M/V Mare Nova: High Court ruling on shipyard liability and arbitration
Mare Nova Incorporated’s dispute over the M/V Mare Nova is about whether the shipyard’s responsibility ended when the vessel left the yard, and how clauses 2.1, 3.1, and 6.3 of the repair terms work together to decide who must pay for damage that appeared a few hours after departure.
In February 2021 a shipowner and a shipyard in China made a written repair deal for drydocking and other work on a bulk carrier called the M/V Mare Nova. They added Evalend Shipping Co S.A.’s General Conditions of Tender to set quality rules, testing steps, liability rules, and a six-month guarantee for workmanship and materials. The ship entered the yard in March 2021. The shipyard worked on many items, including the intermediate shaft bearing that holds and lines up the long shaft that drives the propeller. The owner’s representative signed off the work on 2021-03-30. The ship sailed on the morning of 2021-03-31. About three hours later, the crew smelled burning near the bearing, stopped, checked, and found damage. The owner said the cause was wrong alignment when the yard put the bearing back. The owner said this broke clear promises in clauses 2.1, 2.2, and 2.3. Those clauses required best-quality work, correct alignment at completion, and careful dismantling, cleaning, checking, calibration, and reassembly with proper clearances and new jointing when machinery was opened. The owner also said the yard was negligent, and in the alternative asked for payment under the six-month guarantee in clause 2.10. The owner claimed US$652,937 for repairs, tugs, agency, and other direct costs from the failure and stop. The shipyard denied jurisdiction and did not take part in the arbitration after a sole arbitrator was appointed by the court on 2023-07-13. The reference ran on documents. Mr Ian Gaunt sat as sole arbitrator. He gave a Final Award on 2024-02-12. He found the damage came from wrong alignment, so there were breaches of clauses 2.1, 2.2, and 2.3. But he still rejected most of the damages. He said the shipyard’s liability “ceased” when the ship sailed because the owner’s representative had signed off and because of clause 6.3. He read clause 6.3 with clause 3.1’s trial terms and treated the guarantee as the only path to money. He awarded US$298,651 under clause 2.10: US$273,232 for tugs and agency and US$25,419 for repairs. The owner said the arbitrator decided the case on a ground that no one argued and that he misread the Conditions. The owner applied to the High Court under the Arbitration Act 1996 section 68 for serious irregularity and, with permission given on 2024-07-10, also appealed under section 69 on a point of law. His Honour Judge Keyser KC in the London Circuit Commercial Court (KBD) heard the case on 2025-02-04 and gave judgment at 14:00 on 2025-02-10.
The dates and steps are simple and help anyone follow the story. The contract date was 2021-02-19. Docking and repair took place in March 2021. The owner’s sign-off was on 2021-03-30. The ship left on 2021-03-31 in the morning. Around three hours later there was a smell and heat near the bearing. That timing made the owner’s case feel straightforward: if a key rotating part overheats almost at once, the repair work was not right. Clauses promising correct alignment and careful checks were likely broken. The owner’s three claims were in the alternative: breach of contract for quality and alignment; negligence for lack of reasonable care; and, if needed, the six-month guarantee for defects found and reported in writing within that time. The shipyard did not appear. The court appointed a sole arbitrator on 2023-07-13 so the case could move. The arbitrator asked written questions. The owner answered in detail. There was no hearing. The award on 2024-02-12 accepted that the alignment was wrong and that clauses 2.1 to 2.3 were breached. The award then turned to a point the owner said was never put to it: that clause 6.3, plus the sign-off and the lack of sea trials, meant the yard’s liability ended when the vessel left. On that view only the guarantee survived, and the arbitrator valued it at US$298,651, payable at once.
