After years of dispute, cruise ship Pearl Mist gets closer to launch
By By Candy Thomson and The Baltimore Sun
Jun 14, 2013 at 11:19 PM
After a four-year buffeting in the legal system, the Pearl Mist has finally found haven in Maryland.
The owner of the 335-foot cruise ship and the Canadian shipyard that built it have parted ways in a nasty divorce that involved two federal courts and an arbitration panel that itself was reduced to internal squabbling.
And after sitting at a Canton pier for a month, the Pearl Mist was moved last Sunday to Chesapeake Shipbuilding Inc. in Salisbury to be readied for her maiden cruise from Baltimore next June.
Gleaming white on the outside, Pearl Mist is a caldron of unfinished business on the inside, from a spartan wheelhouse in need of electronics to staterooms barren of furniture.
"She's been a mystery ship," said Carolyn Spencer Brown, editor of CruiseCritic.com. "She was supposed to come out in 2008 and we're all still waiting."
The ship is the vision of Charles Robertson, the soft-spoken owner of Pearl Seas Cruises LLC, the Connecticut-based American Cruise Lines and the Salisbury shipyard. He formed the Pearl Seas line to combine international travel with the intimate experience of cruising on a 210-passenger ship.
"We have enjoyed considerable success with American Cruise Lines, and we also know from our passengers that they are interested in going to the Canadian Maritimes and Belize and the Caribbean on a smaller ship," Robertson said. "We were responding to demand."
Pearl Seas was established in 2006 as a Marshall Islands company, with the Pearl Mist flying a Marshall Islands flag. About 90 percent of the commercial ships calling on U.S. ports fly foreign flags, according to Cruise Lines International Association. Federal law requires U.S.-flagged ships to be built in the United States and crewed by Americans, which makes them more expensive to operate.
With his Salisbury shipyard running at full capacity, Robertson turned to Irving Shipbuilding Inc., a Halifax, Nova Scotia, operation with 120 years of expertise in tugboats, tankers and military vessels up to 394 feet. In 2011, it was awarded a $25 billion contract to build 21 warships for the Royal Canadian Navy.
The Pearl Mist would be its first passenger cruise ship.
Federal court documents show that storm warnings were evident in February 2007, just five months after Pearl Seas signed a $43.5 million contract with Irving. Top officials on both sides engaged in a series of meetings to discuss construction difficulties with the vessel.
As workers cut steel and laid the keel, disputes continued, culminating in arbitration claims and counterclaims in 2008 covering everything from design flaws to complaints about noise and vibrations in the ship's heating and ventilation systems, according to court records.
Pearl Seas alleged that the shipyard had not followed specifications in the contract and laid out 70 items that were deficient. Irving Shipbuilding contended that it had followed the contract to the letter.
Meanwhile, the vessel's cruise schedule slipped from 2008 to 2009 to 2010.
The shipyard finished the job and on May 6, 2009, told the cruise line that the Pearl Mist had completed sea trials successfully. Three days later, Pearl Seas said the vessel was not seaworthy and refused delivery.
The cruise company produced for arbitrators and a federal judge in Connecticut a letter from Lloyd's Register, an international organization that sets safety and environmental standards for the design, construction and operation of ships, saying it was "unable to issue certification due to incomplete inspections, trials."
At about the same time, a top maritime official of the Marshall Islands emailed a rejection to Robertson, saying the condition of the vessel "is not to a standard acceptable by the Office of the Maritime Administrator."
Two more sets of sea trials followed with the same unsatisfactory results, Pearl Seas alleged in court documents. It then asked a panel of three maritime arbitrators to void the contract. Irving filed a counterclaim, asking that Pearl Seas be ordered to take delivery.
During the protracted dispute, the Pearl Mist was towed to a lonely exile at a repair yard in Shelburne, a town of 1,700 near the western shore of Nova Scotia.
Meanwhile, the arbitrators sorted through the issues as 2010 played out.
Two of them found mostly for the shipbuilder, saying, "Pearl Seas is not entitled to reject the vessel on the basis of the vessel's alleged deficiencies," but said the owner could request a price adjustment based on alleged shortcomings.
The third arbitrator dissented from the majority opinion.
"I am struck by the magnitude of the problems with the construction of this vessel that have been shown in this case," wrote David Nourse, a lawyer with 45 years in maritime law, in his November 2010 dissent. "Irving ... apparently never quite came to grips with the obligations respecting construction which it had assumed in the contract. The rest was a substantial amount of shoddy construction and many onboard conditions which were dangerous both for the vessel's crew and its passengers."
Unhappy with the arbitrators' decision, Pearl Seas filed suit for breach of contract against the shipbuilder in U.S. District Court in Connecticut, blaming the "competence level of the shipyard" for repeated delays. Pearl Seas sought the return of its $30 million investment plus $30 million in damages.
The suit was dismissed in 2011, with the judge ruling that resolution of the issues was the jurisdiction of arbitrators. The cruise line filed suit in New York federal court, only to withdraw it. A third suit by Pearl Seas was dismissed in 2012 on similar grounds; the line appealed.
On April 11, the legal wrangling came to an end when the federal appeals court in New York signed off on a request from both parties to close the case.
The shipbuilder and Robertson were reluctant to discuss the resolution of the disputed contract, which capped damages that could be paid to Pearl Seas at $2.9 million.
"It was surprising and disappointing," Robertson said. "It was a long, protracted litigation. Finally, we took the vessel and finished, which is not what we planned to do."
Irving declined to discuss the dispute in detail.
"Irving Shipbuilding and Pearl Seas reached a settlement. The Pearl Mist departed Shelburne Ship Repair during the week of April 10, 2013," said Mary Keith, vice president of communications for J.D Irving Inc., the shipyard's parent company.
Experts said the case was unusual.
"These kinds of disputes are typically resolved in a much quicker fashion," said Robert Hopkins, a maritime lawyer and partner with the firm Duane Morris. "It makes economic sense for both sides to try to stay out of court and arbitration proceedings, which is very expensive. It's unusual that something like this would drag on so long."
The Pearl Mist came to Baltimore in late April to wait for space to open at Chesapeake Shipbuilding, where over the next year workers will complete electrical work and outfit the vessel.
Robertson, who lives part time on the Eastern Shore, said he is looking forward to getting his newest ship under way with a Baltimore-to-Miami cruise.
"It's a good itinerary with great stops, and tickets are selling very well," Robertson said. "We like Baltimore — a lot. It's a great city with great transportation, great air service, which is key for us. Eighty percent of our passengers fly in for a cruise. California, Texas and Florida are our biggest producing states, and we're reaching more people all the time from Europe and Australia. People for our Chesapeake Bay cruises come from the Midwest and Northwest."
Brown, the travel writer, said these are exciting times for smaller cruise ships and the companies that build them, from American Cruise Line's paddle-wheel boat on the Mississippi River to Viking Oceans, which will offer destination-oriented cruises on ships with under 1,000 passengers to the continued success of lines such as Windstar, Oceania and Azamara.
"More and more, we're hearing on Cruise Critic that the over 40-somethings who haven't yet tried a cruise are more interested in one that's not on behemoths, that emphasizes destinations over luxury-laden floating hotels and that offer good value for money," she said. "This is a major new audience for cruise, and it looks like cruise lines are paying attention."
Robertson said ticket sales and interest in the Pearl Mist sets the stage for another boat.
"That's been the plan all along, and it still is," he said. "We'll have an announcement later, in the summer, with more specifics. But it won't be Halifax. I can assure you of that."