Contract language has put Bangkok-based Precious Shipping on the losing side of a $32m dispute with Taizhou Sanfu Ship Engineering.

The Thai shipowner revealed this week that it will have to pay the Chinese shipyard $32m after London-based arbitrators ruled that it could not withhold payments because the fuel consumption of super-eco bulkers was higher than specified in the contracts.

Precious managing director Khalid Hashim explained to TradeWinds that the crux of the legal dispute lay with the wording of the contracts for the series of six 63,000-dwt ships.

The contract specified that fuel consumption would be determined during shop tests, when the engine would be tested at its place of manufacture before being installed onboard the ship.

“The consumption was as per specification during the shop test but sea trials showed that consumption was over warranty,” Hashim said.

At the time, Precious estimated that the fuel consumption was between 11% and 17% above what was warranted in the contract, depending on the individual ships. They were delivered between 2015 and this year.

“Our view was that the ships did not meet specifications based on the sea trials but the yard’s view was that the contract stipulated that the only test that counted as per the contract was the shop test,” Hashim said. “We agreed to disagree and took the matter to arbitration.”

However, the tribunal agreed with Taizhou Sanfu, ruling that as the contracts stipulated that if the fuel consumption of the ships was to be determined only from engine shop tests, then only the result of those evaluations would apply.

“The way the contract was written meant that the sea trials had no meaning. The arbitration was fair. We accept the ruling and won’t be appealing it,” said Hashim, who notes that Precious continues to maintain good relations with the shipyard.

Initially, Precious had ordered a series of 10 ultramaxes at Taizhou Sanfu but later reduced that to six ships.

It will now have to pay interest of 6% per annum on the $32m it withheld from the shipyard. It will also be responsible for their legal fees, which were capped at $750,000.

“The money is on the balance sheet so we are able to pay them,” Hashim said. “The only impact to the company will be the interest and legal costs.”

The outcome of the arbitration was made known as Precious revealed it had reduced its third-quarter net loss to $5.23m from the $24.75m it lost in the same quarter of 2016. Average daily earnings per ship increased by 35% to $9,399, while operating costs continued to drop.