It helps to put the key clauses into plain ideas. Clause 2.1 says the yard must do all work to best quality, to the standard of the ship unless the specification says otherwise, to the satisfaction of the owner’s representative, and to class rules. Any quality dispute during the work is decided by the owner’s representative. Clause 2.2 says the ship’s structure and machinery must be in correct alignment at completion and that checks must be made before, during, and on completion. Clause 2.3 says that when machinery is opened for class survey it must be fully dismantled, cleaned, calibrated, with copies of readings to the owner, and reassembled with proper clearances and new jointing; the yard must call class after consulting the owner’s representative. Clause 3.1 says that on completion there will be dock and sea trials in the yard’s representative’s presence to show that the repaired or renewed items are in good order to the owner’s representative’s full satisfaction; any defect found in those trials must be fixed fast at the yard’s cost; the ship is redelivered on completion of satisfactory trials. Clause 2.10 gives a six-month guarantee. Clause 6 is called “Insurance and Liability.” Clause 6.1 makes the yard responsible for loss or damage to the vessel or her equipment or stores caused by the yard’s negligence during “the contractor’s period of liability,” and deals with insurance and says the workers are the yard’s employees. Clause 6.2 is an indemnity from the yard to the owner for claims linked to the work unless the owner alone is negligent. Clause 6.3 says the contractor’s liability “shall begin” when the vessel is delivered to the yard ready for repairs and “shall cease only when” all work is completed to the owner’s satisfaction and the yard’s equipment and rubbish are removed. The arbitrator focused on the word “cease.” He concluded that once the owner’s representative signed off and the ship sailed, the yard could not be pursued for breaches, so only the guarantee claim remained.
The owner took two routes to court. Under section 68 it said there was a serious irregularity because the arbitrator decided based on a ground no party raised: no one pleaded that clause 6.3 wiped out accrued liability after sailing, and the arbitrator did not ask the owner to address that idea before using it to cut the claim from US$652,937 to US$298,651. Under section 69 it said that even if the point had been before the tribunal, the reading of clause 6.3 was wrong in law. In law, clause 6.3 sets the time of the yard’s custody and care of the ship while she is in the yard. It does not erase the owner’s right to damages for earlier breaches when the gangway goes up and the lines are cast. The court saw proof that clause 6.3 was not argued. The owner’s solicitor, John Warwick Hicks, filed a statement on 2024-03-11 and a second on 2025-01-23 showing that the yard did not engage and that the tribunal never asked for argument on discharge by clause 6.3. The yard sent no reply. With that record, the court could compare what was argued in the arbitration to what the award decided and see the missing step.
The judge set out the section 68 standard. A serious irregularity includes a failure to follow section 33, which requires fair and equal treatment and a reasonable chance to put one’s case and meet the other side’s case. There must be substantial injustice. That means the party lost a real chance, with a real prospect of success, to make a point that could change things in practice. The court found both failure and prejudice. The failure was deciding the main damages claim by using discharge under clause 6.3 without giving the owner any chance to deal with it. The prejudice was the size of the cut and the fact the owner had a real chance to defeat discharge and keep the balance above US$298,651. The judge went further. He said that as a matter of law the arbitrator’s analysis of discharge was clearly wrong. He explained why, so that when the award went back the tribunal would use the correct test.
On section 69, permission had been granted on 2024-07-10 by HHJ Pelling KC because, if the discharge point had been before the tribunal, the decision looked obviously wrong and the result mattered to both sides. But the discharge point had not in fact been put to the tribunal. Section 69 needs that the tribunal was asked to decide the point of law. That gate was not passed. So the court said the right outcome was to allow the section 68 challenge and to dismiss the section 69 appeal. Even so, the judge set out the law on discharge, so the remitted steps would not go astray.
