IM Skaugen Claims Victory in Arbitration Case against MAN

Image Courtesy: University of California

Norway based transportation company IM Skaugen said that it has won around USD 15 million in damages in the arbitration case against MAN Diesel & Turbo SE, the German diesel propulsion manufacturing company.

The dispute relates to the company’s agreement with MAN to purchase 12 marine diesel propulsion systems comprising engines and propellers.

According to Skaugen, MAN has “misrepresented the fuel consumption on many, or all of, the 12 marine diesel propulsion systems” sold to the company.

“We believe that the engines consume more fuel than was promised, agreed/warranted and subsequently documented by MAN in the official and required Factory Acceptance Tests (FATS). MAN has admitted to manipulating the FATs when it comes to 3 of our 12 marine diesel engines and this was done to conceal the excess fuel consumption,” the company said.

Furthermore, the Norwegian shipowner pointed out that it has secured documents showing that the manipulations had been performed by MAN on a regular basis for more than 10 years at their company – and for many of their clients.

As disclosed, MAN has since then stated that the said activities had been discontinued by spring 2011, and accepted a fine in Augsburg local court in 2013.

“However, MAN refuses to compensate our company for any of our losses despite the admitted fraud, and MAN also refuses to repay our company for prepayment made for engines not delivered and that we cannot take delivery of due to their fraud,” the company added.

The latest arbitration, which is part of a larger complex of cases on the matter, concerned whether or not Skaugen was entitled to terminate the contract for the purchase and sale of two sets of marine diesel engines of the type 6L 48/60B (with related propellers), which MAN had produced and tested in 2008-2009.

As determined by the ICC International Court of arbitration, the two engines did have a substantially higher fuel consumption than stated in the official FATs and a substantial higher consumption than the maximum lever warranted by MAN. In addition, the tribunal held that MAN had violated its obligation to loyally disclose to Skaugen all information about the engines in dispute, the company further noted.

On this basis, the tribunal concluded that Skaugen was entitled to terminate the contract, which the company did in 2012, and compelled MAN to refund Skaugen its down-payment for the engines in the amount of around EUR 5.3 million as well as reimburse Skaugen for its legal costs and other costs of around EUR 1.4 million in total.

“By year-end 2016, we had USD 8.3 mill on our balance sheet as prepayment made for diesel propulsion systems from MAN (not yet delivered), and we await recovery of all the prepaid funds that we seek from MAN,” the company concluded.

In addition, Skaugen said that it also has pending litigation ongoing in Norway regarding its purchase of marine propulsion systems from MAN, within which the company is claiming recovery of additional/excessive fuel costs on vessels currently in operation, and other losses incurred.

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