months from the date of delivery.  Article IX.3 set out the obligations on the defendant in relation to repair or replacement.  Article IX.4 provided:

4. Extent of BUILDER’s Liability

(a) After delivery of the VESSEL the responsibility of the BUILDER in respect of or in connection with the VESSEL or this CONTRACT shall be limited to the extent expressly provided in the Paragraph 4 of this Article. Except as expressly provided in this Paragraph, in no circumstances and on no ground whatsoever shall the BUILDER have any responsibility or liability whatsoever or howsoever arising in respect of or in connection with the VESSEL or this CONTRACT after the delivery of the VESSEL. Further, but without in any way limiting the generality of the foregoing, the BUILDER shall have no liability or responsibility whatsoever or howsoever arising for or in connection with any consequential or special losses, damages or expenses unless otherwise stated herein. Any liability to any third party or any fine, compensation, penalty or other payment or sanction incurred by or imposed upon the [claimant] or any other party whatsoever in relation to or in connection with this CONTRACT or the VESSEL until the delivery and acceptance of the VESSEL shall be burdened with the BUILDER.

The tribunal found that there was a breach of the yard’s warranty of quality.  However, the contract expressly excluded liability for ‘consequential or special losses, damages or expenses’ and the tribunal held that in the context of the contract, a claim for diminution in value was a claim for consequential loss and therefore not recoverable. The claimants appealed.

On appeal, the Court found that the meaning of ‘consequential or special losses’ did not mean the losses or damages that fell within the second limb of Hadley – v – Baxendale and instead meant financial losses caused by guaranteed defects, above and beyond the cost of replacement and repair of physical damage. Accordingly, the claim for diminution of value was also a claim for “consequential or special loss” and was excluded.  As such the claimants lost.

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