International Transport Intermediaries Club (ITIC) has highlighted the level of exposure to liability which naval architects can face, especially in today's financially troubled shipping industry.

In the latest edition of its newsletter, The Wire, ITIC cites the case of a firm of naval architects instructed to design a vessel to be used for a new ferry service. When the vessel was completed, the owners alleged that it suffered from structural inadequacies, which included continued cracking of the hull. As a result, they claimed, it could not perform in certain weather conditions as they had requested it should do, even following repeated repairs.

At one point, the local maritime authority had to reduce the number of passengers which the vessel could safely carry. Eventually, the ferry service was completely suspended and the owners started legal action against the naval architects in the sum of $600,000. This covered the cost of repairs, loss of use, loss of profits and diminution of value of the vessel. Expert evidence was obtained on behalf of the naval architects, but it was not particularly helpful to the defence.

It became apparent that the owners were suffering from financial difficulties, in part due to the fact that the ferry service could not run. On this basis, ITIC instructed lawyers to make an application for security - to cover the defence costs incurred in the event that the owners became bankrupt - in the sum of £75,000. Legal costs and expert witness fees had already exceeded £40,000 and were estimated to go above £100,000 if the matter progressed to a full trial.

The application for security was granted in ITIC's favour, but only in the sum of £25,000, as the judge had some sympathy with the claimants' argument that they were in dire financial straits, allegedly as a result of the mistake made by the naval architect. Despite pleading poverty, however, the owners did manage to obtain the funds and pay them into court.

The naval architects were left in an awkward situation whereby, if the matter progressed to full trial, even if they were successful in defending the claim in its entirety (which was very unlikely in light of the expert evidence received) the costs alone could have been in excess of £100,000, and there was only £25,000 security.

The judge suggested that the parties would benefit if they could reach agreement between themselves, which ultimately resulted in a negotiated settlement whereby the original claim of $600,000 plus costs was settled for $30,000, plus costs of a further $100,000.

• Elsewhere in The Wire, ITIC discusses, among other things, what naval architects can do to limit their potential exposure to liability and to substantial legal fees, and how they should respond to the new perils associated with acting as an expert witness. It also examines the defence of claims made against naval architects involving errors in transposing design specifications, and inadequate preparation of technical specifications.

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC's website at www.itic-insure.com. December 2011ITIC Press Release PR0811

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