FLP2368

LLM in Maritime Law

COC0152 Constantin Corniciuc

Supervisor: Myrto Tachia


A dissertation submitted in partial requirement for the LLM.


August 2015


(15,255 words)

Aknowledgements

My gratitude and thanks to the following people for their assistance, information,
guidance and advice: Susan Hawker, Patricia Martin, Yoanna Magklasi, Barrie
Goldsmith, Danielle Knight, Andrew Preston, Archie Bishop, Nigel Jacobs QC, Richard
Henderson, Prof. Rhidian Thomas, Dr Vincent Power for A special thanks to Myrto
Tachia for her thoughtful input and tactful questioning skills. Last but not least, a peer
review graciously offered by Mr Finlay, Managing Director of Essberger Tankers, has
been a most welcome last minute reality check many thanks Hugo!

Thanks are also due to Jim Smith, Nikos Skaribas, Zhang Wen and numerous other
colleagues at Lloyds Register China Classification Society for their understanding and
patience, the occasional time in lieu and study leave days offered a much needed respiro
without which the entire post graduate studies and masters would not have been
possible.

Where it was felt necessary to quote classification regulations extensive use has been
made of Lloyds Register Rules. This was entirely for the authors convenience, with due
apologies it can be safely assumed that the rules of all other IACS members are
equivalent in scope and intent.

Contents
CONTENTS ......................................................................................................................................................... 3
1. INTRODUCTION. ......................................................................................................................................... 5
2. READING IN A CUP OF COFFEE. .............................................................................................................. 8
2.1. CLASSIFICATION. ...................................................................................................................................................... 8
2.2. SURVEYORS. ........................................................................................................................................................... 14
2.3. CLASSIFICATION SOCIETIES AND THE COLLECTIVE WELFARE. ...................................................................... 17
2.5. COMIT MARITIME INTERNATIONAL JOINT WORKING GROUP. ................................................................... 19
3. THE EVOLUTION OF CLASSIFICATION SOCIETIES LIABILITY IN ENGLISH LAW. .............. 23
4.

THE NICHOLAS H. ................................................................................................................................ 30

4.1. THE FACTS. ............................................................................................................................................................. 30
4.2. THE JUDGEMENTS ................................................................................................................................................. 33
4.3. THE REQUIREMENTS IN PHYSICAL DAMAGE CASES ......................................................................................... 37
4.4. THE BILL OF LADING CONTRACTS ..................................................................................................................... 39
4.5. THE TRAVAUX PREPARATOIRES OF THE HAGUE AND HAGUEVISBY RULES ............................................. 40
4.6. RECOGNITION OF A DUTY OF CARE AND THE PROMOTION OF SAFETY ......................................................... 42
4.7. POLICY FACTORS ................................................................................................................................................... 43
4.8. THE PUBLIC BENEFIT TEST .................................................................................................................................. 45
4.9. POLITICAL AND MORAL VALUE JUDGEMENTS ................................................................................................... 46
4.9.1. Heart v Head follow the law or follow the feelings? ..................................................................... 47

5. THE REGULATORS PERSPECTIVE ....................................................................................................... 51

6. AIRWORTHINESS ...................................................................................................................................... 54
7. FINANCIAL AUDITORS ............................................................................................................................ 58
7.1. FINANCIAL AUDITORS LIABILITY TO THIRD PARTIES ..................................................................................... 58
7.2. EUROPEAN COMMISSION RECOMMENDATION ON LIMITATION OF AUDITORS' LIABILITY ........................ 60
7.3. ARTHUR ANDERSEN ............................................................................................................................................. 62
8. ALTERNATIVE MITIGATION MEASURES .......................................................................................... 63
8.1. SUBSIDIARISATION................................................................................................................................................ 63
8.2. JURISDICTION CLAUSES AND THE DIRECT BENEFIT ESTOPPEL DEFENCE (US) .......................................... 64
8.2.1. Hellenic v Det Norske Veritas [2006] ...................................................................................................... 64
8.2.2. In re: Lloyds Register North America Inc [2015] .............................................................................. 66
9. REVIEW OF SECONDARY SOURCES ON THE LIABILITY OF CLASSIFICATION SOCIETIES.
............................................................................................................................................................................. 69
10. CONCLUSION ............................................................................................................................................ 72
BIBLIOGRAPHY .............................................................................................................................................. 74
APPENDIX ........................................................................................................................................................ 79

Illustrations
Nicholas H (as Iris in 1979) and the White Cliffs of Dover standing guard in the
background

Snowflakes and the classification societies liability in tort.

Analysis of the liability of classification societies for physical damage in the tort of
negligence would the House of Lords judgment in Marc Rich v Bishop Rock Marine (The
Nicholas H)1 stand the test of time in English courts and remain persuasive in different
jurisdictions?













Nicholas H (as Iris in 1979), White Cliffs of Dover standing guard in the background.

1 Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1995] 3 WLR 227 [1996] AC 211.

1. Introduction.

The leading case in English law The Nicholas H is (in effect) an unlimited tortious claim
in respect of seaworthiness against a classification society.2 The crux of the matter is
that under international conventions shipowners are entitled to limit their liability by
reference to the tonnage of the vessel concerned, a benefit unavailable to a classification
society exposed to unlimited liability in tort. There is an upsurge in litigation aimed at
classification societies with claims running into billion dollars in The Prestige3 Spain
claimed US$1bn from ABS. The upsurge is not a function of serious shipping casualties
and pollution, which are in decline4, the cause propounded is their relative wealth in
combination with the incapacity to limit liability.

More than two decades ago a solution has been sought under the auspices of the Comit
Maritime International (CMI) to no avail. In 1997 at the CMI Centenary Conference Dr
Krger, the doyen of the German maritime law fraternity, frustrated by the lack of
progress warned that the uncertainty is detrimental to international shipping markets
and offered a metaphorical relationship between snowflakes and the liability of
classification societies: both owe their form to the operation of chaos.

It is propounded that for the foreseeable future, in the absence of concerted action at
international level, major classification societies will continue to be the target of
speculative and nuisance litigation, particularly in US courts. Predicting their liability
exposure in different jurisdictions in the tort of negligence for physical loss remains a

2 Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1994] 1 WLR 1071 (CA) Mann LJ 1086.
3 Reino de Espana v The American Bureau of Shipping 1:03cv03573LTSRLE.

4 Greg Dobie (ed) Safety and Shipping Review 2015 (Allianz Global Corporate & Specialty 2015) 2.

function of chaos theory more akin to weather forecasting. In the interim, mitigation
measures such as subsidiarisation and the use of carefully drawn contractual limitation
clauses appear to have brought some success in defending certain tort claims.

This paper is divided into ten chapters. After this introduction chapter two traces the
development of classification from primarily a private role as risk rating organisation,
to a primarily public role concerning safety of life and pollution prevention; the
importance of surveyors and the law of negligence; and the organisation of
classification societies as charitable organisations or otherwise. Chapter three concerns
the evolution of liability in tort in English law culminating with the leading case of The
Nicholas H in the House of Lords. Chapter four is an analysis of some critical aspects of
the judgement in Nicholas H in accordance with the law as it stands today, with an
emphasis on policy considerations including questions of fairness, justice and
reasonableness. It includes a review of a most recent study on the impartiality of US
judges with some very surprising findings which, it is respectfully proposed, illuminate
from a different angle the courts decisions in Spain v ABS5 and in Deepwater Horizon6.
Chapter five expounds the regulators perspective, which, it is submitted, is implicitly
providing a persuasive alternative to be considered in the absence of other agreement
or choice; certain jurisdictions where unlimited liability is mandated by statute are also
highlighted. Chapters six and seven reflect on the experience of similar organisations
from aviation safety and the financial services industry where the question of liability
towards third parties poses comparable questions. Chapter eight presents some of the
practical measures taken by classification societies with a view to mitigate liability

5 Reino de Espana v The American Bureau of Shipping 1:03cv03573LTSRLE

6 In re Deepwater Horizon, 739 F. 3d 790 Court of Appeals, 5th Circuit 2014.

exposure, and includes noteworthy developments in US courts concerning jurisdiction

clauses and the doctrine of directbenefit estoppel. In chapter nine the secondary
sources of law on the liability of classification societies are reviewed and a conclusion is
offered in chapter ten.

2. Reading in a cup of coffee.

2.1. Classification.

It all started with a cup of coffee7 or so goes the story of Edward Lloyds enterprising
spirit and his coffee shop, of which there were more than 550 in sixteen century London
compared with only 300 Starbucks coffee shops today. 8

A product of their past, like other venerable shipping institutions9, the classification
societies have been established more than 250 years ago in order to serve an
exclusively private purpose. As early as 1760, marine insurers, based at Lloyd's coffee
house in London, developed a system for the independent technical assessment of the
ships presented to them for insurance cover.10

According to the standard of construction and state of repair ships were rated by
Lloyds Register (LR) surveyors in five different classes of differing quality.11 Hence use
of the term class or classification and the wellknown phrase A1 at Lloyds. The
Lloyds Register contained information about each ship and classified it according to
the excellence of its construction and its continuing soundness or otherwise, under the

7 It started with a cup of coffee Lloyds Register <http://www.lr.org/en/whoweare/heritage/brief

history/> accessed 23 August 2015.

8 A street survey in 1734 counted 551 coffee houses in London. M Stopford, The 22 Cycles of Lloyds
Lloyds List (London 12 December 2013)
.<http://www.lloydslist.com/ll/sector/finance/article434446.ece> accessed 23 August 2015.
9 In 1734 Lloyds List was published as a shipping newspaper, in 1744 the Exchange at The Virginia and
Baltic Coffee House became the market place where shipping trade was done, Lloyds Register of Shipping
published shippings first register of ships in 1766.
10 Classification Societies their key role IACS (1 June 2011)
<http://www.iacs.org.uk/document/public/explained/CLASS_KEY_ROLE.pdf> accessed 23 August 2015.
11 Lloyds Register of British and Foreign Shipping Rules 1834 p 24.

grades A, E, I, O and U. Grade U vessels were recommended not to sail out of sight of
land.

In time other maritime nations developed their own societies on a similar basis, the
system of differing classes being eventually replaced with a simple pass or fail system
commonly known today as in class or not.

Today the private role of classification has been supplemented with risk rating systems
operated by international shipping organisations12, global commodity traders13 and oil
companies 14 . Major maritime administrations are running shiprating schemes 15
including performance assessments of flags16 and recognised organisations17.

National administrations members of the International Maritime Organisation (IMO)
have come to rely heavily on classification societies to discharge their statutory
responsibility to have ships flying its flag designed, constructed, operated and
maintained in accordance with its national laws including the applicable IMO
convention and class requirements. This has resulted in classification going from, what

12 BIMCO Shipping KPI System https://www.bimco.org/Technical/Shipping_KPI_System.aspx accessed

23 August 2015.
13 RightShip (BHP Billiton, Rio Tinto & Cargill) Ship Information and Vetting System
http://site.rightship.com/ accessed 23 August 2015.
14 Oil Companies International Marine Forum Ship Inspection and Reporting System
http://ocimf.org/sire/ accessed 23 August 2015.
15 European Maritime Safety Agency Ship Risk and Company Profile Calculators
http://www.emsa.europa.eu/implementationtasks/portstatecontrol/item/509newinspection
regimenirashipriskprofilesrpcalculator.html accessed 23 August 2015.
16 Flag Performance List 2014 https://www.parismou.org/sites/default/files/WGB%20lists%202014.pdf
accessed 23 August 2015.
17 Recognized Organization Performance Table 2014
https://www.parismou.org/sites/default/files/Performance%20lists%202014%20RO.pdf accessed 23
August 2015.

at its origin was purely a private function, into what is today, in reality, a public
function.18

Lord Steyn said in The Nicholas H19 of classification that if it did not exist it would have
to be invented: In common with other classification societies N.K.K. fulfils a role which
in its absence would have to be fulfilled by states.20 Certainly, it would be difficult and
impractical today for any government to achieve the global presence, knowledge and
expertise of the classification societies. Major IACS members claim to be global
networks, and there is without doubt global branding. However, there remains doubt as
to whether there is global liability.21

The private role of classification and their public statutory functions are inextricably
linked, i.e. it is a statutory requirement that ships shall be designed, constructed and
maintained in compliance with the structural, mechanical and electrical requirements of
a classification society which is recognized by the Administration 22 before any
statutory certificates can be issued. Correspondingly in accordance with classification
regulations the availability of valid statutory certificates is a mandatory prerequisite for
classification.23.

18 Andrew Kennedy, Classification Societies & the Law The Inside Story (MarLaw 2007).
19 Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] AC 211 (HL).
20 ibid 241.

21 See Ch 8.

22 International Convention for the Safety of Life at Sea 1974, as amended (SOLAS) ChII1 PtA1 Reg31.
23 Lloyds Register Rules and Regulations for the Classification of Ships, July 2014 (Rules) Pt1 Ch2
conditions for classification 1.1.9.

