After paying the shipowner RMB 2 billion in compensation according to the London arbitral award, the shipyard filed a full "serial claim" against the designer in South Korea. While the parties are deadlocked, the two "domestic" LNG ships have been suspended for more than 2,000 days.
"It's all the design company's fault"? Samsung Heavy Industries filed a full claim against the Korea Gas Corporation
On April 23, Samsung Heavy Industries said that it had paid 290 million US dollars (about 2.055 billion yuan) in compensation to South Korea's SK Shipping Company in accordance with the ruling of the London Maritime Arbitrators Association (LMAA) due to the discovery of design defects in the LNG carrier carrying South Korea's self-developed "KC-1" LNG tank, and at the same time, because the responsibility "is 100% entirely on the Korea GAS" As a result, a full claim equal to the above amount was filed against the Korea Gas Corporation in the domestic lawsuit.
The London Maritime Arbitrators Association (LMAA) ruled in December last year that the cargo containment systems of the two LNG carriers SK Serenity (SHIKC1) and SK Spica (SHIKC2) delivered by Samsung Heavy Industries to SK Marine were defective and "not properly repaired within a reasonable period of time" and therefore required SK Shipping to pay USD 290 million in damages.
Commenting on the London Maritime Arbitrators' Association's decision, Samsung Heavy Industries said at the time: "We have been negotiating with SK Shipping and Korea Gas Corporation on resolving legal disputes and mediation. If the tripartite agreement fails, we plan to file a damages lawsuit against Korea Gas Corporation to recover the damages resulting from this arbitration. ”
Samsung Heavy Industries blamed the design company, Korea Natural Gas Corporation, for the defective KC-1 LNG tank. Samsung Heavy Industries pointed out that according to the first-instance judgment of the domestic lawsuit in South Korea, the defects on the LNG ship were caused solely by the development of the "KC-1" LNG cargo tank.
It is understood that both "SK Serenity" and "SK Spica" use the "KC-1" LNG cargo tank independently developed by South Korea, which is also the first time that the "KC-1" LNG cargo tank has been applied to a real ship. The vessels were ordered in January 2015 and delivered in February and March 2018 respectively. However, shortly after it was put into operation, natural gas leakage and ice formation (cold spots) occurred on the outer walls of the SK Serenity and SK Spica.
After that, Samsung Heavy Industries invested 19.7 billion won to carry out a repair, but after it was put into operation, the same problem occurred again in May 2019 and had to return to the shipyard for repairs again. So far, Samsung Heavy Industries has carried out four repairs on the two ships, with a total investment of about 100 billion won (about 529 million yuan), but it has not been able to put them into operation again. As a result, SK Marine officially filed a lawsuit against Samsung Heavy Industries for "losses caused by the decline in the value of the ship and the suspension of operations." A court battle was waged between the companies involved.
On October 11 last year, the Seoul Central District Court of South Korea made a first-instance judgment on the "KC-1" LNG cargo tank defect damage lawsuit, and Korea Natural Gas Corporation should compensate Samsung Heavy Industries and SK Shipping a total of 188 billion won (about 1.015 billion yuan), of which 72.6 billion won (about 392 million yuan) was compensated to Samsung Heavy Industries, and 115.4 billion won (about 623 million yuan) was compensated to SK Shipping.
In December of the same year, the London Maritime Arbitrators Association ruled that the shipyard should pay compensation to the shipowners. According to the ruling at the time, Samsung Heavy Industries was required to compensate the shipowner for the loss of the LNG ship due to the failure to complete the repairs after a reasonable period of time had expired to repair the cargo hold defects, resulting in a decrease in the value of the vessel, although Samsung Heavy Industries was not liable for the loss caused by the failure of the LNG ship to operate normally due to problems such as cold spots.
