Liabilities of Classification Societies to Shipowners – The Hanna D, by John A. Economides*
In surveying vessels and certifying their safety and seaworthiness classification societies are perceived to work more for regulators, registries, port authorities, insurers and other third parties than for the shipowners who actually commission them. They are perceived more so since the early ’90s when they commenced to establish and maintain technical standards for the construction and operation of ships and offshore structures, to validate that construction is according to these standards and to carry out regular surveys in service to ensure compliance with the standards. At the same time classification societies take care to undertake no explicit responsibility for the safety, fitness for purpose or seaworthiness of the ships they certify.
Claimants have been generally unsuccessful in their claims against classification societies for liabilities arising from alleged negligent or faulty survey and classification of ships. The main conditions for establishing a claim on such grounds (in tort) are, a duty to conform to a standard of conduct, a breach of that duty, causation, foreseeability and damages (economic loss). However the standards to prove these conditions to the satisfaction of Courts are usually high and this is why in most cases claimants have found it difficult to fulfill them against classification societies.
Such were the cases of the Tradeways II in the U.S. (1973) brought by insurers against BV which failed on causation, of the Morning Watch in England (1990) brought by the ship’s purchaser against LR which failed on foreseability, causation and breach of duty, of the Nicholas H alsoin England (1995) brought by cargo interests against NKK which failed on causation and breach of duty, of the Marika in the U.S. (1996) brought by crew relatives against ABS which failed on jurisdiction and of the Star of Alexandria in the U.S. (2000) brought by charterers against BV which failed on causation. Nevertheless in the more recent case of the Redwood in Italy (2010) the time charterers were successful against LR.
More rare and unsuccessful in their claims against classification societies have been the shipowners themselves. The leading case here was the Sundancer in the United States (1993) brought by the shipowners against ABS. Interestingly in that case the classification society was released mainly on the grounds that the shipowner’s duty to furnish a seaworthy vessel is non-delegable.
Nevertheless in the more recent case of the Hanna D in Greece (2011) – in which I had the honor to represent the plaintiffs – the shipowners were successful against GL. In this case:
The Piraeus First Instance Court accepted as competent jurisdiction and applicable law those of the place of the damaging act (place of survey) or of the damaging effect (place of shipowner’s business) therefore Greek law. The First Instance Court also accepted the main points of law of the claim, specifically that the provision of classification survey and certification services should conform with statutory and legal responsibilities like the classification Rules, IACS Unified Requirements (standards), Greek law principles of good faith and technical practice as well as relevant duties of care and diligence in the rendering of such services. The court accepted further that breach of these responsibilities and duties draws corresponding liabilities for the class which are extra contractual and (depending on the circumstances) in tort. The same Court nevertheless rejected the technical points of fact of the claim against which the defendants argued specifically that causality of damage was due to overpressure of the vessel’s hold during loading rather than poor condition (extensive wear and corrosion) of the lower bulkhead plating which the class should have surveyed and mandated its immediate repair, as the plaintiffs maintained (PFIC Dec. 826/2006).
The Piraeus Court of Appeal ordered technical expertise (PCA Dec. 976/2007) which found that the damage was due to poor condition (extensive wear and corrosion) of lower bulkhead plating which the class should have surveyed and mandated immediate repair and thus concurred with the plaintiffs. After adjudication and with the benefit of that technical expertise the Piraeus Court of Appeal reversed the findings of the First Instance Court on the technical aspects (causality) and upheld claim of the plaintiffs and so after confirming the first instance reasoning on Greek competent jurisdiction and applicable law and the main points of law (wrongdoing in tort), awarded to the shipowners compensation for actual and prospective damages (loss of profit) by the classification society (PCA Dec. 89/2011).
The Supreme Court rejected bilateral appeals of the parties against the Appeal Court decision on points of law (recovery of running costs by the plaintiffs – causation, contribution and specification of economic loss by the defendants) and so rendered the decision irrevocable (SC Decs. 1802 & 1804/2013).
In recognizing the shipowner’s right of recourse to the classification society for damages sustained, the decision acknowledges indirectly that the class’ duty for proper and diligent survey and certification is legal and independent of the (non delegable) own responsibility of the shipowner to maintain his vessel safe and seaworthy.
Finally in awarding damages for loss of profit (from charter earnings lost due to immobilization) the Court acknowledges that the class contribution to the vessels effective technical safety extends also to her efficient economic (commercial) operation.
To the extent therefore that this decision acknowledges judicially the liability of classification societies towards the shipowners on performance, the case of Hanna D restores balance and equity in that relation (and in that between operation and regulation) especially where it appears to have been upset i.e. since the classification societies in addition to their traditional role of survey and certification assumed also the role of the establishment (and enforcement) of technical and operational standards.
John A. Economides is a lawyer in Greece – partner in the firm Aristides Economides & Co in Athens.