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A method has recently been proposed which uses a particular sliding mode observer to reconstruct faults. The method essentially analyses the equivalent output error injection signal required to maintain the observer in a sliding motion. This paper considers the application of the method to a recently proposed ship propulsion benchmark problem. The observer design is performed using a linearisation of a single engine single propeller system. Nonlinear simulation tests are carried out using a fault sequence applied to a two engine two propeller system. Appropriate analysis of the observer output is shown to yield estimates of the faults with no false or missed detections.