Samsung Heavy Industries argued that the damages awarded by the London Maritime Arbitrators Association were damages for the loss of the value of the vessel due to the defect in "KC-1". In the domestic lawsuit, the liability of the Korea Gas Corporation has been determined by 100%, so the company can claim full compensation. ”
Equipped with South Korea's first domestically produced LNG cargo tank, two LNG ships were suspended for 2,000 days and did not resume sailing
It is understood that the "KC-1" is the first domestic LNG cargo tank developed by South Korea after 10 years, designed by the Korea Gas Corporation, built by Samsung Heavy Industries, and operated and developed by SK Shipping. South Korea's shipbuilding industry hopes to significantly reduce costs and improve profitability by developing domestic LNG cargo tank technology to reduce its dependence on France's GTT's LNG tank patents and get rid of its technological subordination.
As the second LNG carrier membrane enclosure system to be commercialized after GTT, this type of cargo tank can maintain the LNG evaporation rate (BOR) at 0.07%, which is already at the same level as GTT's Mark III. Flex enclosure system, but overseas shipowners are reluctant to adopt it due to its lack of practical cases.
In order to accumulate the actual application performance of the KC-1, SK Marine has ordered two LNG carriers equipped with KC-1 tankers from Samsung Heavy Industries. However, after a brief period of operation for several months, SK Serenity and SK Spica were suspended in July and August 2018 respectively due to cargo hold defects, and have been suspended for more than 2,000 days.
According to the estimation of the Korean industry, as of the beginning of 2023, the losses caused by the investment of replacement ships and LNG by the Korea Gas Corporation will reach 100 billion won, the repair costs of Samsung Heavy Industries will also reach 100 billion won, and SK Shipping will lose about 200 billion won due to the repayment of the principal and interest of ship financing and other expenses, with a total loss of more than 400 billion won (about 2.115 billion yuan), which is almost equivalent to the new ship price of the two LNG ships that year.
In this case, disputes arose between the participating companies over which party would compensate for the losses previously incurred as a result of the suspension of sailings. According to the Korea Gas Corporation, Samsung Heavy Industries "caused the ship's failure due to installation defects such as poor fiberglass filling during construction and maintenance."
Samsung Heavy Industries believes that "the design itself is flawed. Different materials should be used according to the morphological design of the cargo tank, but the gas commune did not faithfully reflect this part in the design. In October last year, a South Korean court made a first-instance judgment that the Korea Gas Corporation should pay compensation, which is equivalent to admitting the validity of Samsung Heavy Industries' claim.
Previously, KC Lng Tech (KLT), a joint venture between Korea Gas Corporation and South Korea's three major shipbuilders, HD Hyundai, Hanwha Marine, and Samsung Heavy Industries, said: "The relevant ships have been re-examined after four repairs, and the classification society has made a judgment that the two LNG carriers can sail on routes with sea temperatures above 6°C." ”
However, despite the fact that the Korea Gas Corporation sent SK Shipping an official letter in February last year stating that "if it is put into operation on the Middle East or Australia routes with mild climates, cold spots can be avoided and therefore can be operated," SK Shipping said, "It is very dangerous to resume operations due to the accident caused by cold spots." ”
To date, SK Serenity and SK Spica have not been able to resume operations, and the ships have been idle at Samsung Heavy Industries Geoje Shipyard during this period. SK Marine now needs to decide whether to scrap the two vessels, sell them or switch to other cargo containment systems, the sources said.
It is understood that in order to continue to develop Korean-type LNG tanks, Samsung Heavy Industries has discussed a plan to resume operation after acquiring the two LNG carriers from SK Marine with the Korea Gas Corporation, but the discussion has been temporarily suspended due to differences of opinion with the Korea Gas Corporation.
Although South Korea's self-developed liquid cargo tanks have failed on large LNG ships, the three LNG transportation and bunkering ships built by South Korea have been successfully put into operation with the "KC-1" system and the new generation "KC-2" system, but these three ships are all 7,500 cubic meter small ships.