Ship surveyor not liable to cargo owner

LAW REPORT v 18 August 1995

Marc Rich & Co AG and others v Bishop Rock Marine Co Ltd and others (The Nicholas H); House of Lords (Lord Keith of Kinkel, Lord Jauncey of Tullichettle, Lord Browne-Wilkinson, Lord Lloyd of Berwick and Lord Steyn) 6 July 1995

A marine classification society, when surveying a ship and pronouncing it seaworthy, owed no duty of care to the owner of cargo on board that ship and was not liable to the cargo owner for losses incurred when the ship sank.

The House of Lords by a majority (Lord Lloyd dissenting) dismissed an appeal by the plaintiff cargo owners, Marc Rich & Co AG, V/O Raznoimport, VPO Sojuzpolimetall and Pertusola Sud, and affirmed the decision of the Court of Appeal ([1994] 1 WLR 1071), which allowed an appeal by the third defendant marine classification society, Nippon Kaiji Kyokai (NKK), against the preliminary ruling of Mr Justice Hirst ([1992] 2 Lloyd's Rep 481).

The judge had ruled that NKK owed a duty of care to the cargo owners when surveying a ship, the Nicholas H, owned by the first defendants, Bishop Rock Marine Co Ltd, and chartered by the second defendants, Bethmarine Co Ltd, for a voyage from Peru and Chile to Italy and the Soviet Union. The ship was pronounced seaworthy by one of NKK's surveyors, after a crack in its hull had been temporarily repaired while at anchor off the US coast, but it later sank, on 9 March 1986, with a total loss of the plaintiffs' cargo worth more than US$6m. The plaintiffs' claims against the ship owners and charterers were respectively settled or abandoned.

Peter Gross QC and Andrew Baker (Lovell White Durrant) for the cargo owners; Richard Aikens QC, Jonathan Harvie QC and David Edwards (Nabarro Nathanson) for NKK.

Lord Steyn said that in England no classification society, engaged by ship owners to perform a survey, had ever been held liable to cargo owners on the ground of careless conduct of a survey.

NKK, founded in 1899 and headquartered in Tokyo, was the third largest classification society in the world, a non- governmental and non-profit-making entity whose purposes included "the improvement and development of various matters relating to ships . . . so as to safeguard the safety of life and property at sea".

To determine whether a defendant owed a duty of care, it was now settled law that the elements of foreseeability and proximity as well as considerations of fairness, justice and reasonableness were relevant to all cases whatever the nature of the harm sustained by the plaintiff: see Dorset Yacht Co Ltd v Home Office [1970] AC 1004 at 1077D-E. The three requirements for a duty of care were not to be treated as wholly separate and distinct requirements but rather as con- venient and helpful approaches to the pragmatic question whether a duty should be imposed in the circumstances of any given case.

Here, the ship owners were primarily responsible for the vessel sailing in a seaworthy condition. The role of NKK was subsidiary. The NKK surveyor's carelessness did not involve the direct infliction of physical damage in the relevant sense.

There was no contract between the cargo owners and NKK. The cargo owners simply relied on the ship owners to keep the vessel seaworthy and look after the cargo. The dealings between ship owners and cargo owners were based on the bill of lading contracts, incorporating the Hague Rules (as scheduled to the Carriage of Goods by Sea Act 1971) and tonnage limitation, on which the insurance of international trade depended.

If a duty of care by classification societies to cargo owners was recognised it must have a substantial impact on international trade. The international trade system tended to militate against the recognition of such a claim. In all the circumstances, the recognition of such a duty would be unfair, unjust and unreasonable as against both ship owners and classification societies.

As for cargo owners, the existing system provided them with the protection of the Hague or Hague-Visby Rules. That protection was limited by those rules and by tonnage limitation provisions but any shortfall was readily insurable. The lesser injustice was done by not recognising any duty of care to them.

Lord Lloyd, dissenting, said the overriding consideration in this case was that the cargo owners had suffered physical damage to their cargo and such damage was caused by NKK's surveyor for which NKK was responsible on ordinary principles.

Paul Magrath, Barrister