By Caitlin Morgenstern of Koch & Schmidt posted in Maritime Law on Wednesday, July 13, 2016.
While “red letter” clauses in maritime repair contracts that completely absolve the repairer of liability for negligence are invalid, limitations on damages are allowed. As a result, vessel owners should be extremely cautious when entering into maritime repair contracts.
Mitseaay Yacht, LLC v. Thunderbot Marine, Inc., arose from the attempted repair of the sailing yacht MITseaAH. Plaintiff originally brought the yacht to Defendant, Thunderbolt Marine, Inc. for repairs to the yacht’s gear boxes. The work ultimately expanded to work on the yacht’s engine, hull, and exterior and lasted over two years. Even with the long-lasting repair and high cost, approximately $2,153,364.00, much of the yacht remained unrepaired or damaged and further work had to be done.
Plaintiff alleged claims of negligence, breach of contract, breach of implied warranty of workmanlike performance, and breach of duties as a bailee. The plaintiff sought as damages fees and expenses for surveyors, inspectors and a builder representative; the value of time expended by the captain and crew of the yacht in supervising and completing unfinished work and repairs; the costs of bringing outside contractors to Savannah to oversea repairs; the cost to haul, inspect and repair the yacht due to the defective paint job,; the cost to repair the yacht’s fuel tanks; the amount plaintiff overpaid Defendant for uncompleted work; and the cost of the extended dockage and electricity charges while the yacht was in the Defendant’s possession.
Defendant filed a motion for summary asserting the terms and conditions of the contract, specifically the “limitations of liability,” “payment,” and “delays” clauses, prohibited plaintiff’s recovery. The court first determined whether the applicable law clause in the contract was valid. The court noted that choice of law provisions in maritime contracts are valid only to the extent that they do not frustrate the national interests provided by maritime law. In Diesel “Repower”, Inc. v. Islander Invs., Ltd., the Eleventh Circuit set forth a three part test to determine whether a limitation of liability clause in a maritime contract is valid: (1) clause must clearly and unequivocally indicate the parties’ intentions;(2) clause may not absolve the repairer of all liability and the liability risk must still provide a deterrent to negligence; and (3) there must be equal bargaining power between the parties.
The court applied the Islander test to the specific clauses of the contract at issue. The court found that the contracts “INSPECTION/CLAIMS” clause and “WARRANTY AND DISCLAIMERS” clause were void but the “LIMITATIONS OF LIABILITY,” “DELAYS”, “PAYMENT,” and “INDEMNIFICATION clauses were valid under the Islander test and Georgia law.
The court then evaluated the plaintiff’s claims and held that under the “LIMITATIONS OF LIABILITY” clause of the contract, the plaintiff may only recover direct damages. As a result the plaintiff’s claims for dockage fees, compensation for a builder representative, and a stolen prop blade and kayak were dismissed.