On 17 November 2016 the High Court ruled that under the warranty
clause contained in the shipbuilding contract, the obligation of
the Builder after delivery was limited to repair or replace any
defects, and excluded any financial losses caused by the defect.
This decision is of significant importance in the shipbuilding
industry, since it could define the obligations of Builders after
delivery and limit the Builder's exposure to warranty claims
more generally. The successful defendant shipyard was represented
by Clyde & Co
Star Polaris LLC-v-HHIC-Phil Inc 
The shipbuilding contract in the case was on substantially the
SAJ form, with amendments. The amended Article IX.4 included
the wording "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
The Vessel suffered an engine breakdown during the warranty
period, and while much of the damage was found by the Tribunal to
be due to the negligence of the chief engineer, there was a defect
underlying that damage that fell within the warranty. The
Buyer claimed for the cost of repairs, all of the lost time and
profit during the period of repairs and diminution in value of the
Vessel due to those repairs. The Builder agreed to pay the
(limited) costs of repairs, but denied liability for all other
On appeal from an Arbitration Award, the High Court (upholding
the view of the Tribunal) dismissed the appeal and held that the
reference to "consequential or special loss" in the
context of Article IX excluded any and all losses caused by the
defect, with the exception of the obligation to repair.
Key elements in the decision were:
1.It was common ground that, the warranty clause provided a
complete code addressing the obligations of the parties after
delivery. The Buyer had to bring itself within that code in
order to claim any remedy from the Builder. This is
consistent with the position in The Seta Maru ;
2.In Article IX.3, a distinction was made between necessary
repair or replacement, which was for the yard, and any financial
consequences such as the costs of bringing the vessel to a repair
yard (which would ordinarily be "direct" losses) which
were for the Buyer;
3.Article IX.4(a) contained wording expressly limiting the
obligations of the builder to those set out within Article IX.
While the decision turned on the particular wording of Article
IX.4(a), it potentially has a much wider impact. The warranty
was in substantially the same form as the SAJ contract and Article
IX.3 in particular was almost identical to the SAJ form.
The arguments that both the Tribunal and High Court found
persuasive apply to wording on an SAJ form, the conclusion being
that the warranty clause is not an exclusion clause but is a
complete code and it is for the Buyer to establish that any defect
or loss falls within that code. The exclusion in the SAJ form
of "consequential loss" is also not simply a reference to
consequential losses under Hadley-v-Baxendale, because it expressly
includes loss of time and profit, which would otherwise be direct
The conclusion following this decision is that where a
shipbuilding warranty clause is on largely the same form as the SAJ
contract, and especially where some wording is included to make
clear that the warranty clause sets out the full extent of the
builders obligations after delivery, it is highly arguable that any
financial losses suffered by a Buyer as a result of a defect are
excluded. Significantly, the clause excludes any right to
claim damages at common law, so the rules on exclusion of damages
do not apply.
On this basis, the exclusion of "consequential loss"
is superfluous wording, but in any event can be said to cover both
direct and indirect losses, and not merely those losses which fall
under the second limb of Hadley v Baxendale as had been
Deug Rong Lee, Tom Kelly and Paul Collier of Clyde & Co
acted for the successful defendant shipyard.
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