10

Class certificates have never been considered to be conclusive evidence of the vessels
seaworthiness Clarke J in The Toledo24, but rather as supporting evidence to the
owners due diligence in providing a seaworthy ship. It can be said that the private role
of class emphasizes the safety of property25, while the public role emphasizes the safety
of life at sea26 and the preservation of the marine environment.27

Classification regulations require the Owners to report without delay28 any damage,
defect, breakdown, grounding, serious deficiency, detention or, arrest or refusal of
access, which could invalidate the conditions for which a class has been assigned.29 A
similar provision in SOLAS30 requires defects affecting the safety of the ship or the
efficiency or completeness of its lifesaving appliances or other equipment to be
reported at the earliest opportunity to the Flag Administration or recognized
organization responsible who shall cause investigations to be initiated to determine
whether a survey is necessary.31

Damage repairs are normally carried out under survey and if the surveyors
recommendations are not complied with then class will be suspended or withdrawn,
not automatically but at the discretion of the Classification Committee.32 In The
Caribbean Sea33 a Bureau Veritas (BV) classed ship touched bottom but then resumed
her voyage and subsequently sank in moderate weather on her way to the nearest port.

24 [1995] 1 Lloyds Rep 40.

25 Rules, Classification Explanatory Note.

26 SOLAS The Contracting Governments.

27 International Convention for the Prevention of Pollution from Ships (MARPOL) The Parties to the

Convention.
28 Normally within 24 hours.
29 Rules Pt1 Ch2, 1.1.5.
30 International Convention for the Safety of Life at Sea 1974 as amended (SOLAS).
31 SOLAS Ch 1 Pt B Reg 11.
32 Rules Pt1 Ch2, 3.9.6.
33 Prudent Tankers SA v Dominion Insurance Co (The Caribbean Sea) [1980] 1 Lloyd's Rep 338.

11

Underwriters contended that vessel's class would already have automatically "lost its
validity" by virtue of grounding damage. The Court held that on the interpretation
placed by BV on their own rules and on the application of these rules to the events
which occurred that the vessel's class was not affected:

[T]he words of [BV Rules] were plain and there was no reason why the
words "the classification certificate loses its validity" should be given any
other than their natural and ordinary meaning since the rules distinguished
between the classification certificate and the ship's actual class.34

A classification society has no legal powers of enforcing the regulations beyond
withdrawing services. For example LR classification will be suspended or withdrawn, at
the discretion of the Classification Committee, when the regulations as regards surveys
on hull, equipment or machinery have not been complied. Class will be automatically
suspended only if the Annual or Intermediate Survey is not completed within three
months of the due date of the survey.35

Only Port State Control Officers are conferred by statute with the authority to detain
ships, with the proviso that all possible efforts shall be made to avoid a ship being
unduly detained or delayed. If a ship is thereby unduly detained or delayed it shall be
entitled to compensation for any loss or damage suffered.36

34 ibid 350.

35 Rules Pt1 Ch2, 3.9.

36 SOLAS Ch 1 Pt B Reg 19(f).

12

Although the mission of class is to protect life and property37 classification does not
imply, and should not be construed as, a warranty of safety, fitness for purpose or
seaworthiness of the ship, because a classification society has no control over how a
vessel is manned, operated and maintained between the periodical surveys which it
conducts.38 Classification surveyors are spending on average just 0.03% of the time
spent building a ship and around 1% of the time a ship is in service, whereas
shipbuilders, shipowners and their representatives are there 100% of the time.

The number of classification societies has increased significantly in the course of the
second half of the twentieth century. Today there are eightythree organisations
recognised by IMO39, some large and prominent, others small and obscure. According to
the European Parliament40, many of the IMOrecognised organisations do not ensure
either adequate implementation of the rules or sufficient reliability when acting on
behalf of national administrations as they do not have reliable and adequate structures
and experience to enable them to carry out their duties in a highly professional manner.
Only eleven classification societies are recognised by the European Union.41

The 1980s saw a dramatic increase in the number of casualties with loss of life at sea
and a corresponding loss of confidence in the class system, as too often, after casualties

37 for example LRs mission is to protect life and property and advance transportation and engineering

education and research <http://www.lr.org/en/whoweare/organisation/unique.aspx> accessed 23

August 2015.
38 Classification Societies Why, What and How? IACS
<http://www.iacs.org.uk/document/public/explained/Class_WhatWhy&How.PDF> accessed 23 August
2015.
39 Information submitted by IMO member administrations under MSC/Circ.1010MEPC/Circ.382 <
https://gisis.imo.org/Public/RO/Default.aspx > accessed 23 August 2015.
40 Directive 2009/15/EC of the European Parliament and of the Council of 23 April 2009, Preamble, (8)
41 Classification Societies recognized by the EU < http://emsa.europa.eu/implementationtasks/visits
andinspections/assessmentofclassificationsocieties.html > accessed 23 August 2015.

13

that involved structural failure or mechanical malfunction, the ship was found to be
classed with a classification society and up to date with its requirements.42

In the early 1990s hull insurers showed their lack of confidence in the classification
societies system by substituting them with the Salvage Association (SA) and requiring
ships to be given Structural Condition Surveys by the SA surveyors. P&I clubs followed
suit by commissioning their own condition surveys by specially approved inspectors.43
The author has personally witnessed this state of affairs, having started his career as a
young naval architect carrying out JH722 structural warranty surveys on behalf of the
SA.

How deep are the pockets of classification societies today? In a recent Lloyds List
review of major classification societies44 the clear winner is BV with an impressive five
billion income in 2014, the largest amongst IACS members, however their marine
activity accounts for only 8%, much of their income being derived from industry.45

2.2. Surveyors.

Classification, being in some circumstances a discretionary act to the surveyors
satisfaction and at the discretion of the committee, remains contingent on the quality
of the people engaged for the task. From commencement classification regulations

42 OECD Report on the Removal of Insurance from Substandard Shipping (2004) p.36

43 OECD Report on the Removal of Insurance from Substandard Shipping, (2004) p.36

44 Lloyds List Class Report 2014 http://www.lloydslist.com/ll/incoming/article450087.ece accessed 23

August 2015.
45 Bureau Veritas, Innovating for Business, Activity Report 2014, p.9,
<http://www.bureauveritas.com/wps/wcm/connect/bv_com/group/home/news/corporate
news/2014bureauveritasactivityreport > accessed 23 August 2015.

14

clearly stated that the practical efficacy of the entire system depends on the surveyors
which must be men of talent, integrity, and firmness selected with the utmost care and
discrimination.46
In principle, the rules governing a classification surveyors liability for negligence are no
different from those governing the liability of anyone else who undertakes a specific
task and professes some special skill in carrying out that task. As Tindal C.J. put it in
1838:
Every person who enters into a learned profession undertakes to bring to
the exercise of it a reasonable degree of care and skill. He does not
undertake, if he is an attorney, that at all events you shall gain your case,
nor does a surgeon undertake that he will perform a cure, nor does he
undertake to use the highest possible degree of care and skill. 47

Taking account of the large degree of selfregulation traditionally permitted to
professionals, the courts are unwilling to make a finding of negligence in the absence of
expert evidence of what would have been proper conduct: Worboys v Acme Investments
Ltd48. Furthermore, of great importance is also the Bolam principle enunciated by
McNair J by virtue of which a professional acting in accordance with a practice accepted
as proper by a responsible body of opinion was (he said) not to be regarded as negligent
merely because there is a body of opinion which would take a contrary view.49

46 Lloyds Register of British and Foreign Shipping 1834, 13 Surveyors (emphasis added).
47 Lanphier v Phipos (1838) 8 C. & P. 475.

48 Worboys v Acme Investments Ltd (1977) 4 B.L.R. 133, 139 (Sachs LJ).

49 Bolam v Friern Hospital Management Committee [1957] 1 W.L.R. 582, 587588. Where you get a

situation which involves the use of some special skill or competence the test is the standard of the
ordinary skilled man exercising and professing to have that special skill. A man need not possess expert

15

Therefore, it can be stated that, in the general run of actions for negligence against
surveyors:

[I]t is not enough to show that another expert would have given a different
answer. the issue is whether [the surveyor] has acted in accordance
with practices which are regarded as acceptable by a respectable body of
opinion in his profession.50

Surveyors are sometimes required to make a choice between different courses of
actions based on their professional skill and judgment. Differences of opinion as to the
best solution may arise, each solution carrying its own advantages and risks. To
illustrate these points the following three extracts from English court judgments are
respectfully proposed:

[J]ust because one [surveyor] might suffer from an excessive caution does
not mean that another [surveyor], exercising his judgment to the best of
his skill and ability and taking perhaps a somewhat more optimistic view, is
guilty of departing from the appropriate standard of professional care and
skill.51

[Surveys] rarely, if ever, allow a precise conclusion. Often so many impon
derables confront the surveyor that he must proceed on the basis of

skill it is sufficient if he exercises the ordinary skill of the ordinary competent man exercising that
particular art.
50 Zubaida v Hargreaves [1995] 1 E.G.L.R. 127, 128 (Hoffmann LJ) citing Bolam v Friern Hospital
Management Committee [1957] 1 W.L.R. 582, 587.
51 ibid 587588 McNair J quoting from the Scottish case of Hunter v Hanley and the judgment of Lord
President Clyde.

16

assumptions. Thus two able and experienced [surveyors], each confronted

with the same task, might come to different conclusions without anyone
being able to criticize their competence and care.52

Pinpoint accuracy is not to be expected. There is a permissible margin of
error. What is expected from a competent surveyor using reasonable care
and skill is that his inspection falls within this margin.53

However, judges are increasingly prepared to scrutinise the general practices of
professions and prevent them being prayed in aid if not satisfied that they represent a
body of responsible opinion: Bolitho v City and Hackney Health Authority54; also G & K
Ladenbau v Crawley & de Reya.55

2.3. Classification societies and the collective welfare.

In the House of Lords in Nicholas H56 Lord Steyn saw a classification society as an
independent and nonprofitmaking entity, created and operating for the sole purpose
of promoting the collective welfare, namely the safety of lives and ships at sea,57 which
apart from statutory duties act[s] in the public interest,58 and which is fulfilling a
role which in its absence would have to be fulfilled by states.59

52 Singer & Friedlander v John D Wood & Co [1977] 2 EGLR 84 (Watkins J).
53 ibid.

54 Bolitho v City and Hackney Health Authority [1998] A.C. 232, 241243 (Lord BrowneWilkinson).
55 G & K Ladenbau v Crawley & de Reya [1978] 1 W.L.R. 266, 282 (Mocatta J).
56 [1996] AC 211.

57 [1996] AC 211, 241.

58 [1996] AC 211, 241.
59 [1996] AC 211, 241.

17

Historically organised as a charity manned by volunteers, class has never distributed

surplus revenue and had always had an ambivalent attitude towards finance. It was
regarded financially acceptable to subsidise surveys because it kept both the
shipowners and the shipbuilders happy60 and in those ports where business tended to
fluctuate sometimes failing to cover costs, classification societies preferred to incur a
loss rather than cut back on the number of surveyors.

At LR for example, when times were prosperous and it was thought that it was making
too much money, the society would issue rebates, remit fees or abolish them together.61
However today LR is a global organisation operating across many industry sectors
wholly owned by the Lloyds Register Foundation, a UK charity dedicated to research
and education in science and engineering. The profits generated help fund the public
benefit activities of the Foundation, which in 2014 had an annual income of 951m the
largest charity to file accounts with the UK Charity Commission.62

A major classification society organized as charity does not distribute profits, yet as a
selffunding entity her survival depends on maintaining a sufficiently large feepaying
membership to recover her costs. One may wish to compare for example LRs charitable
donation of 55 million over a eightyear period63 with the 57 million annual subsidy
received by EMSA64 in 2013 alone65.

60 N Watson, Lloyds Register 250 Years of Service (Amadeus Press 2010) 296.
61 ibid 296, 297.

62 D Ainsworth, Lloyds Register Foundation is the largest registered charity (11 February 2014)

<www.civilsociety.co.uk/finance/news/content/16906/951m_lloyds_register_foundation_is_new_largest
_charity_to_file_accounts_with_the_charity_commission> accessed 23 August 2015.
63 LR Foundation Review 2013, 3 < http://www.lrfoundation.org.uk/images/6454lloydsregister
foundationreview2013.pdf> accessed 23 August 2015.
64 The European Maritime Safety Agency (EMSA).
65 EMSA budget 2013 [4th amended], 1 < http://emsa.europa.eu/about/financial
regulations/items.html?cid=80&id=2135> accessed 23 August 2015.

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2.5. Comit Maritime International Joint Working Group.

In 1990 the classification societies warned that, if the increase in their liability exposure
continued unchecked, the inevitable course would be to withdraw some of their
traditional services. The consequences would have been (they contended) a
deterioration in maritime safety. In 1991 the Executive Council of CMI decided that the
rights, duties and liabilities of classification societies should be examined under the
auspices of the CMI, and a Joint Working Group was set up for this purpose. It was
agreed that a solution reached by cooperative efforts within the maritime industry was
preferable to one imposed by governments.

There follows a synopsis of reports published between 1994 to 2014 by the Joint
Working Group as well as of individual papers by Dr Frank Wiswall Jr66, Dr. Philippe
Boisson67, Lars Lindfeldt68, R.M. Leslie69, B.D. Starer70, A.W. Skou71, Dr. Bernd Krger72,
Prof. Henning Jessen73 and Prof. John Hare74.

