Making a yard's supplier liable for a shoddy vessel.

(From Lloyds List)

Legal Viewpoint

If a vessel is defective, the shipowner will usually first try to hold the shipyard liable under the building contract. However, this may turn out to be a difficult task if the warranty period has expired or if the claim is not recoverable because the shipyard is bankrupt or situated in a country where the jurisdiction is unfavourable to the owner, writes Jan Dreyer.

This is particularly true of the Chinese and Korean jurisdictions both countries play a major role in the shipbuilding industry which are known for time-consuming proceedings and difficulties in enforcing long awaited judgement. As a result, the owner may have an interest in claiming directly against the shipyard's suppliers, if their financial standing is sufficiently strong.

In Germany, the principles of product liability are laid down in the Product Liability Act. However, as the Product Liability Act is aimed at protecting the consumer, it only applies to products intended for private use. Although privately used yachts play an increasing role in shipbuilding, the main emphasis still lies in commercial vessels. Hence, in most cases, the Product Liability Act will not be applicable.

But some of the regulations contained in the Product Liability Act are generally transferred to the product liability in tort based on sec. 823 of the German Civil Code. The main difference between the two regimes is that the tortuous liability requires a negligent act on the part of the manufacturer whereas the Product Liability Act provides for a strict liability. The German jurisdiction has developed the following requirements: defective product put in circulation by its manufacturer, damage to persons or property distinct from the defective product itself, causal link between the above conditions, and negligence of the manufacturer.

The crucial question is whether a product can be considered 'defective'. Pursuant to the Product Liability Act, a product is defective if it suffers from a defect in the design, manufacturing or incorrect or incomplete instructions. The design is defective if the manufacturer does not act in conformity with the technical and scientific standards prevailing at the time the product was put into circulation. A manufacturing defect requires deficiencies in the construction of the product caused by a lack of efficient quality control. Instruction defects refer to deficiencies in warnings and instructions necessary for the safe use of the product.