Saga Cruises BDF Ltd & Anor v Fincantieri SPA

Factual and Procedural Background

This action concerns two distinct claims arising from a contract dated 28 September 2011 ("the Contract") between the First Claimant ("the Owners") and the Defendants ("the Yard") for the dry docking, repair, and refurbishment of the Owners' cruise ship ("the Vessel"). The Owners are part of a group of companies, with the Second Claimant ("Acromas") operating the cruise business. The Vessel, built in 1981, was acquired by the Owners with the intention of refurbishing it as their flagship. The contract with the Yard, an Italian shipbuilding company, was for engineering and outfitting works scheduled from November 2011 to February 2012.

The works were delayed mainly due to strikes, leading to a Trieste Agreement on 16 February 2012, postponing the Scheduled Completion Date to 2 March 2012. Further delays meant the Vessel was redelivered on 16 March 2012 and departed on 19 March 2012. A bareboat charter was entered between the Owners and Acromas on 1 February 2012, with delivery to Acromas scheduled for 30 March 2012.

The first claim arises from a failure of the port main engine lubricating oil cooler ("luboil cooler") during the Vessel's inaugural cruise on 12 April 2012. The Owners allege that the Yard failed to perform their contractual obligations regarding the overhaul of the luboil coolers, leading to severe operational disruption and cancellation of cruises. Acromas pursues damages amounting to 3,170,037 as assignee of the Owners' rights.

The second claim is for liquidated damages by the Owners for delay in redelivery of the Vessel between 2 and 16 March 2012, capped at 770,000 under the Contract and Trieste Agreement.

Legal Issues Presented

1. What were the precise contractual obligations of the Yard concerning the overhaul and reconditioning of the Vessel's luboil coolers, including any duty to inspect, advise, or retube?
2. Whether the Yard breached its contractual duties in relation to the luboil coolers and if such breach caused the losses claimed.
3. The proper construction and effect of the Protocol of Completion and whether it precludes claims for breach of contract beyond the guarantee clause.
4. Whether the Owners (or Acromas as assignee) are entitled to damages for losses arising from the luboil cooler failure, including repair and cancellation costs.
5. The extent of the Yard's liability for liquidated damages for delay in redelivering the Vessel, including the application of contractual clauses on extensions, concurrency, and the Trieste Agreement.
6. Whether the Yard is entitled to reduce damages by reason of contributory negligence on the part of the Owners.
7. The application of the contractual guarantee clause and its exclusions to the claims.
8. The legal principles governing recovery of damages by an assignee for losses suffered by a third party under the contract.

Arguments of the Parties

Owners' Arguments

• The Yard undertook to "recondition" and "overhaul" the luboil coolers, implying more than mere cleaning, including inspection and advice on retubing if necessary.
• The Yard breached its duties by failing to ascertain the need for retubing, failing to adequately clean both water and oil sides, failing to replace seals, damaging a seal during work, and failing to properly pressure test the coolers.
• The Protocol of Completion does not exclude Owners' rights to damages for breach of contract beyond the guarantee clause.
• The losses from the luboil cooler failure, including repair and cancellation costs, are recoverable by Acromas as assignee of the Owners' rights.
• The Yard is liable for liquidated damages for delay in redelivery from 2 to 16 March 2012, with no valid extensions for concurrent delays caused by Owners.
• Contributory negligence does not apply as the Yard owed strict contractual duties and the Owners' personnel decisions do not reduce Yard's liability.