The court’s reasoning on clauses 2.1 and 6.3 rested on a simple idea that is often used. Parties can bargain as they like. But the law starts with the thought that people do not give up normal legal rights unless they do so in clear words, especially when the rights are valuable. In 2021, in Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29, the Supreme Court repeated that starting point and cited Lord Diplock in Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689. The message is this: you presume neither party meant to cut down the usual remedies, and it takes clear, express wording to change that. The judge asked whether any sentence in clause 2.1 or clause 6.3 meets that bar. He said no. Clause 2.1 imposes duties and gives the owner an extra right: the owner’s representative can decide quality issues while the work goes on. That is an extra layer of protection, not a release. Approval or satisfaction is not a discharge of the yard’s basic duties. Courts have said for decades that “to the satisfaction” clauses give an added right but do not shrink a builder’s or carrier’s core obligations unless the contract says so in clear terms. In 1937, in a case about cargo benzine and discoloration, a clause that required cleaning “to the satisfaction of the charterer’s inspector” did not cut down the duty of fitness; it only added an inspection step. In 1998, Mance J, in a case called Sacor Maritima, said inspector approval does not block a claim if the vessel is actually unfit. The same logic applies here. The owner’s sign-off on 2021-03-30 did not, by itself, wipe out the duty to align the bearing correctly.
Clause 6.3’s words may look helpful to the yard at first look: liability “shall begin” on delivery to the yard and “shall cease only when” the work is complete to the owner’s satisfaction and the yard’s equipment and rubbish are gone. But those words sit inside “Insurance and Liability,” which starts with clause 6.1. Clause 6.1 makes the yard responsible for loss or damage during “the contractor’s period of liability.” The natural reading is that clause 6.3 defines that period of custody and care, the time when the yard holds the ship as a bailee. Read this way, “liability shall begin” means the yard takes on responsibility as bailee when the ship is delivered to the yard. “Liability shall cease” means that custodial responsibility ends when the work is complete, the owner is satisfied, and the yard’s gear and rubbish are removed. Those words do not say that claims for earlier breaches are erased at sailing. If the parties had wanted to agree to such a strong release, the contract would need to say so in very clear terms, such as “on satisfaction, all claims for breach are discharged.” These terms are not present.
The arbitrator also pointed to clause 3.1 about dock and sea trials. He noted that the owner did not insist on a sea trial before departure on 2021-03-31 and said such a trial would likely have found the problem. But that note did not decide the law. Clause 3.1 creates a process to show that repaired items work and to fix defects found in those trials at the yard’s cost before redelivery. It does not say that, if the owner does not insist on a sea trial, the yard’s liability for bad work goes away. It does not turn the owner’s right to trials into a shield for the yard. The burning smell and temperature rise three hours after departure fit a misalignment that already existed. A sea trial might have found it earlier. But not holding one does not turn a faulty repair into a good one, especially when clauses 2.1 to 2.3 set duties that do not depend on the owner asking for every possible test. The law often puts this by saying that an extra right for one side is not a cut in the other side’s duty unless the contract says so clearly.
The court then tied these legal points back to the numbers and steps already taken. In the 2024-02-12 award, the owner lost the difference between US$652,937 and US$298,651 because of the discharge finding. The court showed the exact monetary harm and the exact path that led to it: discharge under clause 6.3 triggered by sign-off and sailing. The court held that deciding the main claim on that unargued basis was a section 68 irregularity that caused substantial injustice. The judge allowed the section 68 challenge and chose the normal remedy: remission of the award to the arbitrator for reconsideration. Remission means the same tribunal will look again at the damages claim, but this time both sides must be given a fair chance to address any ground that could decide the result, and the tribunal must use the correct reading of clauses 2.1 and 6.3. The owner had also raised a section 68(2)(d) point, saying the tribunal failed to deal with all issues, like whether any discharge would reach the tort claim. By the hearing, that path was not pressed, likely because the owner’s main view was that discharge was never in play at all. The judge recorded that and focused on what mattered for outcome and law.
