Thursday, 10 July 2014

THE REDWOOD: Rough Sea for the Classification Societies Even Before Italian Court

July 11, 2013.

Soc. Argos Shipping Agency   C.  Lloyd's Register of Shipping - Tribunale di Genova 24/02/2010 

Classification of vessels has a huge impact on the choice of the operators which rely upon the credit of such Societies in running their business. The Italian Court has recently held that a classification society may be liable in tort, namely responsabilità aquiliana  – ie under article 2043 Italian civil code – for erroneous valuation of the vessel.


THE BACKGROUND FACTS

Under a contract dated 14 March 2003 the company Argos Shipping Agency S.r.l. incorporated in Italy (the plaintiff) time chartered the vessel REDWOOD registered under the Maltese flag, for the carriage of dried milk from Hamburg to Libya. The vessel, according with the certificate LR 100 A1 issued in Kandla (India) on 15 November 2001 was in the highest classification rendered by Lloyd’s Register.

On 18 January 2003 the REDWOOD berthed in Hamburg, although the Port Authority detained the vessel as considered it to be unseaworthy. Therefore, the plaintiff unloaded the cargo already loaded and eventually chartered another vessel so as to complete the voyage.

The Maltese Maritime Authority, after had carried inspections on board, suspended the vessel certificate arguing that not only the inspection made three months before was to be considered invalid, but also that such deficiencies existed in India when the certificate was issued.


THE CLAIM 

The plaintiff brought an action in tort before the Genoa Court against Lloyd’s register asserting compensatory damages accounting for 562.324,27 Euro including freight for chartering the other vessel, unloading expenditure and other disbursement.

By contrast, Lloyd’s Register (the defendant) contended that the shipowner and not the register should be held liable vis-à-vis the charterer for the unseaworthiness of the REDWOOD and therefore he should bear such compensatory damages. In fact, neither after the inspection in Vlissingen on 15 October 2002 nor after the one in Lisboan, the vessel resulted to be defective whatsoever. Therefore, as there are no evidences that the vessel was defective in India, when the certificate was issued, the deficiencies have to be attributable to the negligence of the shipowner or their servants.  


THE JUDGMENT 

The preliminary issues

No preliminary issues arose in this case as to the competence of the Italian court. In fact, according with art. 5(3) of Council Regulation no 44/2001 “A person domiciled in a Member State may, in another Member State, be sued: in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur.  In this case the event, that is the monetary damage bear by the charterer, occurred in Italy (Argos s.r.l. is a company incorporated under italian law).

Expert Appraisals 

The relevant issue in the dispute, in which the charter and the Register are involved, concerns ultimately the follow question: was the vessel, when the certificate was released, in poor condition so that the certificate should not have been rendered?
The first appraisal over the condition of the vessel provided that:
- On November 2001 the REDWOOD was not in good condition as to their structures.
- The Lloyd’s register surveyors discovered such conditions being on board of the vessel so as to decide whether or not the renewal should be issued.
- However, the corrosion of the structure was held to be acceptable and the higher-class certificate was rightly confirmed.
The second appraisal instead went in the opposite direction. The Eng. Martinoli stated that: After the analysis  “ex post” made upon the condition of the REDWOOD, it is clear that the amount of deficiencies and deterioration of the structure of the vessel was such that they should exist even on November 2001.  In other words, Eng. Martinoli showed in systematic way that the defects observed during the inspection in Hamburg could not be inexistent 15 months before. Therefore, if the Register had applied the due diligence, it would have discovered the deficiencies and it would not have been renewed the class certificate.
Furthermore, both the first and the second appraisal assert that the vessel was in poor condition at the time of the intermediate class inspections occurred between 2001 and 2003.
The second appraisal was held to be more appropriate in the light either of the different methodological approach used (i.e. ex post) or the uncertainty and gaps occurred in the first appraisal. The decision therefore, is based on the second appraisal.

Decision 

The Italian Court first analysed the nature of the classification societies denying that they can play merely a private role in the shipping industry. Indeed they are not government agencies, however a “semi-public” nature can be recognised by the fact they enjoy a massive reputation among maritime operators who rely upon their certifications when making commercial decisions. The certificate not only reflects the private interest of the shipowner but also becomes a characteristic of the vessel, which immediately and universally confirms to third parties that such vessel is reliable. Furthermore, such societies are delegated to issue certificates in accordance with international maritime convention on behalf of the State – for instance certificates for the safety of lives at sea.
Then, J. Braccialini in the wake of the French and German Judgments suggested a possible contractual relationship between the classification societies and the users. In fact, he compared the role and responsibilities of classification societies with those of auditors and hazarded a “grey zone” between liability in contract and tort. Furthermore, a contractual relationship of the register descends from the so-called “Social Contract”, that is whenever the register fails to comply with the rules of law without a proper contract being in force among the parties.
However, the idea of the liability in contract of the Lloyd’s Register was not considered further before this court as the claim addressed by the plaintiff was exclusively based on tort.
The vessel should not have been accorded the highest classification; nor should it have been granted a clean class certificate, valid for the purpose of the International convention for the Safety at Sea (SOLAS) and in accordance with the rules of Lloyd’s register and internal Guideline 3 of the International association of Classification Society.
The highest classification obtained by REDWOOD indeed played a fundamental role in chartering that vessel in so far every operator would have relied on a Lloyd’s Register classification. The wrongful classification caused an erroneous valuation on the vessel by the charterer. If the register had properly inspected the vessel, the class would not have been issued and Argos would have never chartered the vessel.  Register’s conduct was unlawful as well as inconsistent with the law concerning the class verification. For that reason, the Register is to be considered in breach of art 2043. Cod. civ. and then liable in tort. The plaintiff application as to compensatory damages was therefore sustained.


COMMENT 

The Italian Court has done a crucial step in considering the liability of classification societies following, at least in first instance, the decisions of the Criminal Section of the Court of Cassation in respect of The Erika accident. In fact, in 2012 the French Supreme Court  - as stated by the Court of Appeal of Versailles as to The Elodie II nearly a couple of decades before - affirmed the civil liability for the Italian classification society RINA for conferring classification to a vessel well beyond the level of corrosion. Those decisions depart by now from the English Court position, which once again in The Nicholas H refused to recognize any duty of care for the classification societies. Accordingly, The House of Lord stated that: “ The classification society acted in the public interest; they fulfilled a role which in their absence would be fulfilled by states, and if they became the alternative target of cargo-owners they might adopt a more defensive position” and “The Recognition of a duty of care 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” [emphasis added]. Whether or not Italy will continue to follow the French position is for the Italian Court of Appeal to decide.

By Lorenzo Macchi













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