The CMIs Joint Working Group representing shipowners, insurers and class toiled from
1992 to 1997 over 13 sessions to find a compromise and produced two instruments.75
The Group came out in favour of recognition of a liability for dereliction of their duties,

66 Chairman of the Joint Working Group.

67 Legal Adviser Bureau Veritas Marine Division.

68 Managing Director, The Swedish Club, Gothenburg.

69 Senior partner Shutts & Bowen.

70 Partner, Haight Gardner Poor & Havens.

71 Head of Corporate Legal Affairs at DNV.

72 Managing Director, German Shipowners Association.

73 Professor for Maritime Law and the Law of the Sea at Hamburg University, Germany.
74 Professor Emeritus of Shipping Law at the University of Cape Town. SecretaryGeneral of the Comit

Maritime International.
75 Principles of Conduct for Classification Societies, and Model Contractual Clauses, of which Part I deals
with Statutory Surveys for governments and Part II, Classification of ships for shipowners and charterers.

19

without immunity. It favoured limitation of that liability, and absent any other formula
(such as a factor of the fee or the tonnage), it suggested a fallback on LLMC 1976.76
Unfortunately no agreement could be reached on the extent and method of limitation:
would the measure be a factor of the fee or a factor of the tonnage or combination?77
Two of the most representative but opposing views reflecting the state of affairs in 1997
at the CMI Centenary Conference are highlighted as follows.

Mr. Skou,78 speaking on behalf of IACS,79 took the opportunity to restate two very
compelling arguments: (1) high liability exposure is not an argument for motivating
high quality performance, the highest motivating factor for class societies is their
dependence on the trust and confidence of the market if customers, flag authorities,
underwriters and others do not have confidence in the individual society, that society
will wither and die; and (2) classification societies are not asking for immunity from
liability, the debate should be focused, however, on a reasonable and appropriate level
of limitation.

The shipowners perspective was presented by Dr Krger,80 who emphasized that: (1)
political attention to ship and environmental safety is growing and as part of public
perception; (2) class liability towards third parties based on tort can only be limited by
laws or international conventions; and (3) if market partners at CMI cannot reach an

76 The Convention on Limitation of Liability for Maritime Claims 1996.

77 J Hare, Liability of Classification Societies Current Status and Past CMI Initiatives, CMI Yearbook

(2014) 323.

78 AW Skou, Presentation on behalf of IACS to the Centenary Conference of the CMI CMI Yearbook (1997)

180.
79 International Association of Classification Societies, established 1968, members bound by unified rules
and a common code of ethics.
80 B Kroger, Presentation on behalf of the German Shipowners Association and of the Maritime Law
Committee of ICS, CMI Yearbook (1997) 185.

20

agreement it can be foreseen that either national courts will make new decisions forcing
unpredictable regulatory forms, or that national lawmakers will take action.

An inevitable conclusion to which both distinguished speakers did agree was that the
inability to establish a common level of liability exposure applying to all classification
societies in all parts of the world is leading to uncertainty an undesirable outcome for
all market players.

In truth, the decade that followed saw the emergence of supranational legislation
imposing inter alia civil liability (more on this subject in chapter 5 below) as well as
important differing decisions in differing jurisdictions The Erika in France, 81 The
Prestige in US. 82 Interesting to note here what Prof. Jessen identified as common for
both the French Erika judgment and the New York verdict on Prestige, 83 they
confirmed that classification societies might generally benefit from the channelling
provision of the CLC 1992 84 as any other person who, without being a member of the
crew, performs services for the ship.85

Finally, in 2014 at its 41st DVIS/CMI International Conference in Hamburg, Prof. Hare, 86
lamenting that the Model Clauses have never been used in practice, reviewed leading
cases from different jurisdictions and drew the following conclusions: 87 (1) the liability

81 Cour de Cassation, Judgment of 25 September 2012.

82 Reino de Espaa v. American Bureau of Shipping, Inc., 691 F.3d 461, 476, 2012 AMC2113, 2136 (2d Cir.

2012), 29 August 2012.

83 H Jessen, The Liability of Classification Societies Some Practical Issues, CMI Yearbook (2014) 275.
84 The International Convention on Civil Liability for Oil Pollution Damage 1969/1992 (CLC 1992).
85 ibid Art III para 4 b).

86 J Hare, Liability of Classification Societies Current Status and Past CMI Initiatives, CMI Yearbook

(2014) 323.

87 The Tradeways (USA); The Sundancer (USA); The Morning Watch (UK); The Nicholas H (UK); The Spero

(Belgium); The Paula (Belgium); The Elodie II ; The Cap de la Hague (France); The Erica (France); The

21

of class against third party claims remains topical and most problematic; (2) colossal
claims are stimulating lawyers to enthusiastically grab class to join as codefendants;
(3) most disquieting is that the worlds maritime courts have no uniform approach, in
todays world and particularly in jurisdictions new to shipping law class cannot expect
the courts to be as accommodating as Pratt J in The Sundancer 88 and Steyn LJ in The
Nicholas H; (4) shipping litigation has become increasingly visible, emotive and public,
crippling judgments could ruin otherwise sound societies; and (5) uncertainty of this
scale is bad for the shipping, freight and insurance markets, only the lawyers benefit.

In view of the above, the audience and all past members of the Joint Working Group
have been invited to consider whether the CMI should start working on classification
societies liability anew.

Prestige (everywhere but especially the French decision on immunity from jurisdiction); The Redwood
(Genoa).
88 Sundance Cruise Corporation v American Bureau of Shipping 7F 3d 1077 (2nd IR 1993).

22

3. The evolution of classification societies liability in English law.

Classification services are subject to a contract with the shipowners and, when acting on
behalf of a flag state, bound also by an agreement with the relevant national
administration. The classification fees are paid for by the shipowners and traditionally
its standard contractual terms and conditions had excluded all liability for damage to or
loss of property caused by negligence. For example it was not until 1978 that LR
changed its total exclusion of liability clause to a limited liability clause which limits
LRs liability to the level of its fee.89 This change was brought about by reason of the
Unfair Contract Terms Act of 1977 which would have viewed LRs previous total
exclusion of liability as unreasonable and, therefore, void and unenforceable.90

Traditionally under common law there was no remedy for an expression of opinion
given in good faith but without due care or skill by one person to another, even where it
was known the statement was likely to be acted upon by a third party, and where that
person did act upon it to his detriment. Any duty of care must take account the wide
ranging potential for indeterminate liability because in the nature of things, words are
more volatile than deeds, they travel fast and far afield, they are used without being
expended.91 In Le Livre v Gould92 a surveyor negligently issuing certificates to a
builder on the strength of which a mortgagee advanced money to the builder and
thereby suffered loss, and it was held that the surveyor was not liable to the mortgagee.
Referring to the suggestion that a man is responsible for what he states in a certificate

89 Rules Pt1 Ch1 S.8.

90 J Harrison, An Overview of LR Group From a Legal Perspective Lloyds Register Technical Association

(2003).

91 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Lord Pearce 534, Lord Reid 483.
92 [1893] 1 QB 491.

23

to any person to whom he may have reason to suppose that the certificate may be
shown, Bowen LJ stated

[T]he law of England does not go to that extent: it does not consider that
what a man writes on paper is like a gun or other dangerous instrument,
and, unless he intended to deceive, the law does not, in the absence of
contract, hold him responsible for drawing his certificate carelessly.93

The only remedy was an action in deceit, but fraud, in the sense of a false representation
made knowingly or recklessly, was (and is) an essential element in such a claim and,
without fraud, even statements made with gross negligence did not give rise to any
cause of action: Derry v Peek94. Denning LJ criticised this state of affairs in a dissenting
judgment in Candler v Crane95 and the law changed in Hedley Byrne v Heller96 where the
House of Lords decided that a claim for financial loss caused by negligent words could,
in principle, be maintained. In circumstances where a special relationship came into
existence, there arose a duty to take care in the making of statements, a breach of which
would found liability for either financial or physical harm, unless there was a disclaimer
of responsibility. Le Livre was disapproved, Candler was thought to be wrongly
decided, and Denning LJ's dissent was approved as laying down the foundation for a
duty.97

93 [1893] 1 QB 491, 502.

94 (1889) 14 App Cas 337.

95 Candler v Crane, Christmas & Co [1951] 2 KB 164.

96 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
97 C Walton, S Todd, P Kramer, D Edwards and R Cooper (eds) Charlesworth & Percy on Negligence (13th

edn, Sweet & Maxwell 2014) 2170.

24

In any event for most of the 19th century and the beginning of the 20th century there
have been very few cases in which damages have been sought against classification
societies and class seemed to have been considered immune from legal suits.

In Braginton v Chapman (1878) 98 the plaintiff purchased the vessel Midas relying on
LRs certificate as to the condition of the vessel and sustained loss due to defects which
were discovered after purchase. It was admitted for the purpose of the case that the
survey had been carried out negligently, and that, but for such negligence, the defects in
the vessel would have been discovered and the plaintiff saved from the loss he
sustained. The question for the court to decide was whether the plaintiff was entitled to
recover from LR on the facts of the case. At that time, the tort of negligence had not been
developed and a claim could only be based on deceit as established by the House of
Lords in Derry v Peek.99 The deceit could not be proven, as LR had no intention to
deceive, judgement was therefore ordered for the defendants.

In 1891 in Thiodon v Tindall100 the plaintiff bought the yacht Ibex for which LRs
classification certificate gave the information that the yacht had been built of materials
ten and twelve years old and under special survey of LR, whereas in truth it was neither
of the said material nor built under special survey. The condition of the yacht was
unknown to the plaintiff and it could not be discovered by the use of ordinary care and
means. The plaintiff allegedly paid a much higher price than he would otherwise have
done, and had to pay great amounts of money for repairing her and putting her in a

98 Braginton v Chapman and Others (Trustees of Lloyds Register of Shipping) (The Midas) [1878] 7 Asp 77

QBD.

99 (1889) 14 App Cas 337.

100 Thiodon v Tindall and Others (the Committee of Lloyds Register) (The Ibex) [1891] 7 Asp 76 QBD.

25

condition to be registered. The Court applied Braginton v Chapman and, as there was
neither a contract nor deceit, the claim was dismissed.

The 1929 case of United Shipping v Assicurazioni Generali101 concerned the classification
status of a ship which suffered steering gear damage at sea and had to be towed to port.
Prior to the incident the ship was holding a classification certificate under reserve of
repairs for reclassification and was in her year of grace for the second special survey.
Claims against the insurance companies in respect of salvage had been admitted, but
they refused to admit claims for particular average damage, it being contended that the
ship had lost her class and that the companies were not liable under the policies.
Scrutton LJ sitting in the Court of Appeal held in his judgement that:

[Class] exercises a semijudicial function to the best of their ability. They are
admitted to have done it honestly, and it has always been decided that no
third party not a member of Lloyd's Register can complain if there is a
mistake in their classification, or a mistake in their certificateif they do not
apply their rules in a way the Court thinks they ought to do. no third
party not a member of Lloyd's Register can come and say: "We have a claim
because you have not granted your certificate in the way in which you
ought to have done." The matter is one entirely for the judgment of the
Corporation, and if they choose to maintain the class no third party can
come and say: You ought not to have done it under your rules. It is no
business of third parties.102

101 United Shipping Company Ltd v Assicurazioni Generali [1929] Lloyds Rep 34.

102 United Shipping Company Ltd v Assicurazioni Generali [1929] Lloyds Rep 34 325 (Scrutton LJ).

26


Scrutton LJ judgement illuminates the courts remarkable familiarity with the
reasonableness of deferring repairs under certain conditions:

That is the universal practice of Lloyd's Register it frequently happens
that the port to which the vessel gets is not an advantageous port at which
to have repairs done. That is a matter which affects the underwriters as well
as the owners. Some ports are very expensive. At some ports it is impossible
to do repairs because they have not the workshops and machinery requisite
to do the repairs. The vessel goes in her damaged condition on a voyage to
another port to be repaired. societies do not treat her class as lost if the
ship goes with their consent. Lloyd's Register gives a certificate which
expressly states that the class is maintained, but the ship is still voyaging
with damage which, if not repaired, would prevent her from continuing her
class.103

The next legal milestone, where an English court dealt for the first time with thirdparty
claims against a classification society, occurred in 1990 in The Morning Watch.104 In the
words of Philips J:

This action raises, apparently for the first time, a question of general
importance in the maritime world. When a classification society surveys a

103 ibid 325.

104 Mariola Marine Corporation v Lloyd's Register of Shipping [1991] ECC 103.

27

vessel, does it owe a duty of care not to cause pecuniary loss to persons other
than the owners, who are liable to rely upon the results of that survey?