When the court looked at the section 69 appeal, it was stopped by a rule in the statute. A section 69 appeal on a point of law can go ahead only if the tribunal was asked to decide that point. Here the discharge point was not put to the tribunal. So the appeal could not be taken. Even so, the judge set out the law in detail. He said the arbitrator’s reading was “obviously wrong,” both from the text and from the common-sense presumption that parties do not secretly give up valuable rights. That guidance did two things. It showed why the prejudice test under section 68 was met, because a correct reading could lead to a higher award. And it told the tribunal what to do on remittal. The judge cited Triple Point and earlier cases to show why general approval language or timing language about custody does not erase accrued rights for defective work without clear words. That guidance matters to anyone who drafts and uses such standard terms. It explains that approval steps and custody periods are about process and risk while the ship is in the yard, not about wiping out damages claims once the ship sails.
The timeline in court also shows how the law guards fairness while keeping arbitration efficient. The owner filed the section 68 challenge soon after the 2024-02-12 award. Permission for section 69 was given on 2024-07-10. The hearing was on 2025-02-04. Judgment came on 2025-02-10. The judge valued arbitration but stressed the duty of fairness. Even when one party does not show up, a tribunal must not decide on a new ground without letting the appearing party answer it. The evidence showed careful service and no response from the yard. In that setting the section 33 duty is even more important. When only one side is present, the tribunal must be careful not to introduce a decisive point without notice.
For people working with ship repair jobs, the practical lessons are clear. If a contractor wants the owner’s sign-off to be a full release, the contract must say this in unmistakable language. Even then, other controls may apply, like rules about excluding liability for negligence. A clause that sets the custody period will not normally be read to erase claims for bad work done during that period. Approval and trials are useful. They help catch problems early. Clause 3.1 suggests that sea trials would probably have found the misalignment before sailing on 2021-03-31. But the lack of a sea trial does not flip fault for a hidden defect that shows up within hours. Owners should still ask for sensible tests when time allows, because catching problems early saves money. But owners do not lose their rights just because a sea trial did not happen. Contractors should keep full records of dismantling, calibration, clearances, and alignment checks under clauses 2.2 and 2.3. If something goes wrong soon after departure, those records will be the first place a tribunal looks to see if the promised methods were used and whether class was called in correctly.
In the remitted arbitration, the tribunal must now look again at the full US$652,937 claim on the basis that clauses 2.1, 2.2, and 2.3 were breached and that clause 6.3 does not discharge accrued liability on sailing. The tribunal must also consider any overlapping negligence heads and how they fit with the US$298,651 already awarded under the guarantee. It must avoid double counting but also avoid cutting the award just because the guarantee exists. The guarantee is a floor, not a ceiling. On cause, the award already found misalignment caused the damage. On quantum, the tribunal must reassess the larger figure with proper evidence and submissions. The sign-off on 2021-03-30 matters as a fact about what was checked and recorded. But it is not a ticket to no liability. The lack of a sea trial matters only for any argument on avoidable loss if the yard can show a reasonable owner would have insisted on a sea trial before departure and that such a trial was feasible without unfair delay or cost. Even then, such arguments reduce loss; they do not erase liability.
The case stands as a reminder that words like “satisfaction,” “redelivery,” and “liability shall cease” must be read in context and with the basic presumption that parties do not silently give up their rights. It also shows that a tribunal must not decide on an unpleaded point without notice, especially when that point cuts a claim by over US$300,000. Courts support arbitration, but they will step in under section 68 when fairness is missed. That is not a blow to arbitration. It is a guardrail that keeps it trustworthy by protecting the basic right to be heard. With these points in mind, parties can write clearer contracts and present cleaner cases, and arbitrators can run processes that avoid surprises that require court correction.
The final result on 2025-02-10 was this: the High Court allowed the section 68 challenge for serious irregularity under section 68(2)(a) because the tribunal failed to give the owner a fair chance to address discharge under clause 6.3, sent the award back to the same arbitrator for reconsideration on the correct legal basis, and dismissed the section 69 appeal because the discharge question had not been put to the tribunal; at the same time, the court made clear that clauses 2.1 and 6.3 do not wipe out accrued claims on sailing and that clause 6.3 sets the yard’s custody period rather than a release of liability, so the owner may pursue damages beyond the US$298,651 guarantee award when the tribunal looks again.
