Inherited Ship Conditions Could Increase Litigation Exposure for Ship Managers

Ship managers are facing increasing litigation risks that are linked to inherited ship conditions, highlighted after a recent incident in which claims exceeding $2.5 million were brought against a ship manager after taking over a defective ship.

The claim, which was ultimately reduced to just $250,000 after it was successfully supported by International Transport Intermediaries Club (ITIC), is another example of the exposure ship managers face when inheriting ships with known deficiencies, even where these have been disclosed at the outset.

In June 2023, a ship manager took over a ship with more than 150 known defects, all of which had been acknowledged by the owners. A phased rectification plan was agreed between the parties, including the deployment of additional crew during 2023 and further repair works scheduled for 2024.

However, operational delays, including a drifting period of approximately six weeks, disrupted the agreed program and postponed key repairs. In March 2024, shortly before additional crew were due to join, the ship was detained following a Port State Control (PSC) inspection.

The shipowners subsequently alleged negligence on the part of both the manager and the crew, pursuing a claim exceeding $2.5 million, significantly above the contractual liability cap of $1.5 million under the SHIPMAN terms.

The ship manager rejected the allegations, maintaining that the detention and resulting losses did not arise from their negligence and disputing responsibility for any alleged shortcomings of the crew. At the same time, questions were raised about the effectiveness of the rectification plan, the timing of repairs, and aspects of crew preparedness.

ITIC noted that disputes of this nature are not uncommon. The UK-based professional indemnity insurance provider emphasized the importance of clear documentation, robust contractual frameworks and proactive claims management when taking on ships with existing defects.