Summary

The recent shipping case of Saga v Fincantieri, heard in the Commercial Court, reaffirms two key points of law which are of application to construction contracts:

  1. That where losses are suffered not by the contracting party but by, for example, a subsidiary or a separate company in the same group, the Courts will seek to avoid any losses falling into a unclaimable black hole;

  2. That for a concurrent delay to provide relief from liability for LADs it must actually be causative of a delay rather than simply occurring at the same time as an event which a contractor is itself responsible for.

The facts

This case concerned a contract between the first claimant SAGA (the owner of a vessel) and Fincantieri for the dry docking, repair and refurbishment of a cruise ship owned by SAGA. The second claimant Acromas was another member of the SAGA group of companies and operated its cruise business. Fincantieri owned a shipyard in Palermo, Italy. The works to be undertaken by Fincantieri on the vessel were significantly delayed by strike action and an agreement was entered into postponing the scheduled completion date. By that time SAGA had entered into a yearlong bareboat charter with Acromas under which Acromas would operate the vessel as a cruise ship.

Further delays to the refit works occurred later, which caused additional delay to the scheduled completion date. SAGA sought to levy LADs by reason of Francantieri's delay. Francantieri denied liability for LADs and sought and extension of time claiming that its delay was concurrent with delay for which SAGA was responsible.

Following completion, SAGA assigned its rights under the contract to Acromas. A few weeks after completion there was a catastrophic failure of the cooler to the main port engine which resulted in the need for Acromas to cancel a cruise and delay to the subsequent cruise. SAGA assigned its rights against Francantieri in respect of the engine failure to Acromas.

Two main claims arose, the first claim by Acromas arose out of the alleged defective works causing the cancellation of the cruise. The second element of the claim, and one which those in the construction industry frequently have to deal with, concerned SAGA's entitlement to recover LADs and involved considering whether concurrent delay by SAGA absolved Fincantieri from a liability to pay LADS.

"No loss" argument – The legal black hole

The first issue related to whether Acromas was entitled to recover substantial damages from Fincantieri in respect of the cancelled cruise, given that the contract Fincantieri entered into was with SAGA and not Acromas. SAGA had entered into the contract as it was the owner of the vessel and then entered into a charter of the vessel to Acromas. The significant damages arising out of the failure of the cooler were suffered by Acromas as the cruise operator. Fincantieri accepted that (if liability could be established), as Acromas was an assignee of SAGA's rights, Acromas was entitled to claim the repair costs but not the cancellation costs arising out of the cruise. As Acromas was an assignee it could not recover losses that SAGA itself would not have suffered.

In the event, the court held that any breach of contract by Francantieri did not cause the cancellation of the subsequent cruise. Nevertheless, the court went on to consider Acromas' entitlement to recover damages. Acromas had claimed, relying on a long line of previous court decisions, that prior to the assignment SAGA were entitled to recover substantial damages in respect of Acromas' losses and that, but for the bareboat charter, the losses suffered by Acromas would have been suffered by Saga as owners and could be recovered by Acromas as assignee. The Court agreed with Acromas that all parties knew that the purpose of the refit was to enable it to operate as a cruise ship for SAGA, and that cruise related losses were exactly those that would have been expected to flow for any failures in Fincantieri's works had SAGA operated a cruise business.

In the alternative, the Court (following the decisions in The Albezero (1977), Linden Gardens Trust v Lenesta Sludge (1994) and Darlington Borough Council v Whilshier (1995)), that the whole purpose of the contract was to equip the vessel for cruise operation and, consequently, Fincantieri could expect any losses suffered would be suffered by SAGA's cruise operating arm, not SAGA themselves. In those circumstances, SAGA would have been entitled to recover the losses on Acromas' behalf. Accordingly, following the assignment Acromas could recover those losses themselves. The Court was, therefore, prepared to act to prevent a loss suffered by a party, caused by a defendant, from falling into a black hole and found that the losses were, in principle, recoverable.

Liability for concurrent delay

The second issue which is of interest related to liability for concurrency of delay. The completion of Fincantieri's works had been delayed and the claimants claimed LADs as a result. While the delay was quite short the LADs were substantial, €770,000. There were a number of delaying events including the creation of new cabins and decking for which Fincantieri were responsible, and other delays regarding lifeboats and insulation which were the responsibility of SAGA. Fincantieri maintained that where completion was delayed by two events concurrently, one for which it was responsible and one for which SAGA were responsible, no liability for LAD's arose, and that it would be entitled to an extension of time for the period of delay caused by the SAGA delay, notwithstanding the concurrent effect of its own delay which had already occurred.

The Court found that a genuinely concurrent delay would arise where a delay is caused by two or more causes of delay which are of approximately equal causative potency. There is a need to distinguish between a delay which, had Fincantieri not been delayed would have caused delay but which because of an existing delay made no difference, and on the other hand where further delay is actually caused by the event relied upon. The delay relied upon must actually prevent the contractor from carrying out the works and thereby cause delay. The Judge agreed with SAGA and found that: ". . .unless there is a concurrency actually effecting the completion date as then scheduled the contractor cannot claim the benefit of it, causation in fact must be proved based on the situation at the time as regards delay". Accordingly SAGA was entitled to the LADs.

This decision on concurrency will not be uncontroversial and it remains to be seen whether the judges of the TCC will take a similar line. It is worth noting, however, that the Society of Construction Law's draft second edition of its Delay and Disruption Protocol adopts a similar positon.