The claimants, Mariola (a yacht chartering company) purchased the yacht Morning
Watch on the basis of the classification certificate issued by LR. She had just been
surveyed for the purpose of passing Special Survey and, as Philips, J. put it She had been
given, effectively a clean bill of health by the Lloyds surveyor.105 In the event, (Mariola
contended) Morning Watch had serious defects which rendered her unseaworthy and
which should have been detected had the survey been competently conducted. Mariola
put their case in negligent misrepresentation, saying that they were induced by the
survey made by Lloyds to purchase the vessel, and claimed. Phillips J found that LRs
surveyor had been negligent in the conduct of his survey for failing to detect corrosion
and his failure to do so was a failure to exercise that degree of skill and care that Lloyd's
is entitled to expect from one of their surveyors.106 Drawing particularly on the
judgement of the Court of Appeal in Caparo v Dickman107 he then found that there was:

no relationship akin to contract. There is no more a voluntary assumption of
responsibility to purchasers than there is a voluntary assumption by auditors
of responsibility to potential purchasers of shares. In both cases it is possible
to postulate some assumption of responsibility, but only in a loose sense.108

The survey had not been undertaken for Mariola; Mariola had not been present when
the survey was requested and was merely one of an indeterminate class who might

105 [1991] ECC 103 [2].

106 [1991] ECC 103 [92].

107 [1989] 2 WLR 316.

108 [1991] ECC 103 [58].

28

have relied on the survey. He found therefore that there was no duty owed because
there was an insufficient degree of proximity between the purchaser's purely economic
loss and the role played by the classification society. For that reason, he did not found it
necessary to consider the fair and reasonable issue109 or the exclusion clause contained
in the classification certificate issued.110

109 [1991] ECC 103 [75].

110 [1991] ECC 103 [76].

29

4. The Nicholas H.

4.1. The facts.

The leading case in the liability of classification societies for physical damage came
about a standarddesign ship built in Japan in 1969. At 15,411dwt and 145m long she
was a multipurpose cargo ship with machinery aft, four derricks, four holds and double
hatches in way of holds 2, 3 and 4. Continuously classed with NK for seventeen years,
she changed name from Motonoga Maru to La Vicompte in 1975, followed by Iris in
1979 and finally Nicholas H in 1984 at which time she was owned by Bishop Rock
(Cyprus Lines group) and registered in Cyprus.111

In February 1986, whilst en route from Chile to Europe loaded with a cargo of lead and
zinc concentrates in bulk, she diverted from her voyage and anchored off San Juan,
Puerto Rico. The Master reported to the US Coast Guard that she is taking water in hold
no. 2 through a crack in her side shell plating and a side ballast tank. Further cracks
developed whilst at anchorage. 112

On 25th February a nonexclusive surveyor employed by NK boarded the ship whilst still
at San Juan anchorage and found two cracks in the starboard side shell plating at frames

111 www.seaweb.com accessed 23 August 2015.

112 [1992] 2 Lloyd's Rep. 481 [8].

30

61 62 in way of hold no.2, with evidence of an incident in the side shell113 at frames
60 61 indicative of buckling. The surveyor also reported a crack in the inner bulkhead
plating two meters above the tanktop and wastage in association with cracks of the
adjacent structural members (deep frames 60, 61 and ordinary frame 60). 114 In
summary: cracks, buckling and wastage of primary and secondary structure in way of
hold no. 2 starboard side, affecting the watertight integrity and the strength and of the
hull.

At anchorage, bobbing in open waters, the classification surveyor recommended the
ship be taken to the nearest port with available facilities for repairs, interpreted as a
recommendation for permanent repairs which may have required docking and cargo
unloading. The shipowner baulked115 at the prospect of such potentially costly
repairs and brought she ship instead alongside at San Juan port where the cracks were
sealed by divers and a riding crew flown from Greece reportedly carried out some
temporary welding repairs (a fact disputed by the plaintiffs).

Alongside then, leaning on firm ground, the classification surveyor was persuaded to
change his mind, allowing the ship to maintain her class for a loaded transAtlantic
voyage to the first port of discharge in Italy where the alleged temporary repairs were
to be further examined and dealt with as necessary. The ship sailed from San Juan on
the 2nd of March, the following day reported taking water again through the cracks, and
six days later on the 9th she sank with total loss of a cargo worth in excess of six million
US$.

113 [1992] 2 Lloyd's Rep. 481 [9].
114 [1992] 2 Lloyd's Rep. 481 [9].

115 [1992] 2 Lloyd's Rep. 481 [10].

31


Most fortunately she foundered without any loss of life. In contradistinction thousands
of seamen perished on board sinking bulk carriers from 1978 to 1998 in similar
circumstances. The bulk carriers of that time carried the dubious distinction of being
prone to founder in a matter of minutes from catastrophic structural collapse.116

For insurance and chartering purposes, shipowners are under irresistible commercial
pressure to ensure that their vessel remains in class. Hence the owners of a ship who
sustained damage, would be compelled to call the classification society to survey the
damage and determine what repairs must be done and (more importantly) when, for
the ship to retain her classification. If it is found impracticable to deal with any defective
items prior to departure, and the defects are of a nature that does not require
immediate permanent repair but is sufficiently serious to require rectification by a
prescribed date in order to maintain class, a suitable condition of class may be
imposed.117 Deferment of permanent repairs may require the completion of immediate
temporary repairs, the guiding principle is that the ship is only to be classed with
conditions which do not put the ship or hazardous cargo at any significantly higher risk
of loss, or expose anyone on board to a significantly greater risk of serious injury. The
classification society has in practice control over the question whether a damaged
vessel, without permanent repairs, will be allowed to complete her intended voyage.118

In The Nicholas H, on the facts of the case, wastage in association with buckling and
cracks would normally require today prompt and thorough repairs defined as a

116 IACS Bulk Carrier Safety Formal Safety Assessment and studies 19911997.
117 Rules Pt 1 Ch 2, 3.4.4.

118 Marc Rich & Co AG v Bishop Rock Marine Co Ltd (The Nicholas H) [1996] AC 211 (HL) 231 (Lord Steyn).

32

permanent repairs completed at the time of survey therein removing the need for the
imposition of any associated conditions of class.119

From 1 June 1998 the introduction of new SOLAS amendments120 requiring ships to be
designed, constructed and maintained in compliance with structural requirements of a
recognized classification society, the flag administration should have also be informed
with respect to Safety Construction certificate and their advice sought.
4.2. The judgements

The claim against the owners was for alleged breaches of duty as bailees, and also as
carriers relying on Article III(1) of the Hague Rules incorporated in the bill of lading.
The shipowners in reply sought to limit their liability under those Rules, and in due
course the plaintiffs' claim against the shipowners was settled for the sum of
approximately $500,000.121 The cargo owners sued the shipowners for US$6m worth of
lost cargo but settled for US$0.5m (the extent of the shipowners liability having regard
to the tonnage limitation applicable to the vessel). The cargo owners then pursued the
classification society for the balance of their claim plus interest, a sum in excess of five
million dollars122 alleging breach of a duty of care owed by the society to the cargo
owners to take reasonable care in the surveys undertaken and the recommendations
made so as not to expose the cargo to risk of damage or loss. The society accepted for
the purposes of that issue that the damage suffered was physical damage and that it had
been foreseeable that lack of care by the society was likely to expose the cargo owners'

119 Rules Pt1 Ch3, 1.8; IACS UR Z7 & Z10; IMO Res.A744(18) (emphasis added).
120 SOLAS Ch II, Pt A1,Reg 31 adopted 4 June1986, effective 1 July 1998.
121 Marc Rich and Co AG v Bishop Rock Marine Co Ltd [1993] ECC 121 [4].
122 [1992] 2 Lloyd's Rep. 481 [1].

33

property to the risk of that damage. The Nicholas H case came before the courts for the
preliminary issue whether in law the classification society owed a duty of care to the
owners of the cargo.

At first instance123 Hirst J carefully concluded that on the facts of this case only the
closeness of the relationship between the surveyor and the cargo owners did owe the
cargo owners a duty of care capable of giving rise to a liability in damages.

The Court of Appeal124 reversed the decision. The leading judgment was given by Saville
LJ holding that a plaintiff sustaining physical damage to his property and seeking to
establish that he was owed a duty of care in respect of that loss had to demonstrate not
only that the defendant had foreseen or ought reasonably to have foreseen that his act
or omission would be likely to damage the property, but also that there was a
relationship of sufficient proximity between the parties, and that in all the
circumstances it was fair, just and reasonable to impose a duty of care:

whatever the nature of the harm sustained by the plaintiff, it is necessary to
consider the matter not only by inquiring about foreseeability but also by
considering the nature of the relationship between the parties; and to be
satisfied that in all the circumstances it is fair, just and reasonable to impose
a duty of care.125

123 [1992] 2 Lloyd's Rep 481.
124 [1994] 1 WLR 1071.

125 [1994] 1 WLR 1071, 1077.

34

Under the bills of lading shipowners were under a nondelegable duty to the cargo
owners to use due diligence to make the vessel seaworthy before and at the beginning
of the voyage: The Muncaster Castle.126 The shipowners were in breach of this duty and
this caused the loss of the cargo. It was not fair, just and reasonable to impose a duty on
the classification society in favour of the cargo owners to take reasonable care to avert
the consequences of that breach:

[HR & HVR] form an internationally recognised code adjusting the rights and
duties existing between shipowners and those shipping goods under bills of
lading. [T]he rules create an intricate blend of responsibilities and
liabilities, rights and immunities, limitations on the amount of damages
recoverable, time bars, evidential provisions, indemnities and liberties, all in
relation to the carriage of goods under bills of lading. The proposition [that
it is fair, just and reasonable to impose a duty on the classification society in
favour of the cargo owners to take reasonable care to avert the consequences
of the shipowners breach of their nondelegable duty to the cargo owners to
use due diligence to make the vessel seaworthy before and at the beginning
of the voyage]would add an identical or virtually identical duty owed by the
classification society to that owed by the shipowners, but without any of
these balancing factors, which are internationally recognised and accepted. I
do not regard that as a just, fair or reasonable proposition.127

126 Riverstone Meat Co Pty Ltd v Lancashire Shipping Co. Ltd [1961] AC 807.
127 [1994] 1 WLR 1071, 1080.

35

The House of Lords128 upheld the Court of Appeals decision. The leading speech was
given by Lord Steyn (Lord Lloyd of Berwick dissenting) held that whatever harm a
plaintiff suffered, in order to determine the defendant's liability in tort for negligence
the court had to consider the elements of foreseeability and proximity and whether it
was fair, just and reasonable to impose a duty of care on the defendant. Drawing on
Saville LJs judgement in the Court of Appeal Lord Steyn said:

it has been settled law that the elements of foreseeability and proximity as
well as considerations of fairness, justice and reasonableness are relevant
to all cases whatever the nature of the harm sustained by the plaintiff.129

Lord Steyns judgement offered a definition of classification societies as independent
and nonprofitmaking entities, created and operating for the sole purpose of promoting
the collective welfare, namely the safety of lives and ships at sea,130 which apart from
statutory duties act in the public interest,131 and which are fulfilling a role which in
its absence would have to be fulfilled by states.132

The majority opinion in the House of Lords was that to impose a duty of care on
classification societies would be unfair, unjust and unreasonable as against shipowners,
who would ultimately have to bear the cost, such a duty being at variance with the
international contractual structure between shipowners and cargo owners, and that,
accordingly, such a duty ought not to be imposed on the society:

128 [1996] AC 211.

129 [1996] AC 211, 235.

130 [1996] AC 211, 241.
131 [1996] AC 211, 241.
132 [1996] AC 211, 241.

36


I conclude that the recognition of a duty would be unfair, unjust and
unreasonable as against the shipowners who would ultimately have to bear
the cost of holding classification societies liable, such consequence being at
variance with the bargain between shipowners and cargo owners based on
an internationally agreed contractual structure. It would also be unfair,
unjust and unreasonable towards classification societies, notably because
they act for the collective welfare and unlike shipowners they would not
have the benefit of any limitation provisions. Looking at the matter from the
point of view of cargo owners, the existing system provides them with the
protection of the Hague Rules or HagueVisby Rules. But that protection is
limited under such Rules and by tonnage limitation provisions. Under the
existing system any shortfall is readily insurable. In my judgment the lesser
injustice is done by not recognising a duty of care.133

There follows an analysis of some critical aspects of the judgement in accordance with
the law as it stands today:
4.3. The requirements in physical damage cases

Drawing on Saville LJs judgement in the Court of Appeal Lord Steyn said:

133 [1996] AC 211, 242.

37

it has been settled law that the elements of foreseeability and proximity as
well as considerations of fairness, justice and reasonableness are relevant
to all cases whatever the nature of the harm sustained by the plaintiff.134

It is submitted that, for the purposes of determining the existence of a duty of care in
physical damage cases, the leading case remains Caparo v Dickman135 and the threefold
test of: (1) foreseeability; (2) proximity; and (3) fair just and reasonable in the light of
policy considerations. The House of Lords considered these issues more recently in
Customs & Excise v Barclays Bank136 where Lord Mance concluded that although the
Caparo criteria provide a convenient framework137 for determining the existence of a
duty of care, they can only give the courts limited help. It remains necessary for the
courts to consider the detailed factual circumstances and more importantly the nature
of the relationship between parties. As Lord Walker put it, the courts since Caparo have
shown increasingly clear recognition that the threefold testdoes not provide and easy
answer to all our problems, but only a set of fairly blunt tools.138 Prof. Giliker139 sees
from the reasoning in more recent cases like Customs & Excise v Barclays Bank that open
and detailed consideration of policy factors is enjoying something of a renaissance as a
mechanism for deciding novel and difficult cases, because the Caparo criteria alone fail
to provide a very meaningful way of doing this. The problem with this approach is that
can lead to uncertainty in the law for example different weight placed on different
policy factors in the Barclays Bank case meant that an unanimous decision in the Court
of Appeal ended up being overruled by an equally unanimous House of Lords.

