Maritime New Zealand said one worker was in the hold of a tourist launch, welding the hatch, while the spotter was seated above.
The welder accidentally pierced the fuel tank, which exploded and caught fire, knocking him backwards. He suffered minor injuries.
The spotter was knocked over and suffered a badly broken ankle, which required surgery.
The skipper and two crew members were uninjured.
Leppien pleaded guilty to a charge under the Maritime Transport Act 1994 of causing or permitting a vessel to be serviced or maintained in a manner that caused unnecessary danger to other people or property.
Maritime NZ said the court heard Leppien failed to provide his staff with adequate training and supervision regarding the welding work on the launch. At the time, the employees had very limited experience in welding fuel tanks.
Leppien did not accompany them to the job and told them not to empty the fuel tank. For previous, larger jobs, the tanks had been drained and cleaned, and the work was overseen by Leppien.
"Recommended standards and general advice about working on drums containing flammable substances are that severe explosions may occur when welding," Maritime NZ said.
"The only way for hot work to be done safely is for the tanks to be emptied of fuel and other flammable substances, and thoroughly cleaned by washing, boiling or steaming. An additional precaution would be to fill the tank with water, steam or an inert gas."
Leppien accepted his employees had not received any formal training in welding, and health and safety measures.
Maritime NZ said a proper briefing and risk assessment should have been done, and consideration given to whether a permit for the hot work was required.
The agency's southern regional compliance manager, Mike Vredenburg, said the judicial outcome was pleasing and showed that the courts viewed safety failures very seriously.
"This is dangerous work and no one should take short-cuts when flammable substances and confined spaces are involved, as this can put the welfare of employees and others in jeopardy."