ITIC has warned that onerous documentary disclosure rules in the U.S. courts can drastically increase the cost to shipping interests of defending even without-merit claims.
In the latest issue of its Claims Review, ITIC cites a case involving the manager of a number of cruise ships which was sued by a shipowner in a U.S. court for alleged failure to oversee maintenance, for negligence in the provision of manning advice and for negligence in relation to stability problems experienced by one of the owner’s ships. The owner alleged that theses breaches of contract caused it to incur increased maintenance and repair costs, and to lose profits. In total, it claimed in excess of $20 million.
ITIC noted that an enormous amount of documentation was requested by the plaintiffs in this litigation. There were demands that the manager produce over five million documents, and such was the magnitude of the request for documentation that the court ordered that a specialist company be employed to track emails specific to the management of these vessels. The costs of the court-appointed email tracking firm were $350,000, while the average monthly legal costs incurred were $110,000 for each of the twelve months prior to trial.
At an early stage, the manager and ITIC concluded that the case was without merit. But ITIC recognized that the substantial legal costs likely to be incurred (which the winning party cannot recover in US litigation) meant that, if a sensible settlement offer was made, it would be considered. At no stage, however, was such an offer made by the owner, which continued to hold out for its original claimed amount.
When the case came to trial, the court dismissed all the claims. The owner appealed and the manager put in a counter-claim for its fees, costs and other expenses incurred. This helped to shorten the appeal process as the owner eventually dropped its appeal and its motion for fees and costs, and paid to the manager a settlement of $375,000 to ensure that the manager dropped its counter-claim.
Although the manager comprehensively won the case, the legal costs incurred, which were covered by ITIC, still amounted to $2.7 million.