134 [1996] AC 211, 235.
135 [1990] 2 AC 605.
136 [2007] 1 AC 181.

137 [2007] 1 AC 181, 93.

138 [2007] 1 AC 181, 71.

139 Paula Giliker Tort (5th edn Sweet & Maxwell 2014) 2015.

38


Concerning the distinction made in this case between direct and indirect physical
damage, Lord Steyn conceded that the law more readily attaches the consequences of
actionable negligence to directly inflicted physical loss than to indirectly inflicted
physical loss: if the surveyor had carelessly dropped a lighted cigarette into a cargo
hold known to contain a combustible cargo, thereby causing an explosion and the loss of
the vessel and cargo, the assertion that the classification society was in breach of a duty
of care might have been a strong one.140 Drawing on Clay v Crump141 his Lordship
contended that, akin to the responsibility of the architect in Clay, the shipowner was
primarily responsible for the vessel sailing in a seaworthy condition whilst class had
only a subsidiary role hence the carelessness of the N.K.K. surveyor did not involve the
direct infliction of physical damage in the relevant sense. Although the difficulties with
the concept have been touched upon in Perrett v. Collins142 (a personal injury case) it is
submitted that the nature and relevance of the distinction between direct and indirect
physical damage in the sense suggested by Lord Steyn has yet to be fully explored in the
courts.
4.4. The Bill of Lading Contracts

Counsel for cargo submitted that the allocation of risks in the Hague Rules between
shipowners and the owners of cargo is irrelevant to the question whether classification
owed a duty of care to cargo owners. In response Lord Steyn held that the result of a
recognition of a duty of care in this case will be to enable cargo owners, or rather their
insurers, to disturb the balance created by the Hague Rules and HagueVisby Rules as

140 [1996] 1 AC 211, 237.

141 Clay v AJ Crump & Sons Ltd [1964] 1 Q.B. 533.

142 [1998] 2 Lloyd's Rep 255.

39

well as by tonnage limitation provisions, by enabling cargo owners to recover in tort

against a peripheral party to the prejudice of the protection of shipowners under the
existing system. For these reasons Lord Steyn further held that the international trade
system tends to militate against the recognition of the claim in tort put forward by the
cargo owners against the classification society.143

4.5. The Travaux Preparatoires of the Hague and HagueVisby Rules

During the preparations for the HagueVisby Rules144, the decision taken by the House
of Lords in The Muncaster Castle145 has been discussed at length. The British delegation
was perplexed by what they perceived, at the risk of being held in contempt of the court,
as a manifestly injust decision to hold the shipowners liable for negligent repairs
carried out by reputable subcontractors and endorsed by a respectable classification
society.146 With the popular support of many delegations a British amendment was
proposed by which the shipowners would be exonerated from liability for
seaworthiness if the services of reputable repair contractors and classification societies
were engaged147. The proposal was overruled by Mr. F. Berlingeri, the crux of his
argumentation being that in a contractual relationship between cargo owners and
shipowners, the principal is liable not only for personal faults but also for those of
independent contractors, because one who takes all the advantages of the enterprise
must also bear all the consequences as well. If the British proposal would have been

143 [1996] AC 211, 240.

144 The Travaux Preparatoires of the Hague and HagueVisby Rules Comite Maritime International

(1997).

145 Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd (The Muncaster Castle) [1961] A.C. 807.

146 The Travaux Preparatoires of the Hague and HagueVisby Rules Comite Maritime International (1997)

[141].

147 ibid [146][150].

40

accepted then a shipowner could, for example, call a surveyor at the commencement of
a voyage and request a seaworthiness certificate, in essence delegating his
responsibility to a thirdparty. if carried, would upset the balance at present existing
between the carrier and the owner of the goods, and it would be unfair and
unacceptable towards cargo receivers who would then be forced to chase such third
parties in tort across different jurisdictions and for this reasons the British proposal
was dismissed.148 In conclusion the travaux preparatories are clearly indicating that
enabling cargo owners to recover in tort against a peripheral party to the prejudice of
the protection of shipowners under the existing system remains and undesirable
outcome. Nothing in the travaux prparatoires leading up to the HV Rules suggested any
contrary intention: The Rafaela S149. It is submitted that the Travaux Preparatoires of
the HagueVisby Rules150 established that it would be unfair and unacceptable towards
cargo receivers if they were expected to recover in tort against a peripheral party to the
prejudice of the protection of cargo owners under the existing system. The purpose of
the owners nondelegable duty is to preserve the balance existing between the carrier
and the owner of the goods.

During the proceedings in the House of Lords in The Nicholas H counsel for cargo
pointed out that the Court of Appeal apparently assumed that the limitation of the claim
of cargo owners against the shipowners arose under the Hague Rules but in truth the
limitation arose by reason of tonnage limitation. Lord Steyn clarified this is not a point

148 ibid [519].

149 [2005] UKHL 11.

150 The Travaux Preparatoires of the Hague and HagueVisby Rules Comite Maritime International

(1997).

41

of substance: Tonnage limitation is a part of the international code which governs the
claims under consideration. It is as relevant as any limitation under the Hague Rules.151

It is interesting to note that under HV & HVR the nondelegable duty to provide a
seaworthy ship only arises before and at the beginning of the voyage, so it could be
argued that, since the class surveyor made his inspection in San Juan part of the way
through the voyage, there could have been no such duty on the shipowners at the time.
However it would be curious if surveyors owed a higher duty in relation to inspections
midvoyage than in relation to inspections prior to the commencement of the voyage.

4.6. Recognition of a duty of care and the promotion of safety

During the proceedings in the House of Lords counsel for cargo advocated that
recognition of a duty of care on the classification society against the cargo owners in
such cases would promote the safety of life, ships and cargo at sea.152 From the
defendant's perspective, Professor Honor153 identified the function of tort law as being
to forbid or discourage particular forms of conduct or at a minimum, to warn those
who indulge in it of the liability they may incur. In this country, it is wise to kill an
admiral from time to time pour encourager les outr said Voltaire in Candide with
reference to the execution of Admiral Byng in Portsmouth in 1757 for failure to do his
utmost to relieve the siege of the British garrison on Minorca.


151 [1996] AC 211, 238.
152 [1996] AC 211, 236.
153 Honor, The Morality of Tort Law in Owen (ed) Philosophical Foundations of Tort Law (OUP 1995)

78.

42

It is respectfully anticipated that regulators not judges or courts will in future play a
pivotal role in maintaining the high quality of classification surveys which shipowners
and cargo owners deserve. Lord Templemans remarks in the House of Lords in Hill v
Chief Constable of West Yorkshire154:

[a]n action in damage for alleged acts of negligence by individual police
officers in 1980 could not determine whether and in what respects the West
Yorkshire police force can be improved in 1998

serve to emphasise that an adversarial system is ill suited to a proper consideration of
broad questions of policy. Giliker155 recognises that the focus of the courts attention is
whether compensation should be awarded to do justice in the particular cases before
them. This does not prevent courts from using their skill and experience to address
broader concerns, but it is important to appreciate that there are constraints on their
ability to do so.156

4.7. Policy Factors

Lord Steyns judgement was favourable towards classification societies as nonprofit
making organisations, promoting collective welfare and fulfilling a public role a
decision based on policy considerations at a time when there was blanket immunity for
advocates and social workers.157 Clark & Lindsell notes that today "assessments of

154 [1989] AC 53.

155 Paula Giliker, Tort (5th edn, Sweet & Maxwell 2014).

156 Paula Giliker, Tort (5th edn, Sweet & Maxwell 2014) 1010.

157 D Happ, The Liability of Classification Societies LSLC Maritime Business Forum (2013).

43

public policy can change as is shown by the conclusion that the policy reasons
supporting social service or advocates immunity are no longer applicable".158 In Watson
v British Boxing Board of Control (BBBC)159 the Court of Appeal dismissed the fact that
the BBBC was a nonprofitmaking organisation, without insurance, as irrelevant to its
liability, since BBBC had exclusive control over the provision of ringside medical
assistance it was fair just and reasonable for Watson to rely on the BBBC to look after
his safety. In contradistinction a classification society has no control over how a vessel
is manned, operated and maintained between the periodical surveys which it
conducts.160

The speech of Lord Steyn in McFarlane v Tayside Health Board161 illustrate judicial
thinking on the role of justice, morality and policy in the development of tort law. Lord
Steyn stressed that he was not deciding the case on the quicksands of public policy but
on principles of justice:

In my view it is legitimate in the present case to take into account
considerations of distributive justice. That does not mean that I would
decide the case on grounds of public policy. On the contrary, I would avoid
those quicksands. Relying on principles of distributive justice I am
persuaded that our tort law does not permit parents of a healthy unwanted
child to claim the costs of bringing up the child from a health authority or a

158 MA Jones, AM Dugdale, M Simpson, Clerk & Lindsell on Torts (21st ed, Sweet & Maxwell 2014) 819.
159 [2001] 2 WLR 1256.

160 Classification Societies Why, What and How? IACS

<http://www.iacs.org.uk/document/public/explained/Class_WhatWhy&How.PDF> accessed 23 August

2015.
161 [2000] 2 AC 59

44

doctor. If it were necessary to do so. I would say that the claim does not
satisfy the requirement of being fair, just and reasonable.162

As submitted in Ch 4.3. above, it appears that policy considerations are enjoying
something of a renaissance as a mechanism for deciding novel and difficult cases. The
problem with this approach is that can lead to uncertainty in the law for example
different weight placed on different policy factors in the Barclays Bank163 case meant
that an unanimous decision in the Court of Appeal ended up being overruled by an
equally unanimous House of Lords.

4.8. The public benefit test

The public function of classification societies was a forceful argument in the leading
judgement in The Nicholas H164. It is therefore important to highlight the public benefit
test introduced in UK by The Charities Act 2011. Section 4 (1) of the Act defines the
public benefit requirement as: the requirement in section 2 (1) (b) that a purpose
falling within section 3 (1) must be for the public benefit if it is to be a charitable
purpose. The guidance given by the Charity Commission165 explains two key principles
which need to be met in order to show that the charitys aims are for the public benefit:
(1) There must be an identifiable benefit or benefits and (2) the benefit must be to the
public or a section of the public. Within each principle there are some important factors
that must be considered in all cases, such as: (1a) it must be clear what the benefits are,

162 ibid 83.

163 [2007] 1 AC 181.

164 [1995] 3 W.L.R. 227 [1996] A.C. 211, 232, 233, 240, 241, 242 (Lord Steyn).
165 https://www.gov.uk/government/publications/publicbenefitthepublicbenefitrequirementpb1

accessed 23 August 2015.

45

(1b) the benefits must be related to the aims of the charity, (1c) benefits must be
balanced against any detriment or harm (2a) the beneficiaries must be appropriate to
the aims (2b) w here the benefit is to a section of the public, the opportunity to benefit
must not be unreasonably restricted by geographical or other restrictions or by ability
to pay any fees charged, (2c) people in poverty must not be excluded from the
opportunity to benefit, (2d) any private benefits must be incidental.

4.9. Political and moral value judgements

Negligence is essentially concerned with a conflict of values within society and in order
to decide a question of negligence the judge must make a political and moral value
judgment.166 In The Nicholas H Lord Steyns judgment, Lord Lloyds dissenting opinion,
and the pattern of their decision making, only began to make real sense when
considered alongside the political and economic forces prevalent at the time:

The Nicholas H action was begun by a writ issued in February 1987 by Marc Rich & Co.
AG a company named after its creator, Marc Rich, who appears to have been something
of a villain du jour in the trading community at the time: a shrewd businessman
credited with inventing the crude oil spot market but suspected of breaching the US
sanctions on Cuba and the oil embargo on Iranian.167 The US government indicted him
on numerous charges including racketeering, tax evasion and trading with the enemy.
At the time Nicholas H went on trial Marc Rich was a fugitive in Switzerland from where
he continued trading, amassing a personal fortune estimated to be at least $1 billion,

166 Paula Giliker Tort (5th edn, Sweet & Maxwell 2014) 2004.

167 K Kelly, Secret Club That Runs The World: Inside The Commodity Traders Fraternity (Penguin 2014).

46

and was nicknamed the king of oil (which became the title of a biography published in
2010).168 He was pardoned in 2001 by President Bill Clinton in his last day in office and
passed away in 2013. March Rich & Co. AG morphed later into Glencore the giant
mining, transportation and commodities trader known today as GlencoreXstrata.

What if, instead of lead concentrates in bulk, the cargo lost would have been soybeans
owned by the United Nations World Food Programme destined for Somalia food aid?
Would that have had any influence on policy considerations and the lesser injustice
concept? It is hoped that the next paragraph will cast an interesting perspective to the
answer.
4.9.1. Heart v Head follow the law or follow the feelings?

