Samsung Heavy ordered to pay $290 million to SK Shipping over LNG carrier defects

South Korean shipbuilder Samsung Heavy Industries (SHI) has received a court order to pay KRW 378 billion (about $290 million) to compatriot SK Shipping due to defects in the cargo holds of two liquefied natural gas (LNG) carriers.

Last week, an arbitration tribunal in London ruled that SHI, one of the ‘big three’ shipbuilders in South Korea, must compensate the abovementioned sum to SHIKC1 Shipholding S.A. and SHIKC2 Shipholding S.A., special purpose companies controlled by SK Shipping, Samsung Heavy disclosed in a stock exchange filing released on December 18.

The decision came after the court determined that the defects in the cargo holds of the LNG carrier pair were not punctually and fully repaired.

The 174,000 cbm ships were ordered back in 2015. Built for Korea Gas Corporation (KOGAS), they are managed by SK Shipping. Both units feature KC-1 cargo hold system with KOGAS’ onshore membrane LNG tank.

According to SHI, construction was completed in February and March 2018, and the vessels were delivered to the shipowner(s).

However, following the delivery, a cold spot occurred in the units’ cargo holds and operations of the ships were halted. Repairs were carried out several times.

To date, several lawsuits have been filed in Korea between KOGAS, SK Shipping and SHI.

In October 2023, a domestic court ruled that Korea Gas Corporation was found responsible for design defects resulting from the structural characteristics of the KC-1 cargo hold, including defects such as cold spots. Recognizing its full responsibility as a developer and actual technology provider, Korea Gas Corporation was ordered to pay KRW 72.6 billion in repair costs and KRW 115.4 billion in unoperated operation losses to SK Shipping.

Due to failure to complete repairs within the given 34-month deadline, SHI acknowledged partial liability for compensation. SHI said it is involved in negotiations with KOGAS and SK Shipping to resolve litigation and arbitration.

“If the three-party consultation fails, our company will seek compensation from the arbitration in this case through a compensation lawsuit against Korea Gas Corporation,” SHI informed.