Yard's Arguments

• The contractual scope limited the Yard's obligations to in situ cleaning and pressure testing, explicitly excluding retubing unless separately quoted.
• The Yard was not obliged to inspect or advise Owners on the condition of the coolers beyond performing the agreed cleaning and testing.
• The Protocol of Completion precludes claims for breach of contract, limiting remedies to the guarantee clause which contains exclusions for wear and tear, Owners' negligence, and consequential losses.
• The Yard denies causation of losses by any breach and disputes the extent of damages claimed, particularly cancellation costs.
• The Yard contends that delays caused by Owners or concurrent causes relieve it from liquidated damages liability for the overlapping periods.
• The Yard claims contributory negligence by the Owners' superintendents which should reduce any damages awarded.
• The Yard challenges the recovery of cancellation losses by Acromas on the basis that those losses were not suffered by the Owners and are not recoverable by an assignee beyond repair costs.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by examining the contractual obligations of the Yard concerning the luboil coolers. It found that the Specification was the primary document defining the scope of works, to be read together with Appendix 11, which set out pricing and some scope clarifications. The parties intended an in situ overhaul of the coolers without retubing unless separately quoted. The Yard was obliged to clean and pressure test the coolers, inspect them to the extent necessary to perform the cleaning, and report any material findings relevant to the condition and possible need for retubing, but was not obliged to advise or recommend retubing.

The court rejected the Yard’s rectification claim as unnecessary and unsupported by evidence of common or unilateral mistake.

On breach, the court found that the Yard failed to properly clean the coolers and failed to report adequately on their condition, breaching its duties. However, on causation, the court held that these breaches did not cause the losses suffered. The evidence did not establish that holes existed in the tubes at the time of the Yard's works, nor that proper cleaning would have revealed such holes. The catastrophic failure was primarily due to long-standing corrosion caused by inadequate water treatment by prior owners, and the Yard's breaches did not materially accelerate or cause the failure.

Regarding the Protocol of Completion, the court held that it did not exclude the Owners' common law rights to damages for breach of contract and did not limit remedies to the guarantee clause.

The court accepted that the Owners (and as assignee, Acromas) were entitled to recover damages for repair and cancellation costs, rejecting the Yard’s arguments that cancellation costs were not recoverable or were not losses of the Owners. The court applied established principles from cases such as Offer-Hoar and Linden Gardens to permit recovery by Acromas.

On liquidated damages for delay, the court carefully analysed the contractual provisions, including the Trieste Agreement and clauses dealing with extensions, other works, and concurrency. It accepted the Yard’s submission that extensions for delays caused by “Other Works” required compliance with notification obligations and that concurrency could disentitle the Yard from liquidated damages where delays overlapped. However, the court found that the Yard was responsible for delays beyond the Scheduled Completion Date from 2 to 16 March 2012 and was not entitled to rely on concurrent delays caused by the Owners to avoid liability. The Yard was therefore liable for liquidated damages up to the agreed cap of 770,000.

Regarding contributory negligence, the court found that the Yard owed contractual duties requiring reasonable skill and care, including in subcontractor selection and inspection. It concluded that contributory negligence could apply to the duty to advise but not to the cleaning obligation. The court applied a 50% reduction in damages for contributory negligence in respect of the duty to advise breaches, reflecting the Owners' personnel decisions.

On the guarantee clause, the court held that the exclusions did not bar the Owners’ claims given the nature of the defects and the facts. Notice requirements under the guarantee clause were satisfied in substance, and the Owners were entitled to pursue claims under the guarantee as an alternative.

Holding and Implications

The court's final decision was as follows:

• The Yard owed a duty to use reasonable skill and care in cleaning the luboil coolers and to report material findings to the Owners to enable an informed decision on retubing.
• The Yard breached these duties but those breaches did not cause the Owners' losses; causation was not established for the failure or consequential losses.
• The Owners (and Acromas as assignee) are entitled to recover damages for repair and cancellation costs.
• The Yard is liable for liquidated damages for delay in redelivery from 2 March 2012 to 16 March 2012, amounting to the agreed cap of 770,000.
• Contributory negligence applies to the duty to advise with a 50% reduction in damages but not to the cleaning obligation.
• The Protocol of Completion does not exclude common law claims for breach of contract beyond the guarantee clause.
• The guarantee clause claims are available as an alternative and are not barred by exclusions or notice failures.
• Acromas is entitled to recover damages as assignee of the Owners' rights, including cancellation losses.

The decision directly affects the parties by affirming the Yard's liability for delay damages and permitting recovery of substantial damages for the luboil cooler failure, while clarifying the scope of contractual duties and the effect of the Protocol. No new legal precedent was established, but the court applied and synthesized existing principles on contractual construction, causation, concurrent delay, contributory negligence, and third-party assignment in the context of complex ship repair contracts.