Without fear or favour, affection or ill will169 impartiality is a key element of the
official role and personal identity of any judge. It is trite knowledge that applying one
set of rules to a sympathetic litigant and another set to the unsympathetic litigant would
not be consistent with the rule of law.

However, in 2015 the first reported experiments held in the United States on the topic
using over 1,800 actual judges as research subjects suggest that that judges' feelings
about litigants influence their judgments.170 The researchers (a Magistrate Judge and

168 D Ammann, The King of Oil: The Secret Lives of Marc Rich (St Martin 2009).
169Judicial Oath <www.judiciary.gov.uk/aboutthejudiciary/thejudiciarythegovernmentandthe

constitution/oaths/ > accessed 23 August 2015.

170 AJ Wistrich, JJ Rachlinski and C Guthrie Heart Versus Head: Do Judges Follow the Law or Follow Their
Feelings? (2014) 93 Tex L Rev 855 20142015.

47

two Professors of Law171) were invited to make presentations at continuing education

programs for judges. Before presentations they were asking the participant judges to
respond for pedagogical purposes to a written questionnaire containing a number
hypothetical cases172, without revealing what their research involved. The hypothetical
cases were encompassing both civil and criminal cases in a wide range of tasks
(interpreting and applying law, exercising discretion, awarding damages) and
procedural contexts (motion to dismiss, motion for summary judgment, motion to
suppress, motion to discharge debt, award of punitive damages, sentencing). Data was
collected from more than 1,800 state and federal judges from US and Canada in eighteen
separate sessions during the period 2008 to 2013. Because the judges in this study were
not aware of the varied emotional content of the materials and were responding
anonymously, the researchers do believe that judges responses were sincere and free
of any kind of strategizing about the study.

Overall, judges simply favored the litigant who generated the more positive affective
response, sympathetic parties faring better often far better than unsympathetic
ones.173 On the other hand, the study did not observe any party preference in the
judges' responses (they did not favor either plaintiffs or defendants systematically);
there was little support for the proposition that political ideology drives much judicial
decision making at the trial level; and the gender of the judges hardly mattered either
male and female judges reacted similarly.174

171 Andrew J. Wistrich Magistrate Judge, United States District Court, Central District of California; Jeffrey

J. Rachlinski Henry Allen Mark Professor, Cornell University Law School; & Chris Guthrie Dean and John
WadeKent Syverud Professor, Vanderbilt University Law School.
172 Six different scenarios: Illegal immigration, Medical marijuana, Strip search, Credit cards, Narcotics
search and Pollution. 93 Tex. L. Rev. 855 20142015, 875.
173 93 Tex. L. Rev. 855 20142015, 898.
174 93 Tex L Rev 855 20142015, 899.

48


In one hypothetical scenario involving a transborder environmental pollution incident
a number of 391 state judges from three different states responded to the
experiment.175 The scenario either provided the judges with an opportunity to benefit
an instate resident at the expense of an outofstate resident, or it did not. Could the
judges put the natural human tendency toward ingroup favoritism aside? It appears
they could not judges punished the outofstate defendant more harshly than the in
state defendant.176 This particular result may suggest a correlation with the 2014 ruling
of the US District Court177 in the Deepwater Horizon environmental pollution case,
where it was found that the comparative fault of the three defendants (one British
corporation and two American) expressed as a percentage of total liability, was as
follows: BP: 67%, Transocean: 30%, Halliburton: 3%. Furthermore the court
quadrupled the amount of civil liability for BP by finding it guilty of gross negligence
whilst Transocean and Halliburton were found negligent in the ordinary.178 Contrast
the US court decision in The Prestige179 where on a second appeal the Second Circuit
held that Spain did not establish[] a genuine dispute of material fact as to whether ABS
... recklessly breached any duty that [it] might owe to Spain180. Legal commentators
have interpreted the judgement as a diplomatic overture where the court employed an

175 93 Tex L Rev 855 20142015, 893.

176 93 Tex L Rev 855 20142015, 897.

177 In re Deepwater Horizon, 739 F. 3d 790 Court of Appeals, 5th Circuit 2014.
178 BPs recklessness led to Macondo incident Court says Offshore Energy Today (5 September 2014)

http://www.offshoreenergytoday.com/bpsrecklesnessleadtomacondoincidentcourtsays/ accessed
23 August 2015.
179 Reino de Espana v. American Bureau of Shipping, Inc., 691 F.3d 461, 476, 2012 AMC 2113, 2136 (2d
Cir. 2012).
180 Reino de Espana v. American Bureau of Shipping, Inc., 691 F.3d 461, 476, 2012 AMC 2113, 2136 (2d
Cir. 2012).

49

unusual methodology in deciding the case by applying minimal precedent, tactfully but
firmly repudiating Spains claim.181

181 Imran Naeemullah, A Decade Later, $ 1 Billion Saved: The Second Circuit Relieves a Maritime

Classification Society of Unprecedented Liability for Environmental and Economic Damages in Reino de
Espana v. American Bureau of Shipping, Inc. (2013) 37 Tul. Mar. L. J. 639.

50

5. The Regulators Perspective

I believe it is important to discuss class liability perspective in the light of IMO Model
agreement, The RO Code, EU Erika I, II, III Packages, the Directives 94/57/EC,
2009/15/EC and Regulation 788. Although the legislation governs only redress an
administration is entitled from a recognised organisation (including for thirdparty
claims against the administration), the same legislation is implicitly providing a default
scheme for the liability of classification societies, a persuasive alternative to be
considered in the absence of other agreement or choice. There is now an increased
understanding that default schemes matter, they form part of the choice architecture
and have a major impact on peoples behaviour even when the stakes are high. As
argued by Thaler and Sunstein in their influential book Nudge, research shows that
whatever the default choices are, many people will stick with them.182

A total of 83 ROs are currently listed on IMO GISIS database as having received
recognition by the National Administrations members of the IMO. A degree of
consideration has been given to the issue of their liability in para.6.6.(1) of the IMO
Model agreement for the authorization of recognized organizations adopted in 1995 183
where negligent acts or omissions will attract compensation of up to but not exceeding
the amount of financial liability as defined in the ROs standard terms and conditions. An
alternative is provided in Annex 2 at para.C.1.2 giving the Administration the option to
demand full compensation from the RO for wilful or grossly negligent acts or omissions.
The Model agreement is not mandatory but by a footnote on page 61 of the RO Code

182 RH Thaler and CR Sunstein, Nudge: improving decisions about health, wealth and happiness (Penguin,

2009).

183 MSC/Circ.710MEPC/Circ.307 adopted on 9 October 1995.

51

adopted in 2013184 the ROs are required to take liability insurance and the flags to
consider placing a limitation on the level of liability. A study undertaken by the
University of Southampton in 2006185 indicates a variety of liability clauses worldwide:
there are States for which the applicable limits of liability are based on the standard
terms and conditions of each ROs, others have a combination of unlimited liability for
gross negligence and limited liability for conduct as that described in the IMO Model
agreement, whilst in the USA the liability of recognised organisations appears not
limited contractually at all.

The Erika oil spill of 12th December 1999 and the Prestige oil spill of 13th November
2002 caused public outrage on an unprecedented scale and resulted in a plethora of
new European measures. One year after the Prestige disaster thousands of people
demonstrated across northwestern Spain to protest at the government's handling of
the oil spill. The Commission then publicly stated that it regrets that the timetable
which it originally proposed to the IMO was not accepted, as this would have prevented
the Prestige accident this perhaps goes some way to explaining the determination with
which the EU is pursuing its proposals. The reforms186, within the Erika I package,
brought about substantial changes to address the concern that the performance of ROs
does not always meet the necessary standards. Council Directive 94/57/EC was thus
beefed up to make for greater control of the activities of these private organisations
which play a crucial role in maritime safety and pollution prevention. New rules were
introduced which included inter alia specific minimum levels of civil liability for ROs:

184 MSC.349(92)MEPC.237(65) adopted on 21 July 2013.

185 Study on evaluating the economic impact of the liability regime on parties concerned and consequences

for the financial equilibrium of Recognised organisations Directive 94/57 article 6.5, Institute of Maritime
Law The Southampton University, 15/02/2006.
186 Directive 2001/105/EC18.

52

unlimited liability for gross negligence or wilful acts and limited liability for negligent or
reckless acts capped at 4 million for personal injury or death and 2 million for loss
or damage to property. A study of the economic impact on the liability provisions
published in 2006187 identifies a number of five Member States which have imposed
unlimited liability (France, Germany, Italy, Luxembourg and Spain) and seven IACS
classification societies188 that have accepted the unlimited liability regime for both
gross negligence and simple negligence.

187 COM(2006) 588 on the control of recognised organisations by the Commission and on the impact of

the civil liability regime in accordance with Directive 94/57/EC

188 A number of 11 ROs are currently recognised by EMSA on behalf of EU Member States.

53

6. Airworthiness

It should be noted that the regulatory regime applied to the air industry is different
from the regulatory regime that applies to classification societies. The owner is liable
for the continuing airworthiness of an aircraft and must ensure that no flight takes place
unless: (1) the aircraft is maintained in an airworthy condition, and; (2) any operational
and emergency equipment fitted is correctly installed and serviceable or clearly
identified as unserviceable, and; (3) the airworthiness certificate remains valid, and; (4)
the maintenance of the aircraft is performed in accordance with an approved
maintenance programme.189

In Perrett v Collins 190 the court imposed a duty of care owed by an inspector of an
aircraft and the authority that issued the airworthiness certificate Sheppard 191
compares the role of class surveyors with that of the airworthiness inspectors and
concludes with a pertinent question: Had there been loss of life upon the sinking of a
ship, caused by violation of the SOLAS regulations by the classification society, would
different considerations have applied? There is not, as yet, an English court decision on
this point with regard to ships class. The question under English law would have been
whether a duty of care ought to be imposed upon the class society in such a case. Aikens
LJ (and ors)192 are propounding that the case is in itself not without difficulty: for e.g.,
Hobhouse L.J.'s suggestion that the reasoning in The Nicholas H was essentially directed

189 COMMISSION REGULATION (EU) No 1321/2014 of 26 November 2014 on the continuing

airworthiness of aircraft and aeronautical products, parts and appliances, and on the approval of
organisations and personnel involved in these tasks (Recast) [2014] OJ L362/1 MA201.
190 [1998] 2 Lloyds Rep 255.
191 MandarakaSheppard, A. Modern Maritime Law Volume 2: Managing Risks and Liabilities 3rd Ed. (2013)
ISBN: 9781415843201
192 Lord Justice Aikens, Richard Lord and Michael Bools Bills of Lading 1st Edition, 2006 at 9.12

54

to considerations relevant to economic loss193 is, with respect, not an accurate

assessment of the issues in the case, where, throughout, the classification society
accepted it was a case of physical damage. Hobhouse LJ (as he then was) said, in
refusing to apply The Nicholas H to this case:

What the second and third defendants seek to achieve in this case is to
extend decisions upon economic loss to cases of personal injuries. It
represents a fundamental attack upon the principle of tortious liability for
negligent conduct which had caused foreseeable personal injury to
others.194

Swinton Thomas LJ focused on the distinction between this case and The Nicholas H
when he said:

The regulatory framework recognises the dangers that are inherent in
flying. That is the very purpose lying behind the prohibition on taking
airplanes into the air without a certificate of airworthiness and a permit to
fly, and the appointment of the CAA or those authorised by them to issue
such certificates.

In the case of a small private airplane, the only expertise which is supplied
is that of the inspector, the second defendant. Until the certificate of fitness
is granted, the aircraft cannot fly.

193 1998] 2 Lloyds Rep 255, 264.

194 [1998] 2 Lloyds Rep 255, 258.

55


That is in contradistinction to the position in the Marc Rich case where
there was no such inhibition on the shipowners. The surveyor acting on
behalf of NKK did not issue a permit to sail allowing the ship to go to sea in
contradistinction to the second defendant, in this case, who did issue such a
permit enabling the aircraft to fly.

The primary purpose, as I see it, of the intervention of the CAA or its
appointees is the safety of persons who fly in the aircraft which has been
granted the certificate. Moreover, the primary purpose is to prevent
physical injury as opposed to damage to property. 195

The distinction between the certification of an aircraft and the certification of a ship was
made clear, in that the former is a certificate of fitness for flying, whereas the latter is
not a permit to sail.

Interesting to note another aviation decision in Philcox v Civil Aviation Authority 196
which concerned whether the aviation authority owes a duty of care to the aircraft
owner: the CA made it clear that it the owners responsibility to maintain the plane in a
safe condition, whilst the aviation authority had the responsibility of supervising
aircraft owners, not in their own interest, but in the interests of the general public
hence it could not owe the aircraft owner a duty of care to inspect their aircraft
thoroughly. The owners could not call on the supervisory authority to protect them

195 [1998] 2 Lloyds Rep 255, 272 (emphasis added).

196 Philcox v Civil Aviation Authority (1995) 139 SJLB 146 (CA).

56

from their own mistakes. It is respectfully submitted that this line of argumentation also
stands in the case of a classification society acting as a recognised organisation pursuant
to the SOLAS Convention197 Ch I Reg 6(a) for the purpose of promoting safety of life at
sea.198 The recognised organisation has the responsibility to inspect ships in the
interest of the general public in order to ensure that from the point of view of safety of
life, a ship is fit for the service for which it is intended,199 hence the classification
society would not owe a duty to the owners to protect them from their own mistakes.

197 International Convention for the Safety of Life at Sea, 1974 as Amended (SOLAS).
198 SOLAS The Contracting Governments.
199 SOLAS Art I (b).

57

7. Financial auditors
7.1. Financial auditors liability to third parties

The law has gradually expanded the classes of case in which an auditor (as a person
professing some special skill) could be liable for negligence to someone other than her
own client: Hedley Byrne v Heller200, Smith v Eric S Bush201 and Caparo v Dickman.202
Liability for negligence may arise whenever an accountant does work for a client in
circumstances where she knows or ought to know firstly that the work is liable to be
relied upon by a thirdparty; and secondly that the thirdparty may suffer financial loss
if the work in question is done negligently.

Liability will arise when the work in question is of a kind which it was reasonable for
the third party to rely on for that persons particular purpose. If these conditions are
satisfied, the third party is a person whom in the eyes of the law the professional person
ought to have in mind in applying his or her skills to the work in question. The decision
in Law Society v KPMG Peat Marwick203 confirmed that the accountant has a duty of care
to third parties where the three criteria specified below are satisfied. As a result,
practitioners preparing financial reports on members of regulatory bodies, for example
the Law Society, will owe a duty of care to such bodies. The case of Royal Bank of
Scotland v Bannerman Johnstone Maclay204 (Scottish Court of Session) has reinforced the
principle that an auditor can have a duty of care towards a third party even where he

200 Hedley Byrne and Co Ltd v Heller and Partners [1964] AC 465.
201 [1990] 1 AC 831.

202 Caparo Industries plc v Dickman and others [1990] 2 AC 605.

203 [2000] 4 All ER 540.
204 [2005] CSIH 39.

58

has no actual knowledge (but has constructive knowledge) that the third party intends
to rely on his advice.

The extent of financial auditors liability for negligence to a thirdparty has been
clarified by the decision of the House of Lords in Caparo.205 Similar to the question of
classification surveyors liability for negligence, the imposition of a duty requires three
criteria as follows: (1) it must be reasonably foreseeable by the defendant that the
statements will be relied on by the plaintiff, (2) there has to be a relevant degree of
proximity between the parties, and (3) it must be just and reasonable to impose a duty
of care on the part of the defendant to the plaintiff. It is considered prudent for auditors
to assume that they will be held to owe the same duty to the third party as to the client
when they are informed that a third party will rely upon the results, for example
preparing accounts for the purpose of being shown to a potential purchaser or potential
creditor, involvement in the production of management accounts or projections for
presentation to a bank in support of a loan application.

Disclaimers of liability to third parties will often be inappropriate or ineffective in
circumstances where their use will tend to impair the status of practising accountants
by indicating a lack of confidence in their professional work. A disclaimer which
purports to apply only as against the third parties presents particular difficulties as a
matter of law. It would not, for example, be proper to endorse copies of accounts filed in
accordance with Sections 394 and 437 of the Companies Act 2006 with a disclaimer by
the auditor of liability to persons other than shareholders.

205 Caparo Industries plc v Dickman and others [1990] 2 AC 605.

59

Where instructed by the client to pass information directly to a third party, e.g. when
giving references or assurances regarding creditworthiness or similar matters, the
normal commercial practice is to state that, although the reference or assurance is given
in good faith, the auditor accepts no financial responsibility for the opinion expressed.
Such disclaimers will generally be effective if the information is of the kind that is not
expected to be the result of extensive research. However, an auditor may supply directly
to a third party information of a kind which the third party (unless told otherwise) can
reasonably expect to be the result of more extensive research. As applied to such
information, a disclaimer will generally be ineffective because of the Unfair Contract
Terms Act 1977.

7.2. European Commission Recommendation on limitation of auditors' liability


In 2006 the European Commission initiated a debate on auditors liability limitation
following discussions on the adoption of the Directive on Statutory Audit206. The
Commission mandated London Economics to conduct an independent study207 on the
economic impact of auditors' liability regimes and on the insurability of major audit
firms. The study showed that large claims may put at risk an entire auditing network
with the risk of significant reduction in statutory audit capacity for large companies.
Following a public consultation in 2007 a major concern expressed by stakeholders was
the lack of choice when selecting an audit firm, particularly in the market for audit

206 OJ L157/87.

207 London Economics and Prof Ralf Ewert, Goethe University Study on the Economic Impact of Auditors'

Liability Regimes (2006) (London Economics

study) http://ec.europa.eu/internal_market/auditing/liability/index_en.htm accessed 23 August 2015.

60

engagements of listed companies where the Big 4 audit networks (Deloitte,

Ernst&Young, KPMG, PricewaterhouseCoopers ) account for 85% of audits of listed
companies in the EU. In 2008 the Commission issued a Recommendation208 on
limitation of auditors' liability for the benefit of new market entrants and especially the
midtier audit firms, and to provide a stronger incentive for new investment into mid
tier audit firms, which could help them to compete with the major audit networks.
Three methods: cap, proportionate liability or contractual limitations are given as
possible examples but any other equivalent method might be used. Member States may
choose a method of limitation that best suits their legal environment but is in line with
the principles of the Recommendation.209 Most importantly the limitation of liability
should apply against any third party entitled under national law to bring a claim for
compensation.210

With regards to concerns that liability limitation for negligence has a negative impact on
audit quality, the pivotal role in maintaining the high audit quality is played by audit
regulators pursuant to the Directive on Statutory Audit and additional requirements
that have strengthened the robustness and independence of inspections of firms
auditing listed companies. Such regular inspections by audit regulators not judges or
courts provide better guarantees for the quality of the audits compared to unlimited
civil liability rules which constrain access to this highly concentrated market.211

208 COMMISSION RECOMMENDATION of 5 June 2008 concerning the limitation of the civil liability of

statutory auditors and audit firms (notified under document number C(2008) 2274) OJ L162/39
(Recommendation).
209 Recommendation Art5.
210 Recommendation Art3.
211 Commission Recommendation on limitation of auditors' liability: Frequently asked questions
http://europa.eu/rapid/pressrelease_MEMO08366_en.htm?locale=fr accessed 23 August 2015.

61

7.3. Arthur Andersen

In 2001 Arthur Andersen LLP was a ninety years old accounting company with 28,000
employees worldwide. With a reputation built on the rectitude and integrity of its
founder (famous for his refusal to curry favours with clients), it was one of the Big Five
(now Four) accounting behemoths with combined revenues of over 100 billion dollars
per year212 handling the vast majority (99%) of audits for publicly traded companies as
well as many private companies.

One year later in 2002 Arthur Andersen was found guilty of charges of obstruction of
justice relating to the firm's handling of the auditing of Enron,213 and was disbarred by
the Securities and Exchange Commission (SEC) from auditing listed companies.214 Yet
even before the formal indictment was pronounced, the market reacted to Andersens
loss of reputation and gave it the kiss of death. Starting in December 2001 the news that
the SEC has subpoenaed Anderson has been immediately reflected in the market price
of its clients an Andersen signature signified a 6% drop in market capitalization for the
company concerned and its clients started leaving en masse.215 On appeal, the Supreme
Court reversed the guilty finding of the trial court,216 but it came too late to revive the
firm whose reputation had been damaged beyond recovery.

212 For 2014; financial information publicly available for Delloite, PricewaterhouseCoopers, Ernst &

Young and KPMG on their websites, accessed 23 August 2015.

213 United States v Arthur Andersen LLP, No. H02121, 2002 U.S. Dist. LEXIS 26871 (S.D.Tex. Sep. 11,
2002).
214 Accounting and Auditing Enforcement, Exchange Act Release No. 44444 (June 19, 2001).
215 C Thies, The Demise of Arthur Andersen Golden Eagle (15 April 2002) http://www.gold
eagle.com/article/demisearthurandersen accessed 23 August 2015.
216 Arthur Andersen LLP v. United States, 544 U.S.__, 125 S. Ct. 2129 (2005).

62

8. Alternative mitigation measures

8.1. Subsidiarisation

Until such time as the US courts order a losing litigant to reimburse the costs incurred
by the successful litigant the United States will continue to be a haven for speculative
and nuisance litigation which has made its legal system so infamous. For most
classification societies the biggest and most immediate threat emanates from the US and
many have decided to subsidiarise primarily along regional lines and most importantly
with a clearly defined separate entity in the United States. Classification services are
then delivered to clients by a number of other members, subsidiaries and affiliates in a
global network branded under the same name, all in accordance with classification
regulations. 217 For example a review of DNVGL directory 218 suggests that its
subsidiaries in US are Germanischer Lloyd (USA) Inc / Det Norske Veritas (USA) Inc.
which together with numerous other similar local entities such as DNV GL UK Limited
or DNV (China) Company Limited, etc. are all members of the DNVGL AS Group.
Subsidiarisation enables the separation of liabilities of different parts of the larger
organisation and to limit the extent to which the liabilities of one part of the
organisation can be kept away from the remainder. In the House of Lords in Reed v Nova
Securities219 Lord Templeman said: the theoretical independent existence of every
corporation enables a group of companies to escape liability at common law for the
losses of an individual member of the group.220

217 Rules Pt1 Ch1, 1.2.

218 DNVGL maritime contacts booklet 2015 https://www.dnvgl.com/contact/maritime.html accessed 23

August 2015.
219 Reed (Inspector of Taxes) v Nova Securities Ltd [1985] 1 WLR 193.
220 Reed (Inspector of Taxes) v Nova Securities Ltd [1985] 1 WLR 193, 202.

63

8.2. Jurisdiction clauses and the direct benefit estoppel defence (US)
8.2.1. Hellenic v Det Norske Veritas [2006]

In Hellenic v Det Norske Veritas221 the buyers (Hellenic) of a second had ship relied on
the confirmation of class certificate issued by DNV pursuant to a contract with the
sellers. On the day of purchase a separate P&I inspection revealed several deficiencies
which should have been revealed by the DNV inspections. Additional concerns were
discovered upon a PSC inspection and a result of the subsequent arrest by port state
authorities, Hellenic sold the ship and brought suit in tort against DNV in US Courts for
fraudulent misrepresentation pursuant to the US District judgement in Otto Candies,
L.L.C. v. Nippon Kaiji Kyokai222 holding that general maritime law recognizes the tort of
negligent misrepresentation as applied to classification societies.

Pursuant to the doctrine of direct benefits estoppel DNV sought to enforce a forum
selection clause contained in DNV's Rules providing that [a]ny dispute arising in
relation to or as a consequence of these Rules shall only be resolved by the courts of
Norway, the Municipal Court of Oslo being the proper venue.223 Hellenic argued that
directbenefit estoppel is inapplicable because it received no benefit from DNV's
services and it is advancing a negligent misrepresentation claim not a contractbased
claim.

221 Hellenic Investment Fund, Inc. v. Det Norske Veritas, 464 F. 3d 514 Court of Appeals, 5th Circuit 2006

(Hellenic).

222 Otto Candies, L.L.C. v. Nippon Kaiji Kyokai Corp., 346 F.3d 530 (5th Cir.2003).
223 Ibid 517.

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Direct benefits estoppel is a doctrine that holds a nonsignatory to a clause in a contract

during litigation if the nonsignatory knowingly exploits the agreement containing the
clause Bridas v Turkmenistan.224 There are two ways in which a nonsignatory can be
bound under this theory: (1) it may be bound by knowingly seeking and obtaining
direct benefits from the contract Noble Drilling v Certex225, and (2) it may be bound
by seeking to enforce the terms of that contract or asserting claims that must be
determined by reference to that contract226. Under the second way there are two
further main requirements. Firstly (2a) the party has to have embrace the contract
despite [its] nonsignatory status but then, during litigation, attempt to repudiate the . . .
clause in the contract.227 The nonsignatory has to have obtained some benefit under
the contract while it was in effect. The court made clear that the value a classification
society offers to the ultimate purchaser is sufficient to satisfy this requirement: Having
stated a claim that expressly requires that [the classification societys] performance be
for Hellenic's benefit, Hellenic cannot avoid the estoppel implications of its position.228
Secondly (2b) the nonsignatorys suit has to be at least premised in part229 on the
agreement. In Hellenic, the court concluded that direct benefits estoppel required the
enforcement of the forumselection clause against the nonsignatory plaintiff and held
that the negligentmisrepresentation claim was premised on a breach of DNVs duties
under its rules and therefore required the ship purchaser to embrace the entire
contract, including the forumselection clause. Accordingly the Court of Appeal Fifth
District found the DNV forumselection clause enforceable under the circumstances.

224 Bridas SAPIC v Govt of Turkmenistan 345 F.3d 347, 36162 (5th Cir. 2003).

225 Noble Drilling Servs Inc. v Certex USA Inc 620 F.3d 469, 473 (5th Cir. 2010).
226 Noble Drilling Servs Inc. v Certex USA Inc 620 F.3d 469, 473 (5th Cir. 2010).
227 Hellenic 514, 51718.
228 Hellenic 519.
229 Hellenic 518.

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8.2.2. In re: Lloyds Register North America Inc [2015]

In In re: Lloyds Register North America Inc230 Lloyds Register (LRNA) provided survey
and certification services for a newbuild ship pursuant to a contract with the
shipbuilders (Irving). The buyers (Pearl Seas) were dissatisfied with the ship and
engaged in contractual arbitration and litigation with Irving. After first settling with
Irving, Pearl Seas then sued LRNA in tort alleging fraud, gross negligence, negligent
misrepresentation, collusion, aiding and abetting, civil conspiracy, etc. essentially based
on the theory that LRNA misrepresented the status of the vessel to Pearl Seas and to the
arbitrators.231

At first instance LRNA sought to dismiss the action for forum non conveniens based on
the forum selection clause contained in the Rules as well as in the contract with Irvin:
[a]ny dispute about the Services or the Contract is subject to the exclusive jurisdiction
of the English courts and will be governed by English law.232 However this was denied
by the district court without any explanation and subsequently LRNA filed a writ of
mandamus based on the denial of its motion to dismiss. The Court of Appeal Fifth
Circuit by a majority decision considered the following three factors to determine
whether to grant mandamus: (1) whether no other adequate means to attain relief
exists; (2) whether a clear and indisputable right to the writ exists; and (3) whether the
court is satisfied that the writ is appropriate under the circumstances.233

230 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015).

231 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 3.
232 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 3.

233 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 3,4.

66

First, the court found that there was no adequate way to review a denial of forum non
conveniens, since it is not immediately appealable nor is an interlocutory appeal
available.234

Second, the court found that there was clear abuse of discretion when the district court
failed to explain its decision without any visible weighing of the factors of forum non
conveniens.235 The court also found the district court reached a patently erroneous
result because it failed to enforce a valid forum selection clause. Although Pearl Seas
was not a signatory to the contract between Irving and LRNA, under the directbenefits
estoppel doctrine, Pearl Seas should have been held to the terms of the contract since it
embraced the contract, despite attempting to repudiate it during litigation. Pearl Seas
maintained that the forumselection clause in Lloyds Rules does not apply because it is
limited to disputes about the Services or the Contract where Contract is defined as
the contract for supply of the Services, and the Rules define Services as the services
provided by LR. Pearl Seas contended that because the services in dispute are provided
by LRNA and not by the British parent Lloyds Register, the Rules do not encompass
disputes arising from services provided by LRNA, which is instead part of the defined
term the LR Group. In any event, the court held that:

It appears, however, that LR sometimes uses LR to refer not just to the
British classification society but also to its foreign associates and
subsidiaries. For example, the same part of the Rules cited by Pearl Seas
also refers to Services offered by the LR Group, which included LRNA. It

234 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 4.
235 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 8.

67

seems that LRNAs intention in the language of these rules was not to limit
the forumselection clauses applicability to those lawsuits against LR and
not its subsidiaries. The same interchangeability can be seen in the forum
selection clause in the Classification Contract. It applies to disputes
between any member of the LR Group and the Client relating to the
Services provided by LR. If LRNA were not understood to be included
within LR, it is not evident why an LRNA contract would have a forum
selection clause about disputes between the client and a different entity.236

Pearl Seas also urged that direct benefits estoppel cannot apply because the LR Rules
and the contract between Irving and LRNA both disclaim liability to third parties and
enforceability by third parties. The court held that reciprocity and mutual enforceability
are not requirements for directbenefits estoppel and clarified that thirdparty
beneficiary and directbenefits estoppel are distinct doctrines: [t]hirdpartybeneficiary
doctrine looks at what the parties intended when they executed the contract, whereas
directbenefits estoppel looks at the actions of the parties after the contract was
executed.237

Pearl Seas finally averred that LRNA couldnt rely on direct benefits estoppel because
Pearl Seas alleged fraud, and this denies LRNA the benefit of equitable remedies.
However, absent any binding or persuasive authority, the court declined to render
direct benefits estoppel inoperative by stating that an allegation of a defendants
wrongdoing is sufficient to deny the application of these clauses.238

236 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 11.
237 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 12.
238 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 13.

68


Lastly, the court found that a writ of mandamus was appropriate under the
circumstances since granting a writ would have significance beyond the immediate
case. The court noted that there was an appeal pending from another case on the same
issue and that there was a likelihood of more such appeals being filed in light of the
Supreme Courts decision in Atlantic Marine239, which strengthened the enforcement of
forumselection clauses.240

Worth noting also the dissenting argument which states that the parties acknowledged
at oral argument that no cause of action exists in the English courts for a ship owner to
allege negligent misrepresentation against a classification society. Cf. Otto Candies,
L.L.C. v. Nippon Kaiji Kyokai Corp., 346 F.3d 530 (5th Cir. 2003) (permitting negligent
misrepresentation claims against classification societies)[t]hus, the majority opinion
effectively deprives Pearl Seas of any forum for its grievances against LRNA to be
heard.241

See also Vloeibare Pret Ltd v Lloyd's Register North America Inc242.

9. Review of secondary sources on the liability of classification societies.

Nineteen years have passed since the judgement in The Nicholas H. A common strand in
the literature dedicated to the subject of the last two decades is the persistence of

239 Atlantic Marine Construction Co Inc v United States District Court for the Western District of Texas No.

12929 ( S. Ct. 2013).

240 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 15.
241 In re: Lloyds Register North America Inc No. 1420554 (5th Cir. 2015) 17.

242 Vloeibare Pret Ltd v Lloyd's Register North America Inc No. 1420538 (5th Cir. 2015).

69

conflicting national case law resulting from an absence of internationally recognised

principles on class liability. Various authors including Lagoni 243 , Basedow &
Wurmnest244, Sheppard245, Clerk & Lindsell246, Charlesworth & Percy247, Bruyne248,
Begines249 to name just a few, seem to agree that, at least in the tort of negligence for
economic loss, common law courts are seen in general favourable towards class whilst
civil courts are not, especially where they lack previous exposure to shipping litigation.
Many third party claimants are purchasers from the secondhand ship market. It is not
easy to grasp what is the role of classification societies in their private capacity (and this
is a fault of their own making, ships are different is not good enough an explanation in
this day and age). They are more visible in their public function as recognised
organisations undertaking statutory inspections and certification on behalf of national
administrations. Most authors identify an upsurge in litigation aimed at classification
societies, with claims with claims running into billion dollars in The Prestige250 Spain
claimed US$1bn from ABS, and they all seem to agree that the upsurge is not a function
of serious shipping casualties and pollution, which are in decline, the most probable
cause being classification societies relative wealth in combination with their inability to
limit their liability where all the other potential defendants can invoke statutory
limitations. The majority is inclined towards an international convention on class
liability (suggesting the imposition of reasonable limits either by amending existing

243 N Lagoni, The Liability of Classification Societies (Springer 2007).

244 J Basedow, W Wurmnest, ThirdParty Liability of Classification Societies: A Comparative Perspective

(Springer 2005).

245 A MandarakaSheppard, Modern Maritime Law Volume 2 (3rd edn, Taylor & Francis 2013).

246 MA Jones, AM Dugdale, M Simpson, Clerk & Lindsell on Torts (21st ed, Sweet & Maxwell 2014).
247 C Walton, S Todd, P Kramer, D Edwards R Cooper (ed) Charlesworth & Percy on Negligence (13th edn,

Sweet & Maxwell 2014).

248 J de Bruyne, Liability of Classification Societies: Cases, Challenges and Future Perspectives (2014) 45 J

Mar L & Com 2.

249 JLP Begines, The EU Law on Classification Societies: Scope and Liability Issues (2005) 36 J Mar L &

Com 488.

250 Reino de Espana v The American Bureau of Shipping 1:03cv03573LTSRLE.

70

conventions or by adopting a new one) but there are authors advocating against
limitation for reasons ranging from to make classification societies more careful251 to
to prevent them from acting as mere administrators252.

251 E Chew, Classification Societies, Negligence Liability and Pure Economic Loss The Singapore Law

Gazette ( February 2010); and a rebuttal article by J Grimmer, K Abel (November 2011).

252 H Honka, The Classification System and its Problems, with Special Reference to the Liability of

Classification Societies (1994) 19 Tul Mar L J 1.

71

10. Conclusion


It is submitted that Lord Steyns leading judgement and Lord Lloyds dissenting opinion
in The Nicholas H remain a valid and true reflection of the a tension between the courts'
desire to uphold the right to sue in negligence and their anxiety to avoid the danger of
subverting, by use of such claims, schemes of rights and obligations agreed
contractually.253

While it is fair to assert that classification societies have a duty to take reasonable care
to avoid damaging another's property, it is propounded that there is no general duty
owed by the classification societies to cargo owners in negligence to prevent loss of
goods, as part of the principle that there is in general no liability for omissions, or put
another way, no positive duty to intervene to prevent physical loss.254

Classification Societies are not guarantors of safety of life or property at sea or the
seaworthiness of a vessel because they have no control over how a vessel is operated
and maintained in between the periodical surveys which it conducts.

Negligence is essentially concerned with a conflict of values within society and in order
to decide a question of negligence the judge must make a political and moral value
judgment in the context of social and economic forces prevalent at the time. In Lord
Steyns view tort is not underpinned by a single overarching rationale . . . it is a mosaic

253 Aikens LJ, R Lord, M Bools Bills of Lading (1st edn, Informa Law 2006) 9.6.
254 Aikens LJ, R Lord, M Bools Bills of Lading (1st edn, Informa Law 2006) 9.7.

72

of interwoven principles of corrective and distributive justice.255 Hence different

jurisdictions may produce different results using same principles of tort.

Predicting liability exposure in different jurisdictions in the tort of negligence for
physical loss remains a function of chaos theory more akin to weather forecasting.

Classification Societies live on their reputation and acceptance of their work can only be
maintained by continuously demonstrating integrity and competence. In a free market
environment every day a classification society does not earn its reputation anew by
serving clients and stakeholders with professionalism and integrity is a day it risks
losing its reputation. And, in a serviceoriented economy, losing reputation could
ultimately prove fatal to the organisation.

255 Lord Steyn Perspectives of Corrective and Distributive Justice in Tort Law (2002) John Maurice Kelly

Memorial Lecture 78.

73

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Appendix

Research Trail

The dissertation involved a discussion on the classification societies liability in tort for
negligence for economic loss following physical damage to the ship.

This topic has been chosen because of the high contrast between owners ability to limit
their liability under international conventions whilst the same it not available to the
classification societies, which leaves them exposed to the risk of unlimited liability. The
leading case in English law The Nicholas H is (in effect) an unlimited tortious claim in
respect of seaworthiness against a classification society. The crux of the matter is that
under international conventions shipowners are entitled to limit their liability by
reference to the tonnage of the vessel concerned, a benefit unavailable to a classification
society exposed to unlimited liability in tort.

There is also the disparity between rather modest fees charged by the classification
societies for their services and the exorbitant damages sought by claimants (eg. less
than USD10k against USD5.5mil sought by claimants in The Nicholas H, or more recently
less that USD100k contrast USD1bn sought by the Kingdom of Spain in damages in The
Prestige). The policy considerations and the varying approaches between common law
and civilian jurisdictions were also of great social and legal interest.

Remote access via internet to legal sources of information has been a major support in
preparation for this dissertation. The research was started at a basic level by reading

79

various textbooks and of particular interest and use are considered the electronic
textbooks available as part of the subscription on www.westlaw.co.uk and on www.i
law.com.

There are twentyeight titles included in the subscription on Westlaw.. As part of the
research five major textbooks have been frequently consulted: Benjamin's Sale of Goods
9th Ed; Chitty on Contracts 31st Ed; Clerk & Lindsell on Torts 21st Ed; Dicey, Morris &
Collins The Conflict of Laws 15th Ed; Redfern & Hunter: Law and Practice of
International Commercial Arbitration 5th Ed. This represents a utilisation rate of
approximately twenty percent of the Westlaw database of electronic textbooks.

On www.ilaw.com there are fortysix titles included in the subscription. For this
research a number of nine major textbooks have been frequently consulted: Bills of
Lading; Commodity Trade and Finance; Enforcement of Maritime Claims; Limitation of
Liability for Maritime Claims; Modern Maritime Law Volume 1: Jurisdiction and Risks;
Modern Maritime Law Volume 2: Managing Risks and Liabilities; Pollution at Sea; Ship
Sale and Purchase; The Law of Shipbuilding Contracts. This represents a utilization rate
of approximately twenty percent of the ILaw database of electronic textbooks.

Statory Instruments and Acts of Parliament were also available online but of limited use
for this particular research mainly aimed at tort law in negligence for physical damage.
C
ase law has been found on both westlaw and ilaw databases, with a preference for the
case analyses available on Westlaw. Ilaw has been found more useful for the additional

80

information available via access to the Lloyd's Maritime and Commercial Law Quarterly
electronic publication.

International case law and journal articles, particularly from US, have been found with
relative ease on